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Friday, February 4, 2011
Retiring in comfort...
The past few days, I have been reviewing my clients investment, especially my long time, regular clients who had stuck with me through thick and thin and obedient enough to invest in unit trust once every quarterly, and I am proud to say that most of them are getting quite good returns by doing so.
However sad to say I do not have that many clients who are investing their cash money via DDI or Direct Debit Investment which means we deduct a certain sum(say RM100) from your bank account every month for the purpose of doing a cash investment view additional savings for retirement.
Based on a survey that was published in Berita Harian, New Straits Times and a few other newspapers, an average Malaysian will spend all his/her EPF monies supposedly for retirement purpose, in just two to three years upon withdrawing their EPF monies. And I have witnessed that fact for real as I watched several of my clients who sadly depleted their EPF funds upon retirement within the mentioned time.
Based on a survey that was published in Berita Harian, New Straits Times and a few other newspapers, an average Malaysian will spend all his/her EPF monies supposedly for retirement purpose, in just two to three years upon withdrawing their EPF monies. And I have witnessed that fact for real as I watched several of my clients who sadly depleted their EPF funds upon retirement within the mentioned time.
Without money, how do we go on with the remainder lifes? Where do you get the money from, every month, in order to maintain and to retain the previous lifestyle? Many people who are stuck in these positions will either ask money from their children, hoping their children can give them some money (but are sorely disappointed when their children cannot do so as their children too, have other commitments by then) or they are forced to go back to work. As a security guard, a taxi driver or something...
I firmly believe that a proper pre-retirement financial plan has to be made for those who aren’t in a government sponsored pension program where you can still derive and enjoy pension upon retirement. Even then, please remember that the pension paid to you is only half of what you are making at present time and by then say, 20 years from now, life will be so much more expensive then it is now, due to the ever rising inflation!!!
It’s always a good idea that as long as you work, no matter how old you are. Now is the time to start financial plan. The younger you are, the better. But, just in case that you only realize this when you get older, it is still a good thing. Better late than never.
I have some useful tips to share with you …
1) Register with EPF on the very first day of your working day. However, after taking into account of the cost of inflation, the contribution alone may not enough to sustain the entire retirement period. Therefore, it is always good idea to create your own retirement plan by putting aside at least some, say, 10% of consumable income for later use.
2) Increase personal saving as you getting old. If your start working at the age of 25 with 10% saving and decided to increase 1% every year, by reaching 35, you will save 20% of the income for retirement plan.
3) Put aside some of your annual bonus for retirement plan. Apart from that, you may have to revise retirement plan every year, to ensure that the money flow is enough and, to adhere to the original plan.
Turning Short Term Troubles to Long Term Gains-
Recently I attended a talk by Dr Zeid Ayer ( a Senior Portfolio Manager of principle Global Investors, USA)
And this is what I learnt summarized….
Summary of Short Term Troubles:-
Financial Markets
-All major equity markets are well into bear territory
-Government globally have injected hundreds of billions of USD into the markets and lowered short term official interest rates
-Credit is not cheap and can be difficult to source
-Financial institutions have written off approximately USD600 billion in assets
-Oil is still expensive (despite having dropped a lot)
-Many commodity prices have corrected
-Volatility measures have been at all time highs
Real Economy:-
Global economies slowing
- contraction in many of the 190 countries
- Jobs disappearing – unemployment up
- Housing markets continue to struggle
- US Misery index (unemployment and inflation) is 11.3% as of July
Quote: Bill Miller, CFA – Chairman and CIO –Legg Mason Capital Management
“The problem is that real risk and perceived risk are 2 different things. And that is where people get into trouble, because they perceive risk to be high when prices are low, and they perceived risk to be low when prices are high. That is a psychological problem that most people have.”
Quote: Benjamin Franklin(1706-1790) on Uncertainty
“All human situations have their inconveniences. We feel those of the present but neither see or feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse.”
Volatility:-
-Uncertainty can create market volatility
-Short term –hear noises of bulls and bears(Don’t miss the forest for the trees)
-Long term- market don’t move in a linear manner but in cyclical patterns, It is wise to therefore invest and stay invested for long term.
Time in the Market vs Timing the Market
Between 80 -90% of the returns realized on stocks occurs between 2-7% of the time. So if you are out of the market when stocks make their move, your portfolio is doomed to under-performance.
Growth of $10,000 in an Investment that Perforned Similarly to the S&P 500 Index
(From December1991 to December 2006)
Stayed in Market Entire Time - $45,579
Missed 10 Best Days - $28,397
Missed 30 Best Days - $14,029
Missed 50 Best Days - $8,141
(source: Bloomberg.)
