Benefiting from Market Corrections

Investors have seen significant volatility in the equity markets over the last few weeks as they worry over the Euro-zone debt issue and slowing global economic growth along with the downgrade of USA’s credit rating.

Has the equity market really lost its value?

We are currently seeing a huge dislocation of price and value which suggests a highly oversold stock market, and this presents an attractive investment opportunity for investors.

Also, in light of the ongoing market volatility and general weakness in stock markets, investors could consider implementing the dollar cost averaging strategy - for the same fixed amount that you invest regularly, more units are bought when prices are low, and fewer when prices are high.

We have attached 2 articles here: "Value, Prices and Volatility" and "Benefiting from Price and Value Dislocation" to keep you updated.

http://www.samfp.com/Value_Prices_and_Volatility.pdf

http://www.samfp.com/Benefitting_from_Price_and_Value_Dislocation.pdf

Dollar Cost Averaging Versus Lump sum investing : what wins?

Dollar cost averaging (DCA) is a fundamental investment strategy.  It is implemented by a regular savings plan (RSP) which makes it easy to allocate a fixed amount of money every month to a diversified portfolio.

Understandably, the benefits of DCA have been extolled by experts and financial institutions alike. After all, what's not to like about disciplined investing, without the destructive effects of our emotions, where we get to take advantage of the inevitable short term market price volatility - buy more units of blue chips when the markets swing downwards and yet are protected because we buy fewer units during price spikes.

This shocked me! The dangers of private banking...

An article in Singapore's Business Times yesterday caught my attention.  It details how clients can be given false information about their accounts, and the risks private bankers take with their clients money, all the while earning fat commissions out of each trade as well as on an annual basis, of course.

It is shocking because it could happen even in famously strict Singapore.

This is why I would recommend investing money only in non-discretionary accounts where the clients are not only kept in the loop of recommended trades, but also have to approve them before they are executed. This structure fosters a high level of transparency. The only down-side is that the client must invest a little bit of his/her own time to understand and approve the transactions.  And some time lost in while waiting for the client to approve.  This author believes that time and effort is well worth it, as the article below demonstrates.

Myth - High Return Equals High Risk

I met a gentleman this morning at an international university gathering. He told me how interested he was in growing his money through 'investing' - but not for the long term.

After further investigation, it was revealed that anything over a year was long term for him! His idea was trading leveraged instruments like Forex and options with a holding period of days, sometimes hours!

I had to share with him a few key points.

10 Ways to Tackle Inflation

The Consumer Price Index climbed to 3.1% in July 2010 as reported in The Straits Times on 24 August. This rise is in line with the expectations of economists for the second half of the year. The increase in costs of food, housing, transport, electricity and clothing have primarily contributed to inflation.

So, how does this affect you and me?

Singaporeans who are uncomfortable taking financial risks and who are happy parking money in bank deposits, playing ‘safe’, are now facing an even bigger risk – that of not protecting themselves against inflation. 

In the long run, your savings will actually shrink and you could become poorer, not richer because of inflation.

Q: How much will S$10,000 in today’s value be worth at different inflation
    rates in 10 years time? 
A: At 2% inflation, it will be S$8,171. At 3%, it will be S$7,374. And at 4%, it
    will be S$5,987.

Therefore, it takes discipline and a sound investment strategy to cushion the impact of the shrinking dollar.

1. Reduce spending and live within your means
Buying things on impulse and on big ticket items beyond your means could cause you to spend beyond your means. It is time to review your spending pattern and your lifestyle. For example, you could substitute a branded item with a no-frills one or switch to a cheaper mode of transport like the public trains and buses etc.

2. Try to save 20% or more of your pay cheque
Pay yourself first before you start paying your bills. Saving 10% is good but if you can manage 20%, you’re giving yourself a bigger head start in building surpluses for long term investments.

3. Do not be overly conservative
Invest your money instead of putting it in fixed deposits or saving deposits. These instruments do not help to overcome the effects of inflation. Another alternative will be to place your money in money market funds that have low sales charge and offer better rates than the deposits.

