You know what I discovered? It is extremely simple to grow money. What you want is for your money to grow from $X value to $Y value. If you insert a timeline with it, you can even work out the annualised returns or percentage.
There is what made investing complicated:
You see a group of investors/traders advocate investing in individuals stocks, ETFs, permanent portfolio, crowd funding and more. There are even more interesting theories such as dogs of dow/sti, trading during cd/xd, value investing, dividends investing, DCA, Fundamental Analysis, Technical Analysis, blue chips, mid cap, small cap, and the list goes on to hundreds of strategies endorsed by various experts. You may also discovered a lot of different figures on the same investment, sometimes, even with the same timeline. These could be a result of different ways of computations and formulas. Conclusion? I suggest you to take a pinch of salts at what most financial experts/bloggers wrote (I am so dead-meat, just offended the whole community). Why?
Confusion
They just confused you with too many variables and strategies to use. Enough said. Understand more of your style and find one that suit you. Stick to it and review it while you are learning.
They were in the past
Because those have succeeded were in the past. Current ones, they are also in this journey, alongside us. No one know where the gold are hidden at (if there are). What works for them at that point of time, could be a different timing for you. Yesterday heroes could be gone tomorrow before you realised it.
Creative Presentation of Information
Most people write what you want to see and just a 1% "creative" presentation of information will make the world different. Often, you will see who and who trying to prove their theories by coming out with an x% of past x years returns. If you do your due diligence, you may discover that these data are "manipulated". If you change any of their timeline and with some variables, you may get a % lower than your fixed deposit or worse off, in negative value. Most importantly, verify it.
They can't be with you all the time
You simply can't execute every single action exactly like what your "idol" has done. Nobody should be more interested in your money than you.
We are not the technical/fundamental competent investors we thought we are
Chances are, most part time investors like us who have a full time job, a family to care for, and an exciting life to lead, we are unable to apply most of the theories to our advantages. For example, you strongly endorsed UOB is the stock to go for. You can have many reasons for your strong conviction. But, just how much do you really understand UOB now and how it going to be, say, 10-50 years later? There are so many perspectives you can look at. Even if you cover all the micro and macro factors, those factors were yesterday and some based on forecasting. You will still have industry risk that is beyond any individual company's control. UOB's businesses are maintained by thousands of employees and it evolves every day. It took decades after decades of hard and brilliant work to build to its current model. How are you going to understand them? If you are like me, who don't have a super brain, you most probably can understand less than 1% of it, and what is going to happen to the company future.
However, some of the theories are actually brilliant and they worked. It depends on when you buy and sell (If you even thought of selling). There are plenty of successful stories and capable investors to learn from. I am still learning my personal investing style. So, please also take what I am writing here with a pinch of salt too. Take this information as raw data, and decipher which work for you. Most importantly, do your money a favour, understand your investment.
Hey, Frugal Daddy, what is wrong with you? Year 2016 has just started and you are writing a whole long story about negativity of investing in stock market?
Don't get me wrong, to cut the long story short, investing is an art. It is like a relationship, you need lifetime to maintain and to understand them while it continues to evolve along life stages. There are just some people not meant to be with you and someone out there could be just a perfect match. Same goes for investing. That is why there are people who choose to be single and lead their carefree life without relationship constrains, and some choose to marry with children or without. To each of their own and there isn't really a right and wrong here.
There are always some guiding principles that works most of the time. If you practice those principles, you will have a higher probability to grow your money. The key word here is probability.
Some of the guiding principles:
1) Understand your risk profile. This is extremely important because you will act differently when prices go up and down.
2) Understand your investment horizon. This will determine whether you should even invest in stocks and what stocks you should buy.
3) Understand how much you need. Seriously, if you have set aside a good safety margin and have more than "enough" money, why would you need to risk more for higher return.
4) Understand your option. This option is not the stock option I am referring to. It is referring to the options of growing our money. You can invest in properties, bonds and businesses. Trust me, If you have cash, you will not run out of options. You just need to make sure you don't get cheated of, and you don't procrastinate that your money never grow over time.