Are there opportunities for long term gains?
Some Economic Positives
Government’s globally are acting to restore order to financial markets
- Injecting liquidity into the system
- Lowering official interest rates
- Fiscal stimulus
- Injecting new equity into financial institutions
- Guaranteeing some deposits
Commodity price, e.g., Oil and Food have subsided
- Lowering inflationary concerns
- Reduces input costs
Productivity is strong in many countries, e.g US
Flexible economies are already adjusting
Transactions are occurring:
- Sovereign Wealth Funds
- Private market transactions, e.g, companies associated with Warren Buffett
Potential long term gains?
- in the case of equities.
Many equity markets have been sold off in an indiscriminate manner
Historically, times like these have provided attractive long term opportunities
No matter what the investment environment, we believe there is value by focusing on selecting stocks which exhibit the three pillars, namely:
- Improving and sustainable business fundamentals
- Attractive relative valuations
- Rising investor expectations
“Time in the market rather then timing the market”
It is worth remembering that a large percentage of out-performance is usually derived in only a few trading days of every year. Miss those days and that performance is lost forever. Then look to minimize risk and maximize returns by having a well diversified portfolio;
Opportunities exist in the market today, and disciplined stock selection over the
months ahead is likely to be well rewarded over the full investment cycle.
And this is what I learnt summarized….
Summary of Short Term Troubles:-
Financial Markets
-All major equity markets are well into bear territory
-Government globally have injected hundreds of billions of USD into the markets and lowered short term official interest rates
-Credit is not cheap and can be difficult to source
-Financial institutions have written off approximately USD600 billion in assets
-Oil is still expensive (despite having dropped a lot)
-Many commodity prices have corrected
-Volatility measures have been at all time highs
Real Economy:-
Global economies slowing
- contraction in many of the 190 countries
- Jobs disappearing – unemployment up
- Housing markets continue to struggle
- US Misery index (unemployment and inflation) is 11.3% as of July
Quote: Bill Miller, CFA – Chairman and CIO –Legg Mason Capital Management
“The problem is that real risk and perceived risk are 2 different things. And that is where people get into trouble, because they perceive risk to be high when prices are low, and they perceived risk to be low when prices are high. That is a psychological problem that most people have.”
Quote: Benjamin Franklin(1706-1790) on Uncertainty
“All human situations have their inconveniences. We feel those of the present but neither see or feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse.”
Volatility:-
-Uncertainty can create market volatility
-Short term –hear noises of bulls and bears(Don’t miss the forest for the trees)
-Long term- market don’t move in a linear manner but in cyclical patterns, It is wise to therefore invest and stay invested for long term.
Time in the Market vs Timing the Market
Between 80 -90% of the returns realized on stocks occurs between 2-7% of the time. So if you are out of the market when stocks make their move, your portfolio is doomed to under-performance.
Growth of $10,000 in an Investment that Perforned Similarly to the S&P 500 Index
(From December1991 to December 2006)
Stayed in Market Entire Time - $45,579
Missed 10 Best Days - $28,397
Missed 30 Best Days - $14,029
Missed 50 Best Days - $8,141
(source: Bloomberg.)
Are there opportunities for long term gains?
Some Economic Positives
Government’s globally are acting to restore order to financial markets
- Injecting liquidity into the system
- Lowering official interest rates
- Fiscal stimulus
- Injecting new equity into financial institutions
- Guaranteeing some deposits
Commodity price, e.g., Oil and Food have subsided
- Lowering inflationary concerns
- Reduces input costs
Productivity is strong in many countries, e.g US
Flexible economies are already adjusting
Transactions are occurring:
- Sovereign Wealth Funds
- Private market transactions, e.g, companies associated with Warren Buffett
Potential long term gains?
- in the case of equities.
Many equity markets have been sold off in an indiscriminate manner
Historically, times like these have provided attractive long term opportunities
No matter what the investment environment, we believe there is value by focusing on selecting stocks which exhibit the three pillars, namely:
- Improving and sustainable business fundamentals
- Attractive relative valuations
- Rising investor expectations
“Time in the market rather then timing the market”
It is worth remembering that a large percentage of out-performance is usually derived in only a few trading days of every year. Miss those days and that performance is lost forever. Then look to minimize risk and maximize returns by having a well diversified portfolio;
Opportunities exist in the market today, and disciplined stock selection over the
months ahead is likely to be well rewarded over the full investment cycle.
What should investors do in this crisis
(Taken of the Personal Money Magazine, Malaysia edition -January 2009)
By Robert Foo
The question I am asked often these days is,"So, with this world financial crisis, what would you advise me to do?"