4. Do not rely on guaranteed products
They guaranteed the principal upon maturity. Returns are almost negligible and they do not provide any protection against inflation.

5. Save regularly via an investment platform
Dollar Cost Averaging is one of the best ways to complement your lump sum investment. This method reduces risk in the long term and it provides a disciplined way to save. The earlier you start investing a fixed sum regularly, the quicker your investment will grow to a significant amount in your later years.

6. Take on sensible level of risk
You do not need to be an aggressive investor overnight. You can build an investment portfolio that is well diversified in the various asset classes that suit your risk profile.

7. Invest for returns that will beat inflation
Consider investing in a diversified portfolio of stocks and bonds over the long term. A moderate-risk portfolio with 70% equities and 30% bonds could generate 6%-8% return a year over the long term.

8. Understand the Power of Compounding
The Rule of 72 will help you to understand how long it takes for your money to double. Simple take 72 and divide by the percentage return. For example, with a return of 9% a year, you will need 8 years for your money to double. If you invest S$100,000 in a portfolio that can give you an annual return of 8%, this amount can grow to about $467,000 after 20 years.

9. Invest in asset classes that appreciate
Property investment is not for everyone. But this can be a good investment only if it is within your means. If rents increase at a faster rate than inflation, your property yield will provide a healthy return.

10. Limit exposure to depreciating assets
A depreciating asset would be cars. If there is no necessity to change your car, then stay with your existing vehicle.

Cheapest Asian Markets - August 2010

According to information published in the Wall Street Journal dated 23 Aug, 2010, Indonesia is the cheapest market in Asia today. This is based on at least one commonly relied on indicator.

The price earnings ratio of an overall market is a good indicator of whether companies listed on that market are available at attractive valuations. A good way to read the price earnings ratio (P/E) is by "inverting" it. Example, if the price earnings ratio is 20 times, the earnings yield** is 100/20 = 5%.  The higher the earnings yield, the better.


With this rationale, it makes sense to buy into companies / markets* which have low P/E ratios and at the same time which are stable enough, transparent enough and have adequate growth potential.

The news is that the P/E ratio of the Indonesian market is just 6 (earnings yield is 13% and growing). 

And let us not forget that Indonesia

• is a fast growing emerging economy 
• has the 4th largest population in the world with a large consuming middle class
• has a GDP higher than China's
• has relatively young population with almost 50% under the age of 25
• has a labour cost significantly lower than China
• has vast mineral resources
• is a functioning democracy

The next few cheapest markets are Thailand (P/E 10) and Korea (P/E 11). 


Ask your financial adviser or give us a call to find out how to invest cost effectively, keeping your big financial picture in mind. 

* It makes sense to invest in markets especially at attractive valuations, because of the advantage of diversification and hence lowering of risk. Also when one invests in a market as a whole, there is usually a sizeable representation of blue chip large organizations. The best way to invest in a market for the retail investor is through funds that track the representative index for that market. It helps if the fund manager is able to sieve out the least attractive companies  from time to time and thus beat the index performance with a filtered portfolio. 

** Earnings yield is the amount a company earns (immaterial of whether it retains its earnings or distributes it to shareholders) for every dollar you invest in it. And usually one expects the company to have a growth in earnings year on year. Even if the earnings are not immediately distributed to shareholders in the form of dividends or share buybacks, the shareholders will gain by the increase in stock price due to growth in the company's net assets.  To that extent, it is often beneficial to the shareholders of the company to retain most of its earnings and invest it to grow in the business. This is true if the compounding growth rate of the company's investments is faster than the rate at which the shareholders would be able to grow the capital on their own.

Defusing the Financial Time Bomb: Investing without Fear

Money makes the world go round, so goes the saying. Most of us spend a good part of our days thinking or doing something to make more of it.

So how much money do we really need? Surprisingly enough, that is the million dollar question and the answer of which so many of us have no clue about, or worse, have the wrong idea.