5) Don't expect to earn money from investment. Don't lose money is all you need. You must be thinking what kind of logic is this. Yes, you are dealing with probability. Be it investing in property, stocks or even cash, don't lose money is all you need with the probability. Any grow of money will be a bonus. And by law of economic and inflation, the money should grow if you don't make huge losses.
6) Since we can't be 100% sure in any of the stock even with 200% effort to understand them, we have to diversify. However, biggest positions risk lesser concentration with higher diversification, any may end up with lower returns than index etf. Which is not a bad thing if you enjoy reading about companies.
7) If you choose to buy individual stock, please still read up on the basics such as PE ratio, price to book, revenue, debts, lease strategy (Reits), inventory turnaround time (retails and commodities), profit margin, and any other valuations you think is relevant. Thinking of these already give me headaches...haha.
Most people are better off with earning from human capital (career) than expecting to earn from investment that can replace full time employment income (Including me, else I will have become a full time investor). Don't get me wrong, it is entirely possible to retire early. What I am trying to say is that if you are not even near your desired point, don't pin hope on earning ton of money from investment, thinking that it can allow you to stop work soon. Maybe less than 20% of people can live off comfortably without working just by income from investment. So, don't rush to it and make silly decisions. All you need is to understand your lifestyle, be more money efficient (cut expenditures and increase saving) and find a strategy not to lose money. Over time, you should be there.
So, what are my investment strategies? First thing first, I don't think setting a rigid strategy is a good beginning. Neither do I think having a flexible plan that I have no idea where I heading to, is a good plan. I think investment evolved over time because different opportunities present at different timing. You always need to have what you need to catch the opportunities when it comes.
There are time when properties are depressed. And, there are time when stock market are depressed. There will also be time when interest rate are so high that you don't need to look beyond bonds. There are always time that you just need some cash to feel safe or to use. Invest when you are confident, don't worry about missing the boat. Don't worry about not making enough money. Allocate assets accordingly that you feel you have a good balance to meet your life objectives. When playing with probabilities, you never know when you going to hit that 1% bad luck. Invest with money that you can lose. Just don't lose money, you will be fine. If you need to work longer, work longer (Although I hope to stop working full time as early as possible). Many people can't even find a job even if they want to. Be contended and stop comparing with others.
Here are my asset allocation strategies. Yes, I keep reviewing it:
Using STI ETF as reference | Cash | Stock (capped at) |
≥ 5 years historical high | 100% | 0% |
10% dip from highest | 90% | 10% |
20% dip | 80% | 20% |
30% | 60% | 40% |
40% | 40% | 60% |
50% | 20% | 80% |
60% | 10% | 90% |
My personal risk profile and preference is always to keep $200k in bonds with yield higher than 2.5%, before I considering investing the remaining. On top of that, I will keep an emergency fund of 1 year, which I aim to have more than 2% returns. For investment (Property or Equity), this is like a bonus portion to push up over return, which I aim not to lose money. I hope it can return 5-8% returns. Overall, I hope to achieve a portfolio of 5% or more annually. I may use different asset allocation strategies with different asset size and different life stages. For example, I may want to cap my equities investment at $480,000 or my property investment at $600,000. We shall see.
I thought if you are really cash rich, you may want to involve in a bit of different investments such as property and equity, and switching in between whenever each market presents an opportunity.
For equity, I will be scooping around on individual STI components and STI ETF. I am also considering to do a bit of international portfolio such as S&P 500 or World index ETF. The reason why I do ETF and individual STI components, is to have higher dividends as STI ETF only have about 3% payout. This will enhance the cashflow and in my opinion, the returns too.
These are my investment findings. Not losing money may earn me enough money to retire early in another 4 years and 11 months more. I may even have a bonus profit of say 5-8% average returns in the next few decades, only if I am "lucky". Remember, no one should be more interested in your money than you.
I can't even be sure how long I can live to. So? Live your life now. Stop over thinking on stock market and neglect your real life and your loved ones. Money is an enabler, not your master. Unless reading up companies is your passion or you use it to stimulate your brain juice.
May you be the master of your money.
No comments:
Post a Comment