Tha advice depends on each person's circumstances and financial and life objectives. But here are some guidelines:
1. Check that your long-term savings plan is still on track
A savings plan is crucial to achieving your financial objectives and life goals. Downturns usually mean more retrenchments, salary/income cuts, reductions in business volume, and so on. These affect your income and ability to sustain savings over the long term. Consider alternative or multiple-income sources to reduce severe shocks to your long term income situation.
2. Stick to your long-term investment plan
There will always be occurences such as the US subprime, and credit crisis, SARS, dotcom bust, the Asian financial crisis and the Sept 11 terrorist atacks that causes change to your long term plan.
We always advise clients to ride the long term growth curve rather then the very exciting and short term curves. Although they can give good returns, the return probability is much lower and unacceptable to most individuals. Didn't we wish we put more money into the equity market when the KLCI was at about 300 points during the Asian financial crisis?
In the long term, all markets go up, but we are now seeing another short -term fluctuation. Expect more volatility as markets will be closely linked to globalisation, but stick to your long term plan.
3.Dont put all your eggs into one basket
Diversify diversify, diversify: This very common wisdom is often ignored by investors during periods of market euphoria. Remember the hype over the commodities, China, Vietnam, BRIC(Brazil, Russia, India , China), global infrastructure and other thematic funds?
Many of these funds fell by more than 30% in their first year.
many investors have over-exposed themselves to equity, prompted by the exceptional returns in 2007. Reality struck last year.
So diversify. Place sufficient money in other markets, consider alternative asset classes that are not closely correlated with the usual equity/fixed income markets. Although many equity funds have fallen in value, there are still funds that performed last year, be selective. Don't just invest in one or two funds. Build a portfolio that fit your investment needs and profile.
4. If necessary, get professional help
Buying investment products is extremely easy. Knowing the right way to invest is something else.
5.Do not be too affected by sensational news
There is hardly any positive news in the media at this time. The daily talking heads on CNBC and CNN are not going to help you much as most of the news is about what's been happening in the last few weeks or days. Rarely do they provide you with long term views because they are not as sensational and exciting as current news. So do not react to short term information and fluctuations.
**********************************************
By Robert Foo
The question I am asked often these days is,"So, with this world financial crisis, what would you advise me to do?"
Tha advice depends on each person's circumstances and financial and life objectives. But here are some guidelines:
1. Check that your long-term savings plan is still on track
A savings plan is crucial to achieving your financial objectives and life goals. Downturns usually mean more retrenchments, salary/income cuts, reductions in business volume, and so on. These affect your income and ability to sustain savings over the long term. Consider alternative or multiple-income sources to reduce severe shocks to your long term income situation.
2. Stick to your long-term investment plan
There will always be occurences such as the US subprime, and credit crisis, SARS, dotcom bust, the Asian financial crisis and the Sept 11 terrorist atacks that causes change to your long term plan.
We always advise clients to ride the long term growth curve rather then the very exciting and short term curves. Although they can give good returns, the return probability is much lower and unacceptable to most individuals. Didn't we wish we put more money into the equity market when the KLCI was at about 300 points during the Asian financial crisis?
In the long term, all markets go up, but we are now seeing another short -term fluctuation. Expect more volatility as markets will be closely linked to globalisation, but stick to your long term plan.
3.Dont put all your eggs into one basket
Diversify diversify, diversify: This very common wisdom is often ignored by investors during periods of market euphoria. Remember the hype over the commodities, China, Vietnam, BRIC(Brazil, Russia, India , China), global infrastructure and other thematic funds?
Many of these funds fell by more than 30% in their first year.
many investors have over-exposed themselves to equity, prompted by the exceptional returns in 2007. Reality struck last year.
So diversify. Place sufficient money in other markets, consider alternative asset classes that are not closely correlated with the usual equity/fixed income markets. Although many equity funds have fallen in value, there are still funds that performed last year, be selective. Don't just invest in one or two funds. Build a portfolio that fit your investment needs and profile.
4. If necessary, get professional help
Buying investment products is extremely easy. Knowing the right way to invest is something else.
5.Do not be too affected by sensational news
There is hardly any positive news in the media at this time. The daily talking heads on CNBC and CNN are not going to help you much as most of the news is about what's been happening in the last few weeks or days. Rarely do they provide you with long term views because they are not as sensational and exciting as current news. So do not react to short term information and fluctuations.
**********************************************
The secret of investing in Unit Trust
There are 3 common strategies used in unit trust investment.
