For a change, we are going to share some views and ideas relating to investments.

Since the nineties, investments throughout the world has become more and more volatile. The plethora of new investment products has caused the environment to be more complex and less predictable. Investment scams are aplenty and coupled with the excessive noise in the market, investors may become apprehensive and unsure what and when to invest. It is in times like this that we should fall back on basics to guide us through this rough and uncertain waters.

We will start off with the first D:

Diversification – Many investors would be familiar with this first “D”. This is basically the principle of never putting all your eggs in one basket. Even more importantly, different sectors perform differently in different markets. For example, in the current oil price depressed market, sectors relating to oil and gas will not perform well whereas manufacturing sectors may do better due to cost savings.

One of the concepts to diversify is by considering core and satellite investments. This will allow an investor to focus on primary investments which is usually less risky while not sacrificing the opportunity for higher return through a riskier satellite investment. The combined returns of this investment concept usually outperform a single block of investments. For better understanding, consult your financial adviser or investment coach to design or customise a portfolio that will meet your investment appetite.

Continuing from the last article on diversification, other types of investments can include properties, gold, collectibles and forex trading. These investments would usually involve large outlays and higher risks. It is best to consult professionals before investing.

Discipline is the 2nd “D” to achieve a sound investment programme. While investments may be for the short or medium term, investing for retirement, children’s education or wealth accumulation are generally long term, thus needing discipline to ensure success. Investing is not about going after the highest return. It is more about sticking to a worthwhile goal and attaining reasonable returns.

Investments may not achieve the desired results when investors keep going after high returns without considering the risks and cost of switching. The wise adage “rolling stones gather no moss”, is good advice as such investments may end up losing in the long run. As long as the risks and returns are reasonable to attain the desired outcome, discipline is the key component that will keep the investors on track.

No financial plan can achieve success without discipline. Long term investments require persistence and patience to produce good results. A regular contribution to investment is a disciplined way of investing which takes advantage of the concept of “Dollar Cost Averaging”. By setting aside an amount of money regularly, investment becomes more manageable and the risk is reduced.

The final “D” is Deadline. No goal setting will be complete without a deadline. As all investment plans should have an end goal, deadlines are necessary. Deadlines give a sense of purpose to the investment.

You can set different deadlines for different types of goals. Children’s education funds would have pre-determined deadlines as it is age sensitive. Retirement planning on the other hand has a more flexible deadline. Most people do not retire at 55 but in fact may delay to 65 or more depending on their career or profession.

The choice of investments and the timing of switching is dependent on the objectives and the deadlines. Where the investment period is longer, riskier investments with potential high returns may be considered. In contrast, a shorter term investment may suffer adverse returns without opportunity to recover if riskier investments are employed.

Deadlines also ensure when the target is reached, you should exit the investment. Maintaining the investments beyond the deadline may result in losses should the investment turn south.