Here’s Why You Need to Improve Your Financial Literacy in Singapore Now
Every investor’s objective is to maximise returns while controlling the level of risk. In a buoyant market, this is easy to do. Consider the appreciation in share prices on the Singapore stock exchange in the recent past. The MSCI Singapore Free Index, which measures the performance of the large and mid cap segments in the Singapore market, gained nearly 15% over the past one year.
But the stock market does not always provide steady returns. There may be long periods when share prices remain stagnant. In the 12-month period between January 2013 and December 2013, the SIMSCI gained just 1.5%. An investor would not have made any returns during this one year.
Every investment that offers the possibility of capital appreciation is subject to a certain degree of risk and losing a part of your capital is one of the risks that you expose yourself to.
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What is the way out? How can you protect yourself from the risks that certain types of investments carry.
Fortunately, there is a simple method to do this. You need to diversify your portfolio. Instead of deploying all your capital into a single investment category, it is advisable to spread it out.
Losses in one category may be offset by gains in another. A balanced portfolio will reduce the level of risk that you are exposed to.
However, after taking this step, you may need to also take an exposure to certain investments that offer high returns. Forex trading, stock index futures, and commodity trading provide an opportunity to leverage your capital and may potentially increase the amount that you can earn.
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Of course, these investments carry a high degree of risk and you should deploy a portion of your investible capital that you are comfortable with losing.
There is one additional precaution that you must take. While forex trading, stock index futures, and commodity trading can boost your returns significantly, it is inadvisable to put your money into them without understanding how they work.
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The value of a currency of one country relative to the currency of another is constantly changing. An investor can take advantage of this movement to make a quick profit. For example, you may think that the USD is overvalued and that it will depreciate against the Euro.
You could buy the EUR/USD and when the Euro increases in value relative to the USD, you could close the trade at a profit. Of course, if the USD appreciates instead, you would lose money.
Thousands of individual investors in Singapore speculate in the forex markets. It is possible to make a high return as your broker would provide you with the opportunity to leverage your investment. A leverage ratio of 50:1 is common. By investing just S$10,000, you could take a position worth 50 times as much. If you make a profit, your gains would be multiplied fifty-fold.
If you are just starting out in forex trading, it is a good idea to attend a seminar to gain some basic knowledge. A professional trader will teach you how the forex market works and answer your questions.
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Stock index futures
An index future represents the performance of its underlying stock market index. You can make large gains as you can buy a stock index futures contract by putting up a relatively small margin.
Stock index futures serve another very useful purpose. If you think that the market is going to fall, you can sell stock index futures. Doing this provides you with a form of “insurance.”
But how exactly do stock index futures work and what are the risks involved? It would be imprudent to invest without familiarising yourself with the basic concepts and terminology of this form of investment.
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Commodities futures trading
Investing in commodities futures is a good way to diversify your risks. When you buy a commodities futures contract, you are essentially entering into an agreement to buy/sell a certain commodity at a pre-determined price on a fixed date in the future.
What are the types of commodities that you can trade in? The list includes precious metals like gold and silver and agricultural products like soybeans, rubber and sugar. With the high degree of leverage that is available, you can earn large profits. But the risks are equally high.
If prices move in the opposite direction, your trade may result in a large loss.
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Do your homework before committing your funds
It is important to understand how each financial product works. Don’t deploy your funds without first getting an idea about the risks involved.
While it is possible to educate yourself by referring to websites that offer financial advice, attending a seminar may be a better option. A live event will offer you the opportunity to interact with other investors. You will also benefit from the ability to ask questions to experts.
Another significant advantage of a financial seminar is that your co-attendees will have questions about the financial product that is being discussed. These queries may not have occurred to you, but your presence at the seminar will help you to understand the subject better.
Get the latest insights at the FOMC Meeting – How It Impacts Your Trading webinar on Oct 25, proudly hosted by CME Group and Phillip Futures.
And be on your way to improving your financial literacy and your investment knowledge now.