NTUC Income Co-operative Limited knows everyone wants to be a millionaire. So, at its regular Investment Talk last month, The New Paper’s “Doctor Money” columnist was invited to share 10 tried and tested methods of successful investing with policyholders. According to him, the super-rich use these ways to get even richer, and you can use them too.

1. Diversify by owning many counters
This is easy to do and produces magical results: it reduces your risk but not your returns. The most common way to do it is by purchasing a Unit Trust or ILP (Insurance-Linked Product). You can also do this cheaply by buying shares yourself. If you buy on-line, the cost is just 0.4 per cent to buy and sell.

2. Diversify by buying continuously instead of all at once
You won’t buy at the top or bottom, but will get an average price. This wellknown strategy goes by the name “dollar-cost averaging”.

3. Forget a fund’s past performance
Surprisingly, it turns out that past performance tells you almost nothing about a fund’s future performance. Few people seem to know this, and past performance continues to be the number one criteria for deciding which fund to buy.

4. Watch expenses
These have the largest effect on your fund’s performance. In Singapore, the average fund charges you 2.2 per cent of your investment per year. That’s a lot. For stock funds, look for expense ratios of around 1 per cent. For bond funds, go for 0.5 per cent or less. You can find a ranking of low expense funds at www.AskDrMoney.com.

5. Watch hidden expenses
Most investors are unaware of this second group of expenses that unit trusts and ILPs do not reveal. It includes taxes deducted at source, performance fees, brokerage commissions, and currency conversion costs. Foreign funds tend to have the highest hidden expenses.

6. Watch the initial commission when buying a fund
This is a one-time cost, so it is less important than expenses which hit you yearly. If the commission is 5 per cent, the cost after two years is just 2.5 per cent per year. Over 5 years, the cost falls to just 1 per cent per year. For unit trusts, don’t pay more than 2.5 per cent commission. For ILPs, don’t pay more than 3.5 per cent.

7. The longer your holding period, the more risky investments you should hold in your portfolio
Data from the US shows that for holding periods of 10, 20 and 30 years, stocks have out-performed bonds 80, 90 and 100 per cent of the time. In Singapore, the Straits Times Index (STI) has declined in 13 or the past 23 years (since 1980). But there has never been a 10-year period when stocks have shown a loss. Lesson: If you hold on long enough (10 years), the market will recover and move higher. It always has and always will. We often think of stocks as risky. In fact, the safest way to preserve your wealth is to buy and hold a diversified portfolio of stocks and real estate.

8. Forget market timing
It doesn’t work. People like to think they can buy when prices are low and sell when they are high, but this is harder than it sounds. Why? Because stock prices tend to jump quickly and unexpectedly. About 80 per cent of stock price rises occur in just 5 per cent of the trading days, and it is not possible to know when those days will occur. “Buy and hold” is the only sure-win strategy.

9. Stay liquid so you can convert your assets to cash if you need to
 For example, you may want to buy a house and you need cash for a down payment. If your money is tied up for years in a guaranteed fund, for example, then you are facing a hard choice: Pay a big surrender penalty OR forget about buying your dream home.

10. “Alternative investments” are hot, hot, hot
These include exotic-sounding names like options, futures, structured investments and hedge funds. Most of these are zero-sum which means the average investor can expect to break even on these investments in the long run. When you consider commissions, these investments become “negative sum”, which means you will lose your entire investment if you play continuously.