Financial education courses should highlight risks to investors too

Recently, DBS Bank and the Singapore Exchange (SGX) announced that they are launching a financial education programme aimed at budding retail investors (DBS, SGX launch programme to boost financial literacy; July 13).

While this is a worthwhile initiative, it is also important that such courses highlight the risks of different types of investments.

In particular, investors attending such programmes should also be alerted to the governance risks and the level of investor protection.

Recently, a relative showed me the list of companies she had invested in.

When I asked her why she had invested in them, she said they were "cheap", that is penny stocks.

"Cheap" turned out to be worthless in many of those cases.

Many investors have lost their hard-earned savings by investing in dodgy listed companies here.

Organisations that run financial education programmes have a responsibility to ensure that the education provided is balanced.

Those considering investing in companies listed on the SGX, for example, should take note of the following before doing so:

•If the company is a foreign one, are there good business reasons for it to list here, such as its main customers being in this region, rather than on an exchange closer to its principal place of business?

•Do you understand how the company makes money now or will be able to eventually do so?

•What are investors saying about the company in online forums and, where available, what are employees saying about the company in its reviews?

People should certainly not be investing in a company based purely on brokers' or analysts' recommendations, as these market players are not held accountable for getting things wrong.

They should also not be investing in a company purely because the founder or company has won entrepreneur, business, transparency or corporate governance awards.

Most of all, people should be wary of so-called investment experts who claim to have discovered some trading strategies to make a lot of money.

Mak Yuen Teen (Dr)

A version of this article appeared in the print edition of The Straits Times on July 19, 2018, with the headline 'Financial education courses should highlight risks to investors too'. Print Edition | Subscribe