The Wealth Move - The First Step

Interesting enough, Singaporeans thirst for knowledge is quite extensive but the level where one is willing to put money down and to receive potentially better/higher prospects is one that is always being challenged. How much will this be returned in terms of profits? How much of this will be used to get a return on investment? How successful are you? True enough, the spirit is in terms of dollars and cents. Getting free stuff seems to be part of the culture though and at the same time skepticism comes into play - how can there be free lunch here today? What is really the catch? So much doubts and concerns come into mind when these things happen. Even when it comes to investing there is no difference, what is the top picks? Can this make double in 2 months? Can you waive off the fees?

The fact that financial literacy here is increasing doesn't mean that many people know. It is more perplexing to know that most people think that they know but they don't. With new concepts of investing that comes into play such as Psychology, Behavioral, Financial Technology and many more, can we really keep up? For a start, we have to begin somewhere and before plunging in to make that first trade (Everyone thinks that they are the next Warren Buffet) Take a deep breath and ask yourself what exactly are you. What type of investor are you? What is your profile? How much downside can you take when things happen?

We have seen quite a tremendous turn of events in 2015/2016. Brexit was an interesting one which majority certainly did not expect. Even the ruling party probably did not expect that to happen so while we think that things may not happen, the fact is unpredictable things do happen. How can we avoid those situations? By theory and plenty of them, we can but by practical means it is almost practically impossible. How can you tell if Super Group Limited was a target of acquisition? That sounds rather impossible though by valuations, Singapore companies are valued rather conservatively so some of our listed companies are truly good in value.

At least from my past experiences, I do understand that there are a few type of investors:

1. The passive/active fighters/dividend warriors, Income strategies
2. Buy and Hold until the values unlocks
3. Short term trading (Through brokerages and CFDs)
4. Contra trading (The aggressive investors)
5. Margin Trading (Leverage trading)
6. The discretionary investor
7. The hearsay investor/IPO investor

Which one are you? Or maybe none.

In my last post, I talked about insurance. It is a boring but necessary discussion but when it comes to investing, the interest levels doubles up and many would take a second look to find the holy grail. There isn't any holy grail anyone can bring to us, it is just many years of experience and knowledge. Sometimes things fall in place and sometimes it doesn't.

Even if you know what kind of investor are you do you put up your first bit of savings to buy that one stock that you so yearn to keep? In my view, certainly not and I would say the first step to investing is to really invest in yourself. That $500 you save every month through building your own cash reserves is something that can help you in the long run. In most articles, most experts recommend a steady cash reserves of 3-6 months but the reality of life is that, everyone's situation is different so there is a need to manage this portion accordingly. Is 3-6 months really enough, how I see it is probably more conservative and realistic at 9-12 months. That being said, doesn't mean that the reserves are to be used subsequently into making a car purchase or a luxury holiday. Like I always hear from someone i respect a lot - Make money first before thinking of spending it. Sounds like an easy statement but it is never easy to execute the plan.

If I had the opportunity to turn back time, I would have started making plans in my teens but unfortunately my procrastination and passiveness denied me of doing so. So what exactly is the purpose of building the cash reserves and i would list them down for the following:

1. Savings (This is by far the best way to invest in yourself to save for a rainy day)
2. Start Wealth Planner (This is the first step you take)
3. Loss of income/Loss of job (This would be the main concerns of many at the moment)
4. Sickness/Medical (Self and family members - You experience these when your folks or people you love fall sick)
5. Prepare for marriage
6. Prepare to buy a house
7. Preparation for a family
8. Retirement (It does seems like many around us are prepared or already have an inheritance for retirement but it is definitely not the case of many of us today)

By having cash reserves, it matters because it gives comfort that there is sufficient to tie over rough patches at least for the short term.

The time to start protecting yourself and your family

In my first post, I'll choose to talk about insurance. I did sold insurance in my previous jobs to try to understand these complicated financial products. A pyramid, the tip of it in the world of financial planning is in fact Insurance and here is what is is to being the world of financial education.

The idea of buying insurance has always been quite difficult for most people, after-all insurance started out pretty much based on a company that gave you a piece of paper since it ever began on this small country. Back in those days, all I could remember was "yes we got you an insurance" but whether anyone else know what that was about, I would confidently assume 99% of the folks who bought into it did not know what they got into. As time goes by, insurance agents emerged frequently into our lives and I could see people scorning as they are picked up by agents or receive calls from the agency. Like many of use, irritable as we all might be these folks are also just trying to make a living themselves so there's no need to be rude to someone who is making a decent living.

I still remembered the times when I first got out of school and a friend of mine went directly into the insurance line. The pitch was that I need insurance and while insuring myself, I could choose some simple tools to invest into (That was known as mutual funds) - In technical terms, these are collective investments. (In simple layman terms - Mutual Funds are set out to invest in certain countries/regions/sectors/industries on the onset) The guys who manages the Mutual funds are known as the fund managers. So these fund managers along with their team of analysts and support staff will raise funds to strategically invest into their so-called strategies. This is known as Investment-linked Policies (ILP) as most of us know that by know. Five years into the plan, I still did not know what I was getting myself into and finally one day. I dug deeper to understand all the technicalities and why insurance can be such a big thing in this world today.

Like what a close friend of mine said, I do sound like a module lecturer when this is being brought up and I can totally understand how boring it can be so let me be quick on this. Insurance is also a type of risk management technique and a more frequent type that we use almost daily today is known as "Risk Transfer". For simplicity, lets just say a 45 year old male employee buys an insurance plan of death sum assured SGD 500K and tomorrow he leaves the world. Assuming that he continues working until the age of 65 years old, the family recipient stands to gain (SGD 500K/20 years which is equivalent to SGD 25K) Well, it is debatable if this is sufficient for the family but look into perspective, the family stands to get nothing if he did not transfer the risk away.

In a way, this is a risk that can be transferrable in the form of loss of future income which is unpredictable.

When we talk about insurance, there are plenty of choices to choose from. From a top down approach, these are the areas to talk about when trying to understand more about it and it goes according from the level of importance and taking care of it one at a time:

1. Health Insurance
2. Life Insurance
3. Savings Insurance (Endowment)
4. Accident Insurance
5. Others

When I say the level of priority, it can be taken as a guide but not a hard and fast rule. Because in the eyes of unemployment, what one seek is to put the food on the table and provide necessities thus insurance is also a item on the shopping cart list. When we have excess, sometimes we just want more so do slow things down a little and reflect back on the original passion or life we once used to think and the things that once matter, would eventually become forgotten as well.

Interestingly enough, there will always be one which believes and one that doesn't believe in risk transfer. If one thinks that they can beat the market, by all means stick to the strategy but like many thing else in life, it is never a one size fits all strategy for everyone. Each one of us has our unique differences and circumstances which must be open up for discussion.