This article is not intended for those fortunate few who already have all that they will ever need nor is it for those who know exactly what to do to get what they want.

This piece is for the remaining 98% of the population - the average citizen who earns a salary, supports a family, and aspires to secure his retirement. And, with luck be healthy, wealthy and free enough to fulfill some of his dreams. (Who hasn’t thought of owning a beach-front bungalow or a snazzy sports car or even a yacht?) It is also for those who wish to grow their money, rather than work hard for every dollar.

So how does the average individual make it? The answer, discussed in this article, is deceptively simple.

So why do so many people not make it? Why is it that a majority of Singaporeans are living with a financial time bomb (often without even being aware of it)?

The answer points to three insufficiencies:

1. Lack of essential yet basic financial knowledge (and it is not rocket science)

2. Lack of implementation of that knowledge

3. Simple lack of time (yes, in this case, it can be too late)

Assuming you have enough time and you are adequately insured, this very article can be the start of your financial freedom.

So, where do you begin?

My first recommendation would be for you to consult with a competent and trustworthy financial advisor. I do not recommend leaving all decision-making to him or following his suggestions blindly (a good financial adviser would naturally involve the client as well as educate him at every step of the process). It is exactly like visiting a physician with regards to your health.

With the financial adviser, one must arrive at a comprehensive and consolidated report which clarifies what your current situation is (assets, liabilities, policies etc.) as well as a precise dollar amount that you need the day you retire and how much you need to save every month now in order to reach the above financial goal.

Example:

Consider Mr. Tan, aged 40, married to a homemaker and has two teenagers. He wants to retire at 62 and we assume that he has a life expectancy of 88 years. His income is $5,000 per month and he manages to save $500 each month. The total current savings (cash, investments & CPF) is $150,000. Inflation rate is 2% per year. He foresees he will need $3,000 per month (in today's dollars) during his retirement years. We are assuming he is adequately insured.

Scenario A

If he invests his money with a bank, he would get about 1% per year.

Scenario B

If he invests his money in good bond funds, he would get at least 4% per year.

Scenario C

If he invests his money wisely in a balanced, high quality portfolio (as explained below), we can safely assume he would potentially achieve 8% per year.

Table 1 – Comparison of Rate of Return

As is evident from Table 1, the key to achieving financial freedom is the investment rate of return.

So how is this rate of return achieved?

Well, the good news is an 8% - 10% return in the long term (5 years and above) is not out of reach for the average investor. A clear evidence of this assertion is that over 1926 through 2004, investing in the biggest US stocks, would have yielded an average return, with all dividends reinvested, of 10.46%! (Source: StandardAndPoors.com). This includes all the biggest crashes in the US markets.

More Good news: Over the last two decades, the rate of return has become even higher… close to 13%.

Figure 1 shows the Dow Jones Industrial Average from 1929 through to the present. We have considered the US stock market since it is the biggest, most mature and most influential market in the world.

Figure 1 - Dow Jones Industrial Average historic performance

Now, instead of simply throwing your money at some stocks, a simple strategy, when implemented over time, gives even greater returns while reducing the volatility dramatically. We call this the ‘magic portfolio’.

Simply park your investable cash into a portfolio comprising of a split of good bond funds and selected equity funds. The ratio of the split (usually 50:50), is based on your risk profile (your FA should help you with both: suggesting quality funds as well as your ratio).

The next step is vital and that is rebalancing.

What this means is simply to re-set the ratio of the equity and bond components of the portfolio periodically. Every 6 months is ideal. All the investor must do is that if the equity component is higher, he sells some equity and buys some bonds and vice versa. The effects are shown in Figure 2.

Figure 2 - Rebalancing

This strategy takes advantage of the fact that bonds give slow growth but lower volatility where as equities tend to grow fast but with sharper ups and downs.

Besides reducing portfolio volatility, this deceptively simple step automatically “buys low and sells high”.

