Part I: The Art is Not in Making Money But Keeping It

"Money is such an incredible teacher, what you choose to do with your money shows whether you are truly influential or incapable"- Unknown

Hello! It is Tuesday all over again and time for another LinkedIn Newsletter! In this week's edition, we will talk about Saving Is A Breeze.

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One Step At A Time: Saving Is A Breeze

Written by Dave Loh

Is your savings account working as hard as you are at your work??

In hiking, we face more resistance as we move uphill towards higher ground. It is the same with investment. A desire to earn a higher return for your investment means including some risk-taking as well.

FIRST PHASE - GREAT OAKS GROW FROM LITTLE ACORNS

Every journey of a thousand miles begins with the first step forward. Wealth accumulation in a bank account is the first foundation of Financial Planning. If we broadly classify investment risk-taking into 4 different levels, then bank savings, fixed deposits and bonds belong in the lowest rank of NO RISK or LOW RISK. Holding periods can be short, up to 5 years, with annual returns from 0% to 5%, allowing for liquidity to meet needs.?

Before one embarks on any investment plan, one needs to reserve some liquidity for unexpected situations. This recommended emergency fund would be 6 times your monthly expenditure. This should meet living expenses for when you are unable to earn an income due to an array of reasons. For example, temporary disablement renders you unfit to work. For more unfortunate circumstances like contracting a critical illness or permanent disability, your insurance coverage can provide you with financial support.

SECOND PHASE – SLOW AND STEADY WINS THE RACE

Low-risk investment instruments like endowment savings, bonds and REITs funds can be ranked on the second tier of the investment risk-return chart. Usually, these are meant to be kept over a longer-term, like 10 to 25 years, in exchange for reasonable returns of 2% to 5%, without involving excessive risks. These are what we call disciplined saving.

There is always a need for some shift in mindset when one embarks on a higher tier of risk-return investment. Your financial planning will require more than just stashing cash in a savings account. Other than an emergency fund of six months’ worth of your estimated monthly expenses, we do not encourage too much cash in the bank as they erode in real value due to inflation. So start planning early.

THIRD PHASE – LOOK FAR TOWARDS HIGHER GROUNDS

Hiking up higher grounds requires much more physical energy, but then we will be rewarded with the fantastic view from the mountain top. After building up our financial portfolio with relatively consistent returns from fixed endowment savings and retirement plans, it is time to tackle this third tier of investment risk returns.?

These investment tools include ETF, Unit Trust funds and?commodity funds with projected returns ranging from 4% to 10%. The recommended holding period is at least five to 10 years to ride any market cycle. The upside of these investment tools is that you can withdraw from your investment with relative ease. Do note that there may be losses when closing your position. These tools are considered medium-liquidity investments and the risk factor is medium risk.

All investments involve some degree of risk and it is important to know your own risk appetite. This investment strategy may not be for you if you are happier with pursuing zero risk or returns similar to fixed deposit rates. If you are prepared to accept some risk for higher returns, there are ways to manage investment risks through portfolio diversification, asset allocation and also dollar-cost averaging strategy. This dollar averaging technique involves buying a fixed dollar amount of a particular investment on a regular schedule, regardless of price.

STAGE 4: SUBSTANTIAL COLDNESS ON HIGH GROUND

Sweet is the fruit of one’s labour. Standing on the peak and taking in the stunning views does not come easy. There are times you lose monies in investment, and hopefully learn a lesson or two to better your investment skills. But not everyone can have enough capital to create returns. Besides having investment capital, some may need to spend time learning the ropes.?

The fourth tier of investment risk-returns tools includes shares, forwards, futures, options and swaps. Providing potentially higher returns, given the level of risk, these tools are of different liquidity and come with different underlying strategies. Here, engaging professional help is recommended in managing your funds, especially if you do not have the time, knowledge and training.

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Successful investing is a journey, not a one-time event, and you'll need to prepare yourself as if you were going on a long trip. Begin by defining your destination,?then plan your investment journey accordingly.

Thank you so much for reading this week's newsletter! On the final note, feel free to follow my work here Telegram ?|?Facebook ?|?Instagram ?|?LinkedIn

Wishing you health and success,