You may have heard this scenario before: a friend or acquaintance takes a long break from investing to attend to personal or family matters.
The list of reasons is long, ranging from major life events such as marriage, furthering your studies, buying a house, or starting a family.
But what if you have to start investing again after a pause?
Here’s the truth: it’s not as simple as picking up where you left off.
Over time, circumstances have changed—both in the business world and in your personal life.
Before diving back into the stock market, consider these key factors.
Resetting your expectations
Financial planners always stress the importance of considering major life events when determining your insurance needs.
The same principle applies to investing.
Your life goals may have changed since you last invested.
Some of you may have paused investing to focus on preparing for marriage or buying a home.
Or maybe a demanding job with frequent travel left you with little time to manage your investments.
Given these shifts in your family and financial circumstances, it’s crucial to pause and reflect: what are your investment objectives now?
Previously, as a single person, you may have aimed for higher growth with riskier stocks.
Now, with marriage, your investment strategy might lean towards more stable stocks that offer less volatility, considering both your family’s needs.
Adding a child to the equation shifts priorities once more.
You might prioritise dividend-paying stocks to secure a steady income stream.
Large purchases such as a home or car can also impact your investment capacity, especially with new financial obligations like mortgages or car loans.
In such cases, sticking with stable, blue-chip stocks might be prudent.
At each major life stage, it’s essential to reassess your goals and redefine your investment strategy accordingly.
This approach ensures your portfolio aligns with your objectives while managing risk effectively.
Reviewing your investment options
Once you’ve realigned your expectations and set your investment goals, the next step is to evaluate your investment options.
The types of stocks you consider investing in may be quite different from what you were used to before your break.
For instance, you might have previously experimented with high-risk growth stocks out of a desire for quick returns.
Now, with greater financial responsibilities including a family to support, your investment approach should evolve accordingly.
If stability is your priority, you might find comfort in established Singapore blue-chip stocks like OCBC Ltd (SGX: O39), Keppel Ltd (SGX: BN4), or DBS Group (SGX: D05).
These stocks can form the foundation of your revised investment portfolio.
Additionally, consider reliable dividend-paying stocks such as REITs and established dividend performers.
Examples of resilient REITs include Parkway Life REIT (SGX: C2PU) and CapitaLand Integrated Commercial Trust (SGX: C38U).
Companies like Haw Par Corporation (SGX: H02) and Boustead Singapore (SGX: F9D) are known for consistently paying and growing their dividends.
For growth potential, you may want to include stocks from leading US technology firms like Apple (NASDAQ: AAPL) or Alphabet (NASDAQ: GOOGL).
If you’re comfortable with higher risk, you could also explore speculative stocks that might present turnaround opportunities.
For this category of stocks, remember to size such positions smaller to ensure that you limit your risk exposure.
The key is to thoroughly assess each investment choice to ensure it aligns with your current circumstances and financial goals.
Re-assessing the investment landscape
Another important consideration is that the investment landscape may have changed significantly since you last actively invested.
For example, S-Chips or Singapore-listed Chinese companies were highly popular in 2004 but lost favour by 2010 following several scandals.
More recently, REITs took it on the chin as rising interest rates and inflationary pressures led to decreased valuations across the sector.
Additionally, the rise of artificial intelligence (AI) has driven stocks like Apple and Nvidia (NASDAQ: NVDA) to record highs.
As the business dynamics evolve, it’s essential to stay informed about emerging trends and the performance of different sectors.
In essence, before committing any funds, it’s crucial to update yourself on the current status of the stocks you intend to invest in.
This process ensures you are aware of potential risks and can adapt to changes in market trends that may have rendered previously popular investments less viable.
Such awareness also enhances your ability to identify promising investment opportunities more effectively.
By understanding which stocks or sectors to steer clear of, you can better focus your efforts on those that offer greater potential, thereby optimising your investment strategy.
Retaining sufficient liquidity
As you reacquaint yourself with the new investment landscape, it’s natural to make some investment errors along the way.
Therefore, it’s crucial not to rush and invest all your cash hastily.
As you slowly plough cash back into the market, assess your decisions and tweak your process along the way.
Starting with smaller amounts can help mitigate the impact of any mistakes you might make.
Think of it as a necessary warm-up akin to playing a game of tennis or squash – jumping straight onto the court without a proper warm-up will almost certainly guarantee you an injury.
Similarly, jumping headfirst into the stock market without adequate preparation is going to harm your financial health.
As you gain experience and confidence, you can gradually increase the amount you invest.
However, always prioritise maintaining sufficient liquidity for emergencies.
Financial experts typically recommend having a buffer of six to 12 months’ worth of expenses to cover unexpected job losses or financial crises.
This reserve of liquid funds can also be advantageous during market downturns when opportunities to buy may arise.
Get Smart: Prepare yourself before diving in
Taking a break from investing to focus on personal matters or major life events is perfectly normal.
The key is learning how to navigate the stock market effectively when you decide to re-enter.
Instead of plunging into unfamiliar territory, take the time to assess your needs, goals, and motivations.
Arm yourself with knowledge by staying informed about current trends and developments.
Only after thorough preparation should you begin investing again.
Start cautiously to learn from any missteps and avoid overextending yourself.
Understand that making mistakes along the way is par for the course, so do not be too hard on yourself.
As you build confidence and experience, gradually increase your investment while maintaining a safety net for unexpected expenses.
Note: An earlier version of this article appeared in The Business Times.
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Disclosure: Royston Yang owns shares of DBS Group, Boustead Singapore, Apple and Alphabet.