1. Ringgit Cost Averaging
Regularly invest a fix amount in a unit trust fund regardless of market trend is called the Ringgit Cost Averaging strategy. The actual market performance is fluctuating. When the equity market is high, you buy less unit with the same amount. When the market is low, you buy more unit. For long term, you will get much more unit in the lower price range.
2. Portfolio Re-balancing
Portfolio re-balancing is the process of bringing the different asset classes back into proper relationship following a significant change in one or more. More simply stated, it is returning your portfolio to the proper mix of stocks, bonds and cash when they no longer conform to your plan.
Example:You start investing 50% in equity and 50% in fixed income fund.1 year later, the equity rises and now your portfolio consist of 80% equity and 20% fixed income fund.To re-balance your portfolio, you should sell 30% of your total fund in equity and invest it in fixed income fund so that the portfolio is maintained.This is the simple principle of buying low, and selling high.
3. Switching
Switching will lock in the gain you made in your unit trust investment. Switching fees are low and definitely lower than the upfront service charge. When you are making profit from an equity fund, you can switch it to some lower risk fund to lock the gain instead of selling it for cash. When the market turn low, you can switch it back to equity fund.
Regularly invest a fix amount in a unit trust fund regardless of market trend is called the Ringgit Cost Averaging strategy. The actual market performance is fluctuating. When the equity market is high, you buy less unit with the same amount. When the market is low, you buy more unit. For long term, you will get much more unit in the lower price range.
2. Portfolio Re-balancing
Portfolio re-balancing is the process of bringing the different asset classes back into proper relationship following a significant change in one or more. More simply stated, it is returning your portfolio to the proper mix of stocks, bonds and cash when they no longer conform to your plan.
Example:You start investing 50% in equity and 50% in fixed income fund.1 year later, the equity rises and now your portfolio consist of 80% equity and 20% fixed income fund.To re-balance your portfolio, you should sell 30% of your total fund in equity and invest it in fixed income fund so that the portfolio is maintained.This is the simple principle of buying low, and selling high.
3. Switching
Switching will lock in the gain you made in your unit trust investment. Switching fees are low and definitely lower than the upfront service charge. When you are making profit from an equity fund, you can switch it to some lower risk fund to lock the gain instead of selling it for cash. When the market turn low, you can switch it back to equity fund.
A bit of interesting reading…
By Mark Paine
This is not the time to become timid and hide away from he big bad world of investments, but a time to get aggressive and become a winner.
Firstly, we have to dispel the illusion that money invested in houses in Singapore, or kept in the bank are your best options. Yes, you would have lost money had you invested into a fund over the past year but over three years even in funds that have fallen 50 percent in the past year, you would still be up 89 percent on your investment – that’s a return of over 23 percent a year (going by HSBC China Fund figures)
Buying houses is all well and good, but they are not the most liquid asset class and historically, house prices in Singapore have fallen in line with the markets with a delay of about 3 months. At the time of (author’s)writing, high end properties in Singapore have fallen in price in the region of 30-40 per cent(URA data stating Marina Bay apartment prices), and that is an awful lot of money to lose when you compare the stock market which has only fallen by 28 per cent.
I don’t know which funds are going to be hot picks for the next few years – we have seen dot com, pharmaceuticals, Eastern Europe, BRIC (Brazil, Russia, India and China), energy and commodities as the hot sector over the past seven or eight years and who knows what will be the next big sector. However, in my book, a company with a low PE ratio and a good balance sheet has got to be a good investment for the next few years. These companies- whether bought directly or through funds-are on sale at a discount right now.
There is only one sure-fire way to accumulate money and that is to spend less than you earn, invest it, and get a positive return on your investment year after year. Suffice to say, this is not the time to become timid and hide away from he big bad world of investments, but a time to get aggressive and become a winner. As Winston Churchill said, “When you are going through Hell, keep going.”
So don’t keep your cash in the biscuit tin, wise up, do some research and get involved I one of the most dynamic investment markets we have seen in a very long time!
{TO read the above article, get your January copy of the August Man magazine (Malaysian edition) }
Benjamin Graham's timeless key investing principles (articles from NST)
"TO ACHIEVE satisfactory investment results is easier than most people realise; to achieve superior results is harder than it looks." - these were the wise words of Benjamin Graham, the father of two fundamental investment disciplines - security analysis and value investing.
Not a name unheard of in the investing world, Benjamin Graham was an icon for many, including William J. Ruane and Irving Kahn. One of his most loyal and notable disciples, however, was Warren Buffet.
There is no better way to learn how to make it big in the investing world than learning it from the best and it doesn't get any better than Benjamin Graham.
