How to Manage Your Investments for a Wealthy Retirement

February 13, 2013

in Investing

By Eileen Tan and Ui Wei Teck (guest contributors)

Besides getting a salary and saving money for rainy days, have you thought about how you can have a financial plan for your retirement? What would happen if you were to lose your job?

Real Estate and Value Investing are two of the ways you can grow your wealth if you adopt the correct mindset and strategy while working for others or running your own business. With wealth, you can have peace of mind, greater freedom to pursue what you truly enjoy doing, and contribute to do your part for the less advantaged.

With sufficient wealth built while you are still working, you will have no fear when any change occurs as the unexpected change has been expected and prepared for. If you have not already started to invest seriously, now is the time to get educated.

The difference between the Rich and the Poor

The difference between the Rich and the Poor is that the Rich will save and grow their money via investment, while the Poor will think that investment is risky and is only meant for the Rich. The Rich will buy assets and things with values that may go higher; while the poor will pay for expenditures and worry about losing their money! The Rich are prepared to be wrong and are aware that there is no such thing as guaranteed returns. Have you aligned your thinking to be aligned with how the Rich think?

If you have already been investing, congratulations! If you have been worrying about losing money and have not dipped your feet into investment, it is crucial to start learning it now and there is a way to do this safely. Most people start to think about saving money for retirement only when they are in their mid-life. If you can start the saving and investing habit earlier, you will be able to benefit from a longer investment journey and achieve a greater amount of wealth.

Your Emergency, Opportunity and Investment Funds

First of all, put aside an Emergency Fund that consists of a minimum of six months to one year’s personal and family expenses, including mortgage repayments and your children’s education expenditure. This is to protect you in case you lose your income. The Emergency Fund will allow you to maintain your lifestyle for six to twelve months while you secure a replacement income.

Next, you need to put aside an Opportunity Fund. Nobody knows when the next major market correction will come. You don’t want to be in a situation when you can’t benefit from it as the returns from investing during a crisis is extremely high, possibly in the range of 300% to 500%. So having an Opportunity Fund allows you to take advantage of such rare bargains.

After putting aside the Emergency Fund and the Opportunity Fund, the balance of your savings can be put into your Investment Fund. You have to think about how to structure a weather-proof portfolio with your Investment Fund, in a way that best meets your investment risk profile.

You can work out an allocation to the four key asset classes, i.e. Real Assets (including Property and Commodities), Stocks, Bonds and Cash. There is no right mix in this portfolio and you can review and rebalance it as regularly as you want or on a yearly basis. The key is not to put your entire fund into one asset class or one investment vehicle. By looking at different asset classes, you are adopting a diversification strategy to mitigate the risk.

To us, the safest investment that is able to generate a good return is Property. Property is also the best hedge against inflation. Our own portfolio is more heavily weighted on this asset class (as of this writing) and we elaborate more on this below.

Dynamic and Permanent Portfolios

Our portfolio is divided into two pots with allocations that can be adjusted depending on the market situation.

Dynamic (or Active) Portfolio

(80% to 90% of our Investment Fund is here):

70% Real Assets [68% Property and 2% Silver]

10% Stocks [8% in CDP and 2% using CFD]

20% Cash [16% Opportunity Fund and 4% TEP]

Permanent (or Passive) Portfolio

(10% to 20% of our investment fund is here):

25% Real Assets [Gold]

25% Stocks [Singapore and US Index ETFs]

25% Bonds [Singapore Government Bonds]

25% Cash [Cash Deposit]

Here is what some of the terms above mean:

CDP – The Central Depository Private Limited (CDP) is a wholly owned subsidiary of the Singapore Exchange Limited (SGX), and provides depository, clearing and computerized book-entry settlement facilities for products traded in the Singapore market. Every deposited certificate is registered in CDP’s name and held in safekeeping with a custodian bank.

CFD – Contract for Difference (CFD) is a derivative product. It is an agreement between two parties to exchange the difference between the entry and exit trading price of a chosen product. The price quoted is derived from an underlying asset – you do not own the product you are trading. CFDs track the price movement of the underlying asset, including interest and dividend payments.

TEP – TEP is a Traded Endowment Policy. Currently only the United Kingdom (UK) TEP is available in Singapore. It is basically a UK Endowment Policy bought from the secondary market in the UK. The Insurer remains the original person, while the Investor is the owner of the policy and enjoys the maturity value of the policy upon maturity. The Investor is protected under the UK Financial Services Compensation Scheme, which guarantees 90% of the Cash Value of the policy.

ETF – An Exchange Traded Fund (ETF) is an investment product that tracks an index, a commodity or a basket of assets like an index fund. It trades much like a stock on a stock exchange, at prices that closely match the underlying assets.

If you are not sure how to allocate your Investment Fund, you can put equal portions into each bucket and rebalance them yearly. By rebalancing your portfolio, you will be selling high and buying low.

 

By Eileen Tan and Ui Wei Teck, authors of Enjoying Mid-Life Without Crisis.

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