Coupled with that, the investor can use another powerful strategy called dollar cost averaging (DCA). DCA simple means investing a fixed amount of dollars every month or so in bonds and equities in your ratio. This automatically facilitates buying less when the price is high and more when low, and is ideally suited to the salaried person.

Finally, the key aspects that the investor should always remember are:

1. Take a long-term perspective

2. Ensure liquidity of your investments, so that you can get your money when you want it without losses or penalties

3. Have enough diversification across asset classes and geography.

4. Evaluate the quality of your portfolio, i.e. growth prospects of each individual investment

We in Singapore are lucky to have an abundance of excellent unit trusts (also called mutual funds) which give us all the flexibility, liquidity, and convenience, plus some very competent fund managers who are able to consistently beat the markets they invest in. What’s more, unlike stocks, the government allows you to invest all your CPF holdings (after setting aside the first $20k in OA and SA) into unit trusts. So take action & start getting rich now!

The Emerging Voice of Sound Financial Advice

An article co-authored by Sam Wadia and Karen Tang published in iFAST Insight magazine's inaugural issue -

Case Study: "Before and After" comparison after restructuring the financial portfolio of a real client

_______________________________________________________________

Good financial advice can make a world of difference to your financial well-being. Read on for a real-life case study of how one client actually benefited from this.

Mr. Bryan Lee (the name has been changed to ensure the confidentiality of the client), 35, is an IT manager married to a home-maker. They have two children aged 7 and 5. He earns $8000 per month (before CPF contribution and taxes). They own a 5-room executive HDB flat, a mid-size car, and are repaying loans on both. They enjoy an upper middle class lifestyle - eating out during the weekends, buying new gadgets for their home and children, and taking annual vacations. Their life's dream is to provide a good eduction for their children and to see them happily settled, while never being a financial burden to them.

Just a year ago, Mr. Lee felt like most ordinary residents of Singapore, who believed that lifelong financial security is something reserved for millionaires, and who could not foresee a clear end to their working lives. He was luckier than those who are in an even more precarious situation - those who simple believe that their financial security has been taken care of, with just their few existing insurance policies, or some randomly purchased investments, or even their expectations of subsidies from the government when they retire. Mere belief is a dangerous thing to rely on. Instead, actively knowing all the relevant facts - with professional advice - is what is required.

Over the years they had bought quite a few insurance policies sold to them by insurance agents. Some of these agents were friends and family whom they found hard to refuse. Other agents were so persistent in following up with him, he bought policies from them almost just as a form of compensation for their time and effort. Interestingly though, once they had sold such policies, these agents went almost completely out of touch. The only communication he did receive were reminders from their companies to pay his premiums and the occasional letter informing him of a reduction in bonuses.

Mr. Lee is considered to be a conservative person who had always chosen to buy the products from agents of well-known financial institutions. Besides insurance policies, Mr. Lee had also bought a few investment products from his local banks. These were almost always spontaneous decisions which were initiated by the banks' sales staff. His investments included low capital guaranteed funds and some unit trusts that were considered 'popular' back then.

In Mr. Lee's case his 'status quo' regarding his financial holdings was finally disturbed when he received yet another notice of downward revision of bonus for one of his insurance policies. This revision was blamed on 'volatile market conditions'. At about the same time, he checked on his investments only to find that many were still under performing, even after holding them for a few years.

Mr. Lee realized that he need to seek a second opinion from a financial adviser who would be able to provide him with a holistic, unbiased overview of his entire financial situation.

In the process of interviewing him, the financial adviser uncovered the following areas that were currently lacking in his financial plan:

1. More coverage required, especially critical illness & disability.

2. Premiums paid are costly for the existing coverage amount.

3. Regular portfolio review and rebalancing are required.

4. A suitable investment plan that would suit his risk appetite.

5. A savings plan for his children's education needs.

The financial adviser also conducted a thorough analysis of his present and projected financial requirements, with the aim of deriving the required rate of return which his funds would need to grow, to meet his future financial needs.