Benjamin Graham was born in the UK in 1894 and moved to US when he was eight and a half years old. Although he came from a poor family, he was exceptionally bright at a young age. He graduated from Columbia University in 1914 and started his investment career by joining Wall Street as a financial analyst.
He established his first private investment organisation, the Benjamin Graham Joint Account, at the age of thirty two. During the Great Depression, between 1929 and 1932, he lost 70 per cent of his US$2.5 million (RM9.05 million) fund. Although some of his clients gave up, his fund managed to survive the worst, and by 1935, he recovered all the losses.
What did Graham consider as critical elements to successful investing? Here, we will briefly note the investing principles propoun-ded by Benjamin Graham.* Understand the difference between investment and speculation.Graham established a clear distinction between an investment and a speculation. To qualify as an investment, it must go through analysis, must have a good margin of safety and a satisfactory return. Speculation, on the reverse, merely involves timing and profiting from market fluctuation.* Do a detailed analysis as stocks represent a share of business.
In the process of doing a detailed analysis, investors need to have the mindset of treating stock purchasing as if they own a piece of the business to evaluate stock prices from the perspective of the underlying asset value, financial strength and future earning prospect, instead of focusing on the short-term fluctuation of the market. This is regarded as the intrinsic value of the company.* Build Margin of Safety.
Graham's most famous and influential motto is 'margin of safety'. The experiences that he cumulated during the frenzy of the Great Depression made a deep impression on him. He became a very cautious investor whose number one investment concern is the safety of investment principal.
If the intrinsic value of a stock is RM1 and you buy the stock at the price of 67 sen, then your margin of safety is 33 per cent. This serves as a cushion to your investment in the case of a market downturn or to provide you with a margin of error in calculating the intrinsic value, so that the chances of you losing your principal are at the lowest.* Have a realistic return objective.
The objective of making an investment is to make money. However, Graham warns against aiming for unrealistic return objective. If you expect an abnormally high return from your investment, chances are you will be exposing yourself to unnecessary risk in order to achieve your return objective, which will become speculation instead of investment.
There is no short cut or quick ways to making money. Graham's way of investing is to set a realistic return objective and making investments based on sound investment principles and having the discipline to follow through.* Treat the market as servant, not master.
Graham believes that risks and returns do not increase proportionately. He sees the opportunities in market volatilities. To him, the stock market is manic-depressive and investors should go for a bargain hunt during a market down turn.
The risk of investment can be significantly reduced if investors understand the business and apply good judgment based on the above first three elements in searching for good fundamental stocks, which are temporarily depressed due to market reasons.
However, he discourages making decisions based on any form of forecast and timing of the market. Instead, the decision making should be made based on price attractiveness.
Graham's stock selection criteria include a price-to-book ratio of 1.5 times, price-to-earnings ratio of below 20 times and debt-to-equity ratio of 0.5 times.
From the above, you can observe that Graham advocates defensive investing approaches. This later became the foundation of the investing principles of the famous investing guru, Warren Buffet, who learned about the quantitative screening process from Graham while working in Graham's company.
However, for a lay person to successfully apply Graham's approaches, you need to be prepared to overcome some hurdles. You need to do a lot of hard work and have good accounting knowledge in order to dissect the financial information provided in the annual report or other financial publications.
In addition to that, you will have to be highly sensitive to any news that will affect the performance of the company or the relevant industries. Having the ability to derive your own conclusion from your research, you will also then need to have the determination and faith in your work so as to prevent yourself from being blown away by the market.
This is the first in a weekly series of articles by the Securities Industry Development Corp to help educate investors. Incorporated in March 2007, SIDC is a leading capital markets education, training and information resource provider. For more tips on wise investing, log on to www.min.com. my
RAISE YOUR CHANCES OF INVESTING PROFITABLY by Rajen Devadason
primary bourse is currently on an upswing or downswing
is pretty much immaterial - in the grander scheme of
things.
The reason I say that is equity markets have
an upward bias because the global economy generally
expands from one year to the next.
But that truth can be of little comfort to those who
lack the experience needed to take the long-term
view of things.
So, here's a valuable piece of advice from me to you:
You will usually do best of all, again in general and
over the long haul, if you take investment legend Sir
John Templeton's advice to be 'accommodating'. This
means that when people are rushing to sell in a down
market, you smile and generously buy investments
selectively. And when the milling masses all rush into
an equity market, thus causing prices to run up, you
again take the high road and kindly sell to them.
The net effect of doing so is you will have a much greater
chance than the hordes do of truly buying low and
selling high.
Of course, committing to education is what's going to
be of real help to you in the decades ahead. I
sincerely hope you will focus your cerebral efforts
upon transforming yourself into a wise lifelong
investor.
