Stock prices have fallen considerably during the current

economic malaise. Although there is the risk that stock

markets may not have bottomed, the current low stock prices

offer an opportunity for retail investors to gradually

invest in selected blue chip stocks that may have previously

been out of reach.

　In the event that you decide to invest, here is a list of

pitfalls you should avoid:

　Inadequate Asset Allocation-- Asset allocation is the

process of dividing your pool of money among different asset

classes, e.g. between income investments such as fixed

deposits and bond funds, and growth investments which will

include riskier investments such as stocks or physical

property. The former is considered the safer option,

however bond funds are riskier than fixed deposits although

they may offer a higher return in the long run. Growth

investments are more volatile and have been very popular in

Singapore because they offer the potential for higher

returns.

　The mistake most investors make is to put most of their

money in one form of investment, say stocks or properties.

As a result, when the property and stock markets decline,

these investors are in an extremely vulnerable position. It

is always prudent to keep aside at least enough cash to

provide a cushion of about 6 months' monthly income as a

safeguard against sharp declines in the stock and property

markets or in the event that you need cash urgently.

　Lack of Diversification--Having decided that you want to

put aside some money in an investment portfolio comprising

say equities, you should always aim to diversify the stocks

within your portfolio so as to minimise your risk exposure

to any one stock. Not only should you diversify between

stocks, you should also diversify between different industry

sectors, and if resources permit, within different

geographical regions. This would reduce your risk exposure

should any one company or sector or region suddenly

experience a sharp decline.

　If you are a first-time investor, you may not have much

funds at your disposal. The purchase of one stock alone

could utilise the bulk of your investible savings. One way

to diversify is to invest in unit trusts which usually cost

about $1 per unit when launched. These unit trusts are

investment portfolios managed by a professional fund

manager. As the fund manager pools the funds from many

investors, he can invest in a diversified portfolio that

offers lower risk. Unit trusts may also enable investors to

diversify across regions, e.g. a European fund paired with

an Asia Pacific Fund, or between assets, e.g. investing

under an umbrella fund in an equity fund, a bond fund and a

money market fund.
market, i.e. waiting for the market peak to sell and bottom to buy. Such str