Currently, at age 35, the amount of investible funds he has is $70,000 (in liquid assets). He is able to invest $1,500 per month for the next 25 years. He would require $3,500 per month (in terms of current dollar value) during his retirement years. He intends to retire at age 60 and wishes to plan for a life expectancy of up till age 90. During his retirement years, his money will be invested in conservative financial instruments which will give a return of about 4% per annum ( a constant inflation rate of 2% is assumed).

After a thorough analysis of Mr. Lee's financial situation, the amount of liquid funds he would need at age 60, is $1,557,300.

As for the funds required for his children's education needs, in addition to a starting capital of $25,000, he is also setting aside a separate amount of $500 a month, and he wishes to grow that amount to $25,000 in 16 years' time.

To meet his requirements, Mr. Lee needs to grow his current and regularly invested capital at an approximate rate of over 7% per annum.

To achieve his investment objectives, it was recommended that Mr Lee hold a diversified portfolio of unit trusts investing mainly in global equities. Other investment vehicles such as bonds, deposits and structured products were inadequate to attain the above rate of growth over sustained periods of time.

Once his needs and financial goals had been established, the financial adviser commenced work on scouring the market for suitable plans that not only had customer-friendly clauses but which were cost effective as well. Although the companies were not as well-known as the big boys of the industry, they were very strong financially and able to pass savings to clients by quoting lower premiums, and were also able to include legal clauses which were beneficial to their clients in their contracts.

Table 1 gives Mr. Lee's existing insurance holdings - detailing the coverage he receives and the premium he has to pay. The total cash premium that Mr. Lee forks out annually for his insurance is $12,952, for a sum assured of $390,000 for death and Total and Permanent Disability (TPD) and $190,000 for critical illness. In this situation, Mr. Lee is actually "under-insured and overpaying".

TABLE 1: BEFORE RESTRUCTURING

* Excludes the single premiums

** Excludes coverage from single premium policies.

After talking into consideration the various factors listed below, the required sum assured for Mr. Lee was derived:

1. Annual premium budget

2. Critical illness treatment expenses

3. Current and future expected income

4. Number of years of income to be replaced in case of death, disability, illness or accident

5. Liabilities

The products (as listed in table 2) were recommended. It can be seen that there has been significant savings of $5,464, or 42% of the original premium, and yet the coverage has been increased by 55% for death/TPD and 216% for critical illness.

TABLE 2: AFTER RESTRUCTURING

The single premium policies were discontinued and the amount reinvested into unit trusts, due to the following reasons:

a. Single premium Investment Linked Policy (ILP) is cost ineffective for both insurance and investment purposes.

b. He did not need the protection provided by the ILP and single premium investment products because all his needs are taken care of by the new program.

c. The cash value of the single premium investment products was redeemed and reinvested with suitable unit trusts.

Endowment policies offer a rather sluggish rate of growth and this would not be adequate for Mr. Lee's retirement funding. The cost for his insurance coverage was also considered high which was why they too were discontinued and the cash value reinvested.

Mr. Lee's revised portfolio provided him with immediate benefits:

1. Insurance plan with limited premium payment term (payment will end before he retires), and yet provides sufficient coverage for life.

2. 42% lower annual premium costs.

3. Effects of the sequence of the various catastrophic events (disability, critical illness, accidents) were considered in the construction of the portfolio.

4. Greatly increased coverage amount in his working years.

5. More 'client-friendly" legal clauses in the contract

6. A comprehensive mix of products, each positioned in light of the other, versus an almost random addition of policies.

Satisfied, Mr. Lee noted that the whole process was by far a more rational approach - a simple comparison of available options in the market that matched his needs and the selection of the most ideal option vis-a-vis his resources.

The New Emerging Financial Advisory Landscape

Ever since the enactment of the Financial Adviser Act, new independently owned financial advisory firms are offering consumers with greater choice for financial advise that is not exclusively tied to any product provider (insurance or investment company). This new entrepreneurial setup ensured that client's , rather than product provider's, interests are considered first n providing holistic financial advice. As a client and consumer, it is beneficial to know that the wider choice available can make your hard earned money work harder, if you choose discerningly.