This will result in your avoiding the most common
failing during times when equity markets overheat,
namely magically turning yourself into a wheeler-dealer
speculator.
As I've written before, most such individuals
tragically end up merely contributing to the long-term
retirement funds or kids' college education funds of
the wiser, calmer, longer term investors who sit on the
opposite of such frenetic trades.
Then carry out your own online or library research on
'Warren Buffett', 'Berkshire Hathaway', 'Benjamin
Graham', 'margin of safety' and 'long-term
investing'.
Taking the time to learn deeply the intricacies of
capital market investing will hold you and those you
love in very, very good stead.
What should investors do in this crisis
By Robert Foo
The question I am asked often these days is,"So, with this world financial crisis, what would you advise me to do?"
Tha advice depends on each person's circumstances and financial and life objectives. But here are some guidelines:
1. Check that your long-term savings plan is still on track
A savings plan is crucial to achieving your financial objectives and life goals. Downturns usually mean more retrenchments, salary/income cuts, reductions in business volume, and so on. These affect your income and ability to sustain savings over the long term. Consider alternative or multiple-income sources to reduce severe shocks to your long term income situation.
2. Stick to your long-term investment plan
There will always be occurences such as the US subprime, and credit crisis, SARS, dotcom bust, the Asian financial crisis and the Sept 11 terrorist atacks that causes change to your long term plan.
We always advise clients to ride the long term growth curve rather then the very exciting and short term curves. Although they can give good returns, the return probability is much lower and unacceptable to most individuals. Didn't we wish we put more money into the equity market when the KLCI was at about 300 points during the Asian financial crisis?
In the long term, all markets go up, but we are now seeing another short -term fluctuation. Expect more volatility as markets will be closely linked to globalisation, but stick to your long term plan.
3.Dont put all your eggs into one basket
Diversify diversify, diversify: This very common wisdom is often ignored by investors during periods of market euphoria. Remember the hype over the commodities, China, Vietnam, BRIC(Brazil, Russia, India , China), global infrastructure and other thematic funds?
Many of these funds fell by more than 30% in their first year.
many investors have over-exposed themselves to equity, prompted by the exceptional returns in 2007. Reality struck last year.
So diversify. Place sufficient money in other markets, consider alternative asset classes that are not closely correlated with the usual equity/fixed income markets. Although many equity funds have fallen in value, there are still funds that performed last year, be selective. Don't just invest in one or two funds. Build a portfolio that fit your investment needs and profile.
4. If necessary, get professional help
Buying investment products is extremely easy. Knowing the right way to invest is something else.
5.Do not be too affected by sensational news
There is hardly any positive news in the media at this time. The daily talking heads on CNBC and CNN are not going to help you much as most of the news is about what's been happening in the last few weeks or days. Rarely do they provide you with long term views because they are not as sensational and exciting as current news. So do not react to short term information and fluctuations.
How to Make Huge Profits Investing in a Declining Market
Investors are scared of the stock market
There is a simple reason why so many investors and even professional money managers are scared of the stock market–in the short term, stock prices seem arbitrary. Up one day and down the next, watching the ticker every second the market is open can cause one to wonder just what in the world is going on.
Warren Buffett described this phenomenon like only Warren Buffett can:
“In the short run, the market is a voting machine but in the long run it is a weighing machine.”
Actually, Benjamin Graham first said this, and it has stuck with Mr. Buffett, who repeats it often. But the wisdom behind this statement should be taken to heart.
In the short term, stock prices reflect all kinds of noise. Some politician or Financial Whiz says this or that, and stocks fluctuate. Unemployment numbers come out, and the market reacts. A politician says something to get elected, and the stock market traders do their thing. The point is that in the short term (I’d say 1 year or less), stock prices are often the result of factors that do not bear on the long-term value of the enterprise.
When viewed long term, however, the market truly does reflect the underlying value of public companies. By long term I mean really long term (10 years or more). Stocks can be undervalued or overvalued for a decade (see 1960s or 1990s). But given enough time, stocks will reflect the underlying value of the corporation that issued the security.
Investors sell on fear and buy on greed
While most would not quarrel with the above comments, many do not take them to heart. It is not easy to hold on to your investments when they fall 40%. You start to lose confidence in your investing decisions. Then you start to wonder if there has been some seismic shift in the markets.
Remember the Internet bubble? I recall investors talking about how the world was totally different with the Internet, and they used this lie to convince themselves to buy stocks of dot com companies with zero revenue. Remember the housing bubble? Folks would tell me that they are not making any more land, so prices must keep going up. Those folks are renting now and proclaiming that owning a home is NOT the financially prudent thing to do. Oh, brother!
