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News that caught my eye

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It’s life. In retrospect, everything makes sense. But looking forward, there are always two sides to the story..

“U.S. quantitative easing will be reduced eventually, but that won’t have much of a negative impact because it happens on the back of the strong economic recovery,” said Gentoku Kiyokawa, Tokyo-based head of the Japanese investment management department at BNP Paribas. “Japanese stocks will keep climbing toward their May high and pass that level by the end of this year.”

Prices for Japanese equities already reflect the U.S. economic recovery and Yellen’s support for longer stimulus, leaving them vulnerable to declines, said Goya Nakao, a senior investment manager at Sompo Japan Nipponkoa Asset.

There will always be varying views and making investment decision under such a climate isn’t easy. (And that’s even before the the stock/fund selection consideration)
But in the end, maybe it’s the discipline in actually making the investment decision that makes the difference. The choice of action.

Source: washpost.bloomberg.com/Story?docId=1376-MWAM5F6JTSEA01-3T009A07I7B88BJNPQPOI9JO7S

Insurance – the lifebuoy we ignore

Financial planning is really about putting the odds in our favor so that we can achieve our dreams more effortlessly.

Yet, no one really enjoys talking about insurance even if the purpose of insurance is to ensure that the odds stay in our favor when unfortunate events happen – events that can potentially cripple your financial wealth (and dreams) or cause financial difficulty to another person.

So, if we were to draw a parallel between Insurance & lifebuoy, this must be it
lifebuoy

Very often, people also fall into the trap of purchasing insurance while not knowing exactly what the the insurance does. If you are lucky, you just end up with something that you do not need. But if you are unlucky, you may find yourself without the most basic and important insurance. That is, you find yourself with a Lifebuoy which is oversized/deflated/faulty.
The first step to prevent this from happening is to gain some basic understanding on risk management…

First things first, the basic function of insurance is to protect you against events which can be detrimental to your financial status. Such events include:

EVENTS

The vehicle (kind of insurance that you purchase) is what we use to protect against the events. Options are aplenty and some examples are

VEHICLES

What many people do not realise is that choosing the vehicle to use usually comes at the last stage of the planning process and that Implementation should also be in the sequence of managing the top most concern first. (So if you are concerned about hospitalisation costs, then get your health insurance in place first. Makes sense yeah?)

So how do we go about Risk Management Planning? Personally, I have summarised it into 3 main steps:

process

  1. The first part includes the identification of needs. Questions that you can ask yourself are: “What am I most concerned about? What kind of event would be detrimental to my life? Who are the people in my life whom I have to take care of? What is most important for me right now and why? What is my plan for the next few years? Can I self-insure?”
  2. The second part of the analysis and planning would involve the numbers “How long am I responsible for my dependents? For how long would this be a concern? How much would I need? How much liability do I have right now? How much am I willing and able to set aside for risk management?”. This is also where we bring in the data and statistics and calculate a number and target coverage to work towards to.
  3. The third and last part of the risk management planning would then be the implementation itself. That is, based on the above two points, seek for the most relevant vehicle for yourself. There are many solutions available in the market and identifying one that is right for you is definitely achievable.

On some days, I meet individuals who do not see any need for insurance because there is no pressing need for Wealth Protection. This can be true for some people. But for most of us, there is always a need (or goal) that we can fulfilled more effectively via insurance than to self insure.

Also, reasons for getting insurance go beyond just risk management. There are many ways whereby each of this insurance solution can be used to fulfill a purpose or solve a problem- such as wealth creation and transfer, in business or even for charity. Find out more in this earlier post:

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If the price is high, it is not worth buying.

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Profit = sell price – buy price.
Every investor dreams of making great profit by buying low and selling high. But many often fall into the trap of doing the opposite. This is because when prices are high and going north, it is easy to assume that it will continue in the same path. And this optimism and overconfidence is usually why people make irrational choices of investing at a high.

Similarly, pessimism due to suppressed prices often results in neglect of potentially good investment. To be fair, it is tough to make a call when situation is gloomy and grey.

One example would be the dot com bubble in the late 90s-00s. The return for NASDAQ in 1999 alone was over 85%. Yet, investors were still pouring money into the market then – just in time for the crash when interest rates went up and when companies did not seem like they could sustain the period. No one expected this until it happened. And it did not seem possible until it did.

Another more recent example would be Gold and when prices hit 1900. This episode also allowed me to experience first-hand that emotions affect judgement and it can affect anyone- even my most savvy clients made the same mistake. After all, when your banker, friends, neighbours and colleagues are all saying the same thing, then it is easy to believe that it’s true.

so the next time you are about to make an investment, ask yourself this: “is it expensive?”

Why people put off investing #1 (and why we shouldn’t)

If you were to ask the next person you meet “Do you think Investment is important?”, I am willing to bet that most of them would reply “Yes”. However, if we were to follow up with the next question “Are you invested right now?” or “Are you investing as much as you would like?”, I believe we would get alot more ‘No’ as answers.

So why the disparity? why are people not doing what they think is important?

Well, THESE could be the reasons why:
1) underestimating the time that they have to invest (which in turn, reduces motivation to save)
2) believing that they do not have enough money to make significant impact to their financial status
3) fear of losing money
4) believing that there would be a better time to invest in the future
5) not knowing where or how to start, or who to ask

#1.  underestimating the time that they have to invest (which in turn, reduces motivation to save)

Win$1000!

If you think about it, one definite large cash need for anyone would

Continue reading Why people put off investing #1 (and why we shouldn’t)