TOP 5 Mistakes in Investing

Protect your money by avoiding these mistakes

1. Trying to strike it rich

Too often investors try to look for get-rich-quick investments. Speculation in the market is especially true when the market is rallying and success stories abound. The truth is those that make it overnight are far and few. Investment needs time to grow and definitely not without a well thought out strategy and framework for making investment decisions.

2. Following tips and impulses

Do you invest based on a stock tip, news or only after careful consideration?

Many people believe in making fortunes overnight. When they hear of a hot stock that will jump from $0.75 to $40 overnight, they immediately invest their lifesavings in order to have a chance at these overnight riches. When you ask them about the company they just bought and what it does, they have absolutely no clue. This is more like gambling than investing. Imagine how you would feel if the company dropped to $0.15 a share the following day. If you want to take a chance with stock tips, at least do your homework and find out the following:

• Is the company in a growth industry?
• Has the company had any problems in the past?
• Is the company profitable?
• Does the company have a low market capitalization, allowing room for growth?
• Does the company already have a high P/E ratio?
• What are the company's main operations/businesses?

The knowledgeable and prudent investor will do his own research and does not depend on heresay or ‘hot’ news.

Investors who plan on working with an adviser should check out the adviser's references beforehand in addition to this person's fee structure. Be aware that an adviser who works on commission has an incentive to buy and sell.

Even when you have a trusted advisor to manage your investments, it is recommended that you take an active involvement in learning about your investments and be in-the-know what your advisor is doing for you.

An advisor who is only familiar with managing investments linked to insurance plans possesses different qualities and skill set from one who is well trained and exposed to managing pure investment portfolios (stocks, mutual funds).

3. Timing the market

It is every investor’s desire to buy low and sell high. However, many investors who have tried to predict the market cycle have failed. No one can foretell the future of the market.

The best approach for the investor who invests for the long haul is to ignore timing entirely. This is difficult for most people but the following are reasons enough to support a long term approach:

Research has shown that a buy-and-hold strategy beats a trading or ‘speculative’ strategy.

No one has a crystal ball to tell exactly when the market will rally and when it will hit a trough. It is, therefore, fruitless to time the market to lock in profits.

4. Straying from your investment goal

The path to investment success is to stick to your investment goal. Suppose you are investing to secure your retirement funding trough a portfolio of balanced and fixed income mutual funds (unit trusts).

But when the markets show signs of a rally, you are tempted to reap some quick profits and you decide to adjust your asset allocation from a balanced to an aggressive portfolio.

What happens if the markets tank? Depending on the time line you have before retirement, this move could potentially wipe out your retirement nestegg and leave you with a battered portfolio.

Warren Buffett could not have put it more aptly: “Be fearful when others are greedy and greedy when others are fearful”.

5. Forgetting about Portfolio Diversification

Portfolio diversification is the mantra of investing. In choosing a property, we know it’s the location that matters. Similarly, with your investments, you have to diversify, diversify and diversify. It cannot be emphasized how important this is to one’s investments.

An investor who puts his money in a well diversified portfolio of say 8 to 10 stocks or mutual funds is in a far better position than another investor who prefers to bet all his money on 2 stocks.

Diversification is the spreading out of investments to reduce risks. Because the fluctuations of a single security have less impact on a diverse portfolio, diversification minimizes the risk from any one investment. Diversification involves allocating your money in different asset classes to achieve your target investment return.

Let's Talk About Property

The headlines on roaring property sales have been in the news for the last 2 - 3 months. Property prices are not exactly cheap but this seems to be no deterrent, especially in the middle of a recession. Those who have missed out on the earlier boom in 2007 have resolved not to miss the boat again this time round. Property is a good investment as it will appreciate and this has always been the general sentiment.

Judging by the weekend crowd at new property launches, Singaporeans have a special fascination towards property either as an investment or purchasing one to live in. It sounds cool to own a private condominium with ‘nice’ facilities but I’m not sure if people have worked out their numbers properly before buying.

