Wednesday, 10 February 2016

Growing Your Money Is A Long Term Relationship

I still have a long way to go in investing journey but I am going to write what I have found out and planned for my family.

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?

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
Stock (capped at)
5 years historical high
10% dip from highest
20% dip

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.


  1. Wah!
    You covered almost everything.
    But it's not easy to learn from somebody's experience.
    It's like a virgin trying to learn from reading books on the "Birds & Bees"
    Nevertheless your about how not to lose money & may i add keeping it as 1st principle is the way to go in investment.

    Good article for newbies to think about.

    1. Hi Temperament

      I like your comments on the internalise part. We have to gain most experience and there is so much we can internalise thru reading.

      Most of us are newbies isn't? For investors who have been in the stock market for more than 30 years, they are equally puzzled on how say, facebook made money. We are all survivors

  2. Hello FD,

    I think the guiding principles are useful food for thought. If I dare say, many readers leverage on financial bloggers to do the detailed analysis and then they pick the low hanging fruit.

    Thanks for sharing about your asset allocation strategy too. Over the Lunar New Year, I was reflecting on my own investment portfolio. I do not have a strict allocating strategy like you, but I know (roughly) how it will shape up when I retire.

    1. Hi SS

      Hope you are having a great CNY celebration!

      It is fine, as long as you are comfortable with your investment style. Frankly, I don't follow 100% strictly, but more of "about there" will do.

      I know many don't even refer to financial blog/article or valuation. I don't know how they trade to begin with. Some may have industry knowledge because of their business or job.

  3. LOL!

    I see more into the grey grey, fuzzy fuzzy, fluid fluid, and slippery wet path of WATER.

    I guess the concreteness of SMART has its limitations?

    In the Teochew words of our comedian Wang Sa:

    "Ah dee oih, agar agar du hor!"

    1. hmm, if your brokerage pay you $1080 instead of $1095, I think you will overlooked it? haha

      Frankly, our attention span and time is so precious and limited and we cannot be so precise in every aspect of our life. Some things are so important that we need to be precise, but maybe at least 85% accurate. The rest will be diminishing returns.


  4. Once we have enough money we want to keep it safe and sustainable. LOL!

    1. Hi CW

      Wise word. Investment is more for preservation of wealth, than creation. Opp, your nick is create wealth. Using multiple taps? Then ok since got human capital. It must have been a long journey for you so far. :)

  5. The prob is we dont know how much is considered enough

    1. Actually, we can survive with a roof over our heads and 2 meals a day.
      Yes 2 !
      Don't need 3.

      In fact i use to think if human beings don't need to eat to live, what kind of world will it becomes?
      Better, the same or worse.

      For me it will be better.
      i don't even bother to work for a living and all the associated politics of money, power. etc.....
      i just be me.

    2. One cant ignore the impact of medical bills. If we can grow old & die without going through the sickness part, life may be simpler

    3. Hi Starlight

      For this, i agree with Temperament. I am also "enough" with what he mentioned. For medical bills and premature death and disabilities, that is why we need to have insurance. Most situations can be planned, except a few like retrenchment and being kidnapped and etc.

  6. Love this article. I think most of us can connect to the feelings and thoughts shared here at some level.
    We humans like to be in control of things (especially most of us who consider themselves as "investors").
    life will become simpler if we let go off the control but somehow it is the most difficult thing to achieve.

    Thanks for sharing. :)

    1. Hi GP Blogger

      Been a while since I hear from you. Hope you are doing great.

      Glad that you find this information useful :)

  7. Nicely written. After being in the market for >10 years and making numerous mistakes, I can align myself with some of your ideas. Proper stock investing is not for the faint hearted, but it can provide some income. The real cash comes from work, business or property investment. But proper stock investment adds value to your life, it makes u financially aware, and is often the stepping stone to greater wealth :) cheers

    1. Hi

      I think the challenge here is what is "proper stock investment". It is basically sticking to our plan...And sticking to our plan is never easy because of too many variables in the stock market and too much human emotions involved when prices move daily. People say stock market has not changed for the past 100 year. Is it so? Hindsight, everything is clear but everything has changed. Certain things are supposed to remain, but the time horizon must be extremely long to see through the up and down.

  8. Hi FD,

    Getting sentimental! What's the stimulant?
    The picture on top heartwarming isn't it?

    quote "To each of their own and there isn't really a right and wrong here."Unquote

    If u r a believer of God, then there is always a right and a wrong! Ok... no need to tell me u r not a believer.. just joking!

    I also remember CW mentioned in one of his comments before something like " if u r alone all the time, then u can wear the same underwear flip many times for many days, u r still right!"

    ok, great title, great picture and great article from the bottom of ur heart!

    1. HI Rolf

      If I am alone, I wouldn't want to wear anything that is so sensitive for 2nd day if I have a choice. haha.

      If you insist of placing a right and a wrong in everything, then you can never find an answer and it is going to be sad. Why? Everyone looking at the same thing can have different perspectives and it is not going to be in your perspective, all the time.

      Just feel like writing to record down my findings and for the readers to benefit from it, if it is useful to them.