Nope. I’m not talking about your bedroom adventures, silly.

Neither am I talking about your exercising routine.

We are gonna discuss a more serious topic - your investment approach.

Go The Active Or Passive Way…?

In investing, there are two kinds of approach to stocks investment - the active and passive route.

Active investors are those that take a keen management role for their portfolio. They assume responsibility over their portfolio’s performance.

They frequently pore over financial statements, monitor the stock market news and peer at the stock prices every now and then.

For investors that may not have the time or knowledge, they pass the management over to their broker or fund manager. In any case, the money is still managed actively.

All these are done with one aim in mind - to beat the stock market index. Think Straits Times Index and the S&P 5000.

Passive investors, on the other hand, do not worry about beating the market index. After all, 90% of fund managers and retail investors fail to outperform the index.

So, if you can’t beat it, why not join it? That is the attitude of passive investor - to get returns that mirrors the stock market index’s performance.

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Investors profit from stock investing because they sell at a price that is higher than the purchase price.

The price difference determines the gain. Or loss.

Now, let’s stand back and think for a moment…

Have You Ever Wonder Why Stock Prices Fluctuate?

The stock market is a dynamic place. The price is a direct result of the market forces.

From an economical point of view, people usually treat it as a case of supply and demand.

When there are more people buying than people are selling (higher demand than supply) - the price goes up. The converse is true - price goes down when more people are selling than buying.

Straight Forward Isn’t It?

Not quite.

On further analysis, can we truly treat stock price movement as a result in shift of supply and demand? No.

Here is why…

Supply doesn’t change at all (assuming no stock split, issue of bonus shares, buy back etc).

Therefore we cannot say the supply has risen or dropped, simply because it doesn’t. The amount of stock shares in the market remains constant.

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Look. There are many investment vehicles around for you to choose from.

You name it. We have bonds. Real estate. Fixed deposit. Currency (FOREX). Gold. Silver. Commodities. Structured deposit. Money market fund.

All have their pros and cons.

But we are going with just one as our chief investment choice - stocks.

Here’s why we think stocks are HOT:

1. Long Term Returns

Stocks traditionally outperform other investment vehicles such as bonds over a period of time.

Stocks have also historically proven to generate positive returns over the long run.

2. Dividend Income

Dividend income from stocks adds on to our investment gain. Dividends give us more cash for reinvestment.

Or we can simply use it for living expenses. Neat.

3. Liquidity

The stock market is a beehive of activity. For most parts, stocks are highly liquid.

You can put your money in, and then decide when you want to come out.

You decide today is the day you want to get out, and you can sell it immediately. No problem.

For investments like real estate, it is more tricky, as it is harder to find a buyer.

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Everything in life entails risk.

You are taking a risk when you cross a road.

If you are not careful, you may get knocked down.

You are taking a risk when you start a new business.

If you do not know the supply and demand of your niche, your business may end up as a flop.

The same applies to Investment. No exceptions.

Doing investment, especially stocks, is definitely not for the faint hearted.

Before delving into it, knowing exactly the kind of risk that investment brings is extremely important.

Not only should you understand the risk involved, but also your risk tolerance level and a few other factors.

Let’s jump right into it, shall we?

What Kind Of Investor Are You?

All of us are unique individuals. We come from different background and have different needs. 

We also think and approach things differently.

We have to recognize this important fact - what may work for you may not work for others. Simply put - your mileage may vary.

Don’t start investing before you ask yourself the following vital questions:

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