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TALKING POINTS

A Shortcut to Investing for Young Professionals

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Investing can feel intimidating, especially if you’re a young professional who is just starting out in your career. First of all, there is a lot of jargon to learn, and then there are many decisions to make, with even more questions to ask: how much money do you need? What should you invest in? When is a good time to start?
To answer some of these common questions, we talk to Senior Investment Strategist and Head – Asia Business Development, Equities of AllianceBernstein, David Wong, to get you started on your path to financial security.

I only have a small budget – how much money do I need to start investing?
Let’s get this straight: you don’t have to be the Wolf of Wall Street to begin investing. “There’s almost no amount that’s too small,” says Wong. “If you can scrape together HK$10,000, then it’s already a good starting point.”

In fact, it’s better to get started today with a small amount, than to start 10 years from now with a larger sum. This is due to compounding, which means your assets are able to generate earnings for reinvestment over time. In other words, the sooner you start, the more money you’re likely to gain in the long run. “As a younger person, time is on your side, so I really encourage you not to hesitate and just get started,” says Wong.
Okay, I’ve set aside some money for investment. But what should I invest in?
Yes, it can be a little overwhelming. From bonds and stocks to real estate and other commodities such as gold, there are lots of assets you can invest in. But if you don’t have a big budget, it’s probably best to start with equities – aka stocks. “Bonds are low risk, low return, while cash doesn’t compound at all,” Wong explains. “Equities, on the other hand, has the potential to provide long-term outcome – historically, developed market equities have delivered around 8% to 10% insurance over longer periods of time.”
Not all businesses or markets are made equal, though. Some companies are just more stable and trusted than others. These are often large companies that are able to deliver steady earnings over time, as compared with cyclical companies that may “have a fantastic year, followed by a lousy year, which leads to volatility”, says Wong. And while emerging markets like Asia “have had some good years”, Wong believes that the US equity market tends to offer higher returns in the long run, thanks to the number of high-quality growth companies in this market.

Aren’t stock markets very unstable? I’m afraid to lose money.
Well, yes and no. While equities can be volatile in the short term, you shouldn’t worry about losing money if you have a long time horizon. “If you look at the last 100 years of stock market history, you’ll discover that over any 15-year timeframe, including the global financial crisis, the Great Depression and this present cycle, you’ve almost never ever lost money,” says Wong. That said, you still need the right risk management strategy to protect yourself from unforeseeable downturns. An investment portfolio that balances risk and return might be something worth considering.

Okay, how do I build a balanced investment portfolio, then?
“The rule of thumb is to take 110 minus your age as your equity allocation,” answers Wong. For example, if you’re 25 years old, then you should have 85% of your money invested in stocks, and the rest in low-risk assets such as bonds to diversify your investment. Similarly, when you’re picking stocks, you don’t want to put all of your eggs into just one basket.

One strategy is to invest in a variety of sectors, which is particularly important during uncertain times. “The recent COVID-19 crisis, for instance, has massively affected restaurants, hotels and airlines; but many sizeable tech companies like Amazon and Google have been fine,” says Wong. So investing in different sectors and businesses can significantly lower your risk when unpredictable events happen.

Another thing to consider is the different global markets. “You should allocate your equity capital in a way that is proportional to how global markets are set up,” Wong advises. “The US is more than half of all of the world's equity capital, so you can consider letting it make up more than half of your equity allocation.”  

So, I’m investing in a variety of stocks and other assets. When’s the best time to sell?
“A very basic principle of investing is to buy low and to sell high,” says Wong. “But I think an even better principle is to buy low and not sell, as interrupting the process of compounding can result in lower returns.” So, unless you feel there is something wrong with the companies that you’ve selected, don’t worry about short-term movements in the markets. Instead, be patient and stay invested – the future you will thank you.

Keen to invest? Don’t forget that all investments involve risks, so get some more detailed advice before investing.

Some say the best investment you can make is in yourself – learn how to develop your AQ, EQ and CQ for career success, here.
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