October is a scary month for investors.
It’s not only children who scream and run away from scary monsters during Halloween. Some investors do it too— driven by a fear that horror market crashes of the past will return to haunt their portfolios they flee the stock market. They call it the ‘October effect’.
As the legend goes, October is a bad omen for stocks. Many of the Wall Street’s major crashes happened in October—the panic of 1907, the crash of 1929, and ‘Black Monday’ in 1987. The more recent stock market crash of 2008 almost qualified, happening right at the end of September.
The good news is, the data shows otherwise—October is far from being the worst month. Using the S&P500 Index’s monthly return as our benchmark (since the legend does come from Wall Street), October returned an average of 0.90% from January 1950 to April 2017. This was higher than five other months. The worst month was in fact September, with an average return of -0.50%.
So, rest assured—there is little to fear from this mere superstition.
But that doesn’t change the fact that other investment horror stories still exist. A number of common scenarios can terrorise your investment portfolio. We’re talking about investment mistakes: things investors do without even realising the damage they’re causing. Despite their dire consequences, once you know what the mistakes are, avoiding them is far easier than making the perfect Halloween outfit.
Here are four classic investment horror stories—and what you can do to prevent them.
Horror Story #1: Your returns are devoured by transaction costs
Beware of the bite of transaction costs. They can eat into your returns until there’s nothing left. Lurking beneath the surface is also switching costs. They can hit even the most conservative of investors. For instance, if you invest in a product with long tenor lock-ins, you will not be able to pivot according to changing market conditions, unless you pay an early exit penalty fee. And if the investment buy-ins were very high to begin with— the switching costs will be far more painful than any transaction costs.
That’s why at LU Global, you don’t need 6-digit buy-ins. The minimum investment buy-in is as low as US$100 for flexible term products and US$5,000 for fixed term products, some of which are alternative investment products. The best part is there’s no upfront scare – all of our fixed term products have zero subscription fees.
Horror Story #2: The strange case of the paralysed portfolio
Every investor knows that they should diversify. So why don’t more of them do it? According to a whitepaper by our parent company Lufax, most investors are still not sufficiently diversified.
Perhaps one reason investors don’t diversify enough is simply because they can’t. If you are locked into investment products with long-term tenors (3- or 5-year lock-ins are not uncommon in the investment world) then diversification becomes nice in theory, but almost impossible in practice.
The solution is obvious—don’t let long lock-in periods paralyse your portfolio. At LU Global, you remain in control as your investments are not locked in long-term. Our investment tenors range from 3 to 12 months so you can have a portfolio that’s diversified, not paralysed.
Horror Story #3: Investment zombies and the FOMO infection
There’s an uncanny resemblance between the zombies we see in movies and some groups of investors. Movie zombies are a mindless crowd capable of only moving in the direction of warm living flesh. Similarly, investment zombies, are a mindless crowd capable of only moving in the direction of increasing prices. Notable strange behaviours of investment zombies include buying high and selling low.
The irony is, while we’ve all heard the advice to buy low and sell high, many investors do the very opposite. Why? The answer comes down to psychology. They hear about some ‘hot stock’ on the news and are soon infected by FOMO (the fear of missing out). They jump into said stock, not realising that by this time it has already peaked. Once it starts falling, they panic and sell. And that’s when the horror story begins.
The antidote for fighting the FOMO infection is to understand our own psychology and have the flexibility to invest on your own terms. Thanks to our cutting-edge technology not only do you have control over what you invest in, but you can also invest (or rebalance your portfolio), anytime, anywhere. Our app is available 24/7 on the phone in your pocket.
Horror Story #4:
There’s no doubt investing can be exciting. But this isn’t necessarily a good thing. Many investors try to be like Frankenstein and defy the laws of nature without investing in the biggest contributor to their success—themselves, namely their financial education.
The truth is, the act of investing may be simple, but it’s not easy to make decisions. There are solid principles to follow, and one of the most overlooked one is performing due diligence. As Confucius says, “invest wisely.” This is often overlooked because of an over reliance on investment advisors. Remember, investment advisors are working on commissions and sometimes they might have a natural inclination to prioritise their own commissions over your portfolio— If you’re told an investment has done well in the past, be sure to think again. The past is not a sure-win prediction of the future.
At LU Global, we provide risk assessment tools, investment calculators and product information beyond just targeted returns and tenor duration, to ensure our investors understand what they are investing in and how it fits into their goals.
Make sure you trick-or-treat, and invest at the right doors
Whether you are trick-or-treating, or investing this Halloween season, make sure you’re knocking on the right doors. On LU Global you get access to exclusively-curated products and unique alternative investments so you can invest on your own terms. We go beyond open-ended funds offering a broad range of closed-ended funds such as private equity and debt funds. These specially selected outperforming global investment products are in collaboration with renowned fund partners such as J.P Morgan Asset Management, The Partners Group, PIMCO, Blackrock, and Amundi.
Discover for yourself how our award-winning app has benefited over 300,000 registered users in a mere two years. Join us today.