Let’s take an example of the purchase of a ‘good’ unit (ocean view) at The Sail.

• Purchase price: S$2,000,000
• Stamp duty: S$55,000
• Agent commission: S$20,000
• Renovation & furnishing: S$100,000
• Total cost: S$2,175,000 (approximate)

Now assuming a 10% down payment, 30-year loan at a low interest rate of 2% (SIBOR has been hovering at 0.69% since the beginning of 2009), the upfront commitment is estimated to be S$375,000. If one intends to sell the property after one year:

• Interest paid in the 1st year @ 2%: S$36,000
• Conservancy: S$4,000
• Agent fee for selling: S$22,000
• Total cost to break even: S$2,237,000

Hence, in order to break even, the property price must go up by 12%.

Imagine if the interest went up by 1% in the second or third year - one would have to pray that the property prices go up by 15% in order to break even. Conversely, if the market cools down by 10%, and the selling price drops to S$1,800,000, the loss would be a whopping S$437,000.

You may ask: What about the rental? Doesn’t it help to cover the mortgage payment? Yes, it sure does. The rental amount should ideally factor in all the miscellaneous costs.

Not withstanding this, there are some key points to note:

1. Interest rates will fluctuate - this will affect your monthly loan repayment from year to year

2. Invest within your means – it is advisable not to borrow the maximum loan limit

3. Do your research – property is a big ticket item; it should never be an impulse buy

4. Consider the big picture – how does a property fit into your overall financial planning, especially your cash flow in the medium- to long-term

5. Buying property is not a punting game akin to behaviour we see in the stock market. It requires deliberation and a certain level of pragmatism about it. If you are planning to buy a property within a year or two, it would be advisable to run through the numbers with your financial planner first.

Why trust unit trusts

Once bitten twice shy. Some people I talk to still feel the pain of their losses during the internet bubble in year 2000. But who would not. I lost 80% of my money too!

On hind sight, I should have never put all the money in one basket. Thankfully, that lesson taught me to be more prudent and I was prepared to invest again after that.

So, why invest in unit trusts?

1. They are well diversified

Unit trusts spread the risks involved in investing because they invest in a variety of financial instruments, including stocks, bonds, properties, commodities, currencies and cash.

2. They are professionally managed

Unit trusts are managed by professional fund managers. Their job is to monitor your investments and make necessary investment decisions based on research ad analysis in order to generate good returns.

3. You can invest globally

Unit trusts are invested all over the world and in various business sectors. This way, you have a lot more opportunities. Think Latin America might boom? Interested in commodity stocks? Unit trusts pick out the best companies in these sectors for you.

4. You need only a small amount of investment to start with

Initial investments usually start from $1000. You can also begin a Regular Savings Plan (RSP) where you set aside a fixed amount to invest at regular intervals. With unit trusts, a small sum buys you into a well-diversified portfolio.

5. Buying and redeeming is simple

Most unit trusts in Singapore allow daily buying and selling of units. As long as your orders are received by the day’s cut-off time, you can be assured that your purchases or redemptions will be transacted at that day’s prevailing price.

6. They are relatively safe

If you have a low tolerance for risk, you can choose a fixed income unit trust that can give you stable returns. Generally, over the medium to long term, it will likely perform better than your fixed deposits.

Golden Rules of Investing

1. know thyself - your needs, emotions, triggers
2. have a longer time horizon (over 5 years). reduces risk of loss.
3. understand what you buy. ensure transparency.
4. cherish liquidity
5. ignore short-term volatility
6. grow by staying invested - harness the power of compounding
7. diversify adequately - keeping the entire portfolio in mind
8. monitor and realign the investments periodically
9. keep costs low - initial as well as on-going. but do pay for quality - it is cheaper in the long run.
10. invest regularly - a fixed amount every month is ideal
11. lessons from past crises: the markets recover from the worst of them and continue to rise
12. choose your advisers well. investing is a team sport