Managing your portfolio is hard enough in the world of finance. There are so many stocks, ETFs, and indexes that it can be tough to know what you’re doing.
Not only this, but when you don’t have a proper understanding of investing, it’s better not to bother with individual stock picking in most cases. Instead, it might be worth looking into managed portfolios if you invest in Singapore.
Let’s discuss the benefits of managed portfolios compared to individual stock picking in Singapore.
Individual stock picking involves choosing which shares to buy based on fundamental research about their value as an investment. Whether or not this is a good idea in practice, it can be challenging to do well, and it requires a lot of time and effort from the investor.
Managed portfolios take out all of this work by choosing which companies you will buy into based on their weighting in an index. An index comprises stocks meant to represent a particular sector or industry.
For example, one might invest in the Straits Times Index, mainly of Singaporean companies weighted according to market capitalization ( i.e., they’re worth). By investing in many different stocks at once, you can reduce risk compared to putting your money into just one stock position – but remember, there’s no such thing as a free lunch.
If you’re going to invest in individual stocks, you must do your homework about the company and industry. It can be a very time-consuming process and might require a lot of research into each potential investment, including reading their financial statements, calculating their Price / Earnings ratio, looking at insider trading, or studying past stock price performance.
If all this sounds like too much work for one person, why not let experts handle it for you?
Managed portfolios will often contain stocks selected by investors with expertise in the areas they focus on – these experts might know things about companies and industries that an individual investor would not.
For example, a managed portfolio focused on the oil industry might comprise individual stocks picked by an analyst with extensive experience in this area. In contrast, individual investors might not have the same knowledge about oil companies, meaning they are less likely to pick winners.
Investing in individual stocks means you’ll usually need to pay commission fees every time you buy or sell them. If you’re investing in ETFs or LICs, there will also be management expenses because your money is being invested across many different positions rather than just one stock. If you have a large amount of capital to invest, these fees can add up very quickly. They tend to be even higher if you’re trading online.
By contrast, managed portfolios usually have relatively low management fees. As they’re only investing your money across a small number of positions, the investment managers can afford to provide their services for less. Commission fees might still apply when buying and selling shares, but these are often much lower than those incurred by individual stock pickers and are paired with a savings plan.
If you want to invest in the stock market, likely, you haven’t got very much experience or knowledge about how it works. A unique stock picker needs to know how to judge whether one company’s stocks are likely to go up or down compared to another, which can be difficult for someone without extensive experience. While this means there might be room for growth here, you’d probably be better off choosing a managed portfolio rather than trying your hand at individual stock picking.
Meanwhile, managed portfolios will often decide what companies they invest in based on research carried out by their managers. So the investor doesn’t need to know the market at all.
If you’re new to investing, choosing a managed portfolio might be your best option, even if you know the stock market. It will level the playing field between people who know tiny and experienced investors!