The point is that many investors do exactly the opposite of what they should do. When stocks are going up, they buy, buy, buy. When the markets crash, out of fear, they sell, sell, sell. All I can say is that this is wrong, wrong, wrong.
Timing the stock market is a fool’s gameI have a friend who sold all of his equity investments (a 7 if not 8 figure portfolio) earlier this year before the market crash. At a party at his house the other day, friends were congratulating him on such a wise move. So I asked him if he was going to get back into the market now. He said no. Then I asked when he was going to get back into the market. He did not know. So I reminded everybody that his decision to sell will have been a good one only if he buys at the right time, too.
Successful market timing requires you to be right twice–once when you sell, and once when you buy. And over the lifetime of an investor, you must be correct over and over and over again. Good luck.
How to profit from a stock market crashThe simple and easy way to profit from a stock market crash is to do one of the hardest things in life: nothing. “Don’t just do something, stand there!” is the best strategy, in my opinion. Of course, this assumes that your asset allocation plan is appropriate for your investing horizon and risk tolerance. It also assumes that your investments have gone down because the market has gone down, not because you invested in some silly dot com company with no revenue.
So that’s what I’ve done. I’ve not changed my asset allocation plan. Most of my investors, my family members and I have continued to invest on a regular basis just as before. The proceeds will be going right back into my mutual funds to maintain my asset allocation for my retirement funding.
A side benefit of a market crashOne last thing. A market crash presents a great opportunity to determine just what your risk tolerance is. Mutual fund companies offer a short survey to help you determine your risk tolerance. The survey asks questions like what you would do if the market fell 20%. Would you sell, do nothing, or buy. Once you’ve answered these questions, the survey suggests an asset allocation based on your answers.
Those surveys are all well and good, but there is nothing like losing $10,000, or $100,000, or even $1 million to really gauge your risk tolerance. So after this market crash, you should know your risk tolerance very well. If you sold your investments over the past month or so, you make want to revisit your asset allocation plan. It may have been more risky than you can bear.
Sound money management includes investing for the long term and doing Dollar Cost Averaging. As difficult as it may be, this means not making investing decisions based on fear but through prudence, and that guarantees a much safer footing anytime. So share with me how you have handled your investments during this down market.
How RM100 could save your retirement
The economy is in turmoil. You may have noticed.
Your house is worth less, your job is less secure, credit is harder to come by, and filling the gas tank consumes virtually a whole day's pay. Many people all over the world are experiencing their worst financial pinch in decades.
Thinking about the future seems almost pointless.
There is a solution, though. Don't listen to your budget howl about how tight money is and how you need every dime for today.
Now, more than ever, it's vital to build a cushion for tomorrow.
It's not a pipe dream. It's essential.
As difficult as it might be now to make ends meet, it would be far worse when you're old and gray and don't have bus fare, let alone money to fix the car.
The good news : RM25 a week or RM100 a month will do it.
Unbelievably depressing data
First, let's contemplate a scary data a research company that tracks 20 million participants (i.e., real people) in USA
Nearly half of all workers 25 and older have less than $50,000 saved for retirement (excluding their homes and any pensions). It's just the same and equally as bad in Malaysia as I'm sure many of you have read that many people finish off their EPF within 3-5 years (if it lasts even that long) What happens after that???
22% of workers and 28% of retirees say they have nothing saved.
The top financial obstacles people listed were, in order: the rising cost of living, health insurance or medical expenses, mortgage payments, debt, and fuel and energy costs.
Cost of living versus cost of not saving
Those would be the reasons my husband and I have a hard time saving, too.
Our electricity bills cost RM200 . It now costs more than RM80 to fill up the car, and, honestly, I can't even add up the petrol or grocery receipts each month because it's so depressing.
I did it once. Not including petrol, we spent about RM800 on food and miscellaneous household expenses, about RM150 to RM200 more than we did last few years.
We even cut back our retirement savings for two months in order to play catch-up with our taxes.
But we kept saving, and we're still saving. Because no one in this economy can afford not to save.
"When you spend a ringgit today, you're giving up about RM16 in 36 years from now," says David Wray, the president of a nonprofit association of companies that provide defined-benefit plans to about 5 million workers.
Add before you subtractWray uses something called the Rule of 72, which is a standard personal-finance tool to demonstrate the power of compounding.
The Rule of 72 estimates the rate at which your money saved will double. Just take a hypothetical rate of return -- Wray uses 8% -- and divide that into 72. By this estimate, your money would double every nine years.
That means a ringgit invested at 8% today would be worth RM2 in nine years, RM4 after 18 years, RM8 after 27 years and RM16 after 36 years.
Of course, there are countless factors that affect the real-life growth rate of your savings: how your money is invested, the time frame, the rate of inflation, taxes and so forth.
The point is that whatever amount you save won't remain the same; it grows exponentially over time. Thus it's less important how much you save than that you harness that financial momentum by saving absolutely anything at all. Even RM100 at a time.
The RM100 retirement revival planHow much might the average strapped person be able to save? I pick RM100. It's a round number, and a small one, but it can add up quickly, as you'll see.
According to our pocket calculator(to obtain one, you can call me at 012 3386033), if you saved just RM100 a month, you'd end up with almost RM100,627 in 30 years, assuming an 8% return. (Historically, that's been the long-term minimum return for investing in our unit trust investment.)
That amount could keep you afloat in your golden years. It's a lot more than nothing.
An additional cushion of even relatively small amounts like those can cover some medical costs, car and home repairs or other expenses that might otherwise send you into debt or leave you flat broke.
Ideas on how to save RM100Here are the rules: The key is to pick at least one way you can immediately save RM100 this month. If you pick more than one, that's great. But for each RM100 you save, you have to:
* Put RM100 in an envelope and deposit that money in your mutual fund account by the end of the month(don’t cheat!!)
* Write a check for RM100, put that in an envelope, and deposit it.
* Or set up an automatic transfer/standing instructions right now for RM100 to be zapped into your savings account each month .
Yes, you can save RM100How easy are these?
* Cut RM100 out of your monthly grocery budget
* Slice RM100 out of your vices for the month (cigarettes, alcohol, magazines, music downloads, ice cream, pay-per-view TV).
* Bring lunch to work twice a week. (Leftovers are free.)
* Avoid buying breakfast, coffee(especially at Starbucks or Coffee Bean), soda and snacks. (Or just be good for a few days.)
* Ditch monthly charges and subscriptions you never use.
And if, heaven forbid, you find yourself resisting the idea of taking just one of these simple, mindless steps that will cost you barely any effort whatsoever, just remind your shortsighted self: This is worth RM150,000!
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Baby Steps to Debt Freedom
Many people resort to buying against their credit card or borrowing from an office mate or a close friend to survive from pay day to pay day.
But a habit of borrowing, coupled with poor personal financial management, can land you in deep indebtedness and cause you to lose your home and lose other people’s trust.
Crawling out of debt is not easy – but it can be done. Financial planners share some sound advice for overcoming your money debacles.
Money drainersBefore taking those small steps to debt freedom, recognize what practices contribute to your accumulation of debts:
- Overspending: Spending more than they earn is the most common reason people get mired in personal debts. And the most efficient tool for over-spending is the credit card. Unfortunately, credit card misuse can get you into deep trouble by spending money yet to be earned.
- Absence of a financial safety net: Even wise spenders can suddenly find themselves in debt if they get caught unprepared by life-changing circumstances, such as a medical emergency or a death in the family. If you haven’t taken steps to protect your family against financial impacts, unfortunate events can easily get you into serious debt.
- Lack of plans for the future: Not having concrete goals, such as “we need to have out own home in 5 years” or “next year I sould be able to afford an educational plan for my child” can worsen your overspending tendencies. It is important to educate oneself on financial planning and the importance of savings.
- Being materialistic: Being unable to differentiate needs from wants can get you into a personal debt crisis
Path to freedomFollow these practical tips to start eliminating your debts.
1.Live within your means. Make a budget and stick to it. List down how much money comes in and how much you can afford to spend and what you can set aside for savings and debt payments, Your best chance of fixing your debt problem is a simple lifestyle change. So stop comparing yourself with others and be satisfied with hat you have.
2.Pay yourself first. Immediate reserve 10% of your salary for savings every month. The savings can then be put into investment plans. Take an insurance plan that you can comfortably pay even if it means being under-insured. Under is better then nothing.
3.Make debt payments a priority. No matter how long it takes, pay off loans one at a time until they are all zeroed out. If you have multiple credit cards, transfer all balances to the card with the lowest interest rate. Cut up all the other cards and avoid using the remaining card until all debts are paid.
4.Get the whole family involved. Make your financial goals a family project. Help children understand why everyone needs to tighten their belts, teach them how to save and train them to prioritize expenses.
5.Start a sideline or home business. Start a small venture base on whatever interest you have using the minimum investment to help yourself earn some extra money and widen your entrepreneurial experience.
Being free from debt is an arduous process, but the rewards are well worth it- peace of mind and the opportunity to start saving for your family’s future.
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