Key lessons learnt for 2007 in financial freedom

2008 is coming soon.

Looking back, I have written a total of 143 blog posts (including this post) since this blog was started early this year. I have averaged a blog post every two to three days and I have learnt more about my own journey towards financial freedom through thinking and writing about my own adventures in fivecentstencents.

What are the 5 key lessons I have learnt in 2007 in terms of financial freedom?

1) Preserve capital
I have come to realise that not losing money is really the fundamental principle in growing my investible savings towards the levels needed for passive income to exceed living expenses. If you lose capital, you have to earn it back through work/business/investments to top it up. When you preserve capital, you have the ability to deploy that capital into defensive investments to ride out volatile climates or put that capital into growth areas for measured risk taking. If your capital declines over time, your networth also declines with it.

The market is always there for you. You do not have to be trading all the time to grow your networth. Choose your engagements with the market in your own time. If you have capital you have holding power. You can always come back to the market again in the near future.

2) Practice risk management
To be 100% in any asset class is highly risky and does not provide for any diversification. The August 2007 correction demonstrated clearly to me when I was in equities that my porfolio could submerge faster than you can say, "sub-prime". Hence, I realise I need to continuously keep a portion of my portfolio in less risky assets such as treasury bills or deposits as a counter-balance to the volatilty in the other assets.

3) Monitor your investments
Knowing what your networth is allows you to better plan the level of risks and returns you can afford to take with your investments. Currently, I am about 13% in cash and cash equivalents and 87% in equities. This is relatively aggressive as I still have a long time horizon before I hit the CPF minimum withdrawal age and hence I am focussed on growing my retirement nest egg by taking more risks now while I still have years of working life in me.

Monitoring my investments allows me to track whether I am moving closer or further away from my targetted investible savings that is sufficient to generate enough passive income to cover my living expenses. You need to take periodic stock take in order to ascertain if you are on course towards your goal of financial freedom.

4) Develop patience
The road towards financial freedom is long. Patience is required to continue each day by living within your means, saving and investing and planning for the long-term. Occasional sacrifices of not blowing bonuses away on the latest gadgets, the coolest luxury good or the exotic holiday need to be made so as to build up investment capital. Patience and a cool head is also needed to ride out the market turbulence and volatility that will be the hallmark of the equity market.

5) Enjoy the journey
This is perhaps the most critical lesson of them all. To be happy whether or not you hit your financial freedom target. Life is to be savoured each day while we are on the journey. The journey itself is half the fun! You strive towards each of your smaller objectives that help you meet your overall goal of financial freedom.

In the meantime, enjoy the process, take pleasure in the simple things in life: a child's laugher; family dinner together; an exciting movie; a pleasant stroll in a public park; feeling the cool water as you swim laps; tasting a freshly home-cooked meal; seeing your networth grow every month, year and decade.

Above all, I wish you the greatest lesson... the lesson of being thankful for the things in life we already have: health, happiness and family.

Be well and prosper!

Investing in your own financial education

I am currently reading the book, "A Random Walk Down Wall Street" by Burton G. Malkiel and I must say his writing style is relatively easy to follow and very folksy! I've just started on his book and will post a book review when I have completed it.

Investing in your financial education by reading
The reason why I am introducing this book is to emphasise the importance of reading and getting ourselves equipped with the experiences of people who have been there and done that. In order to better prepare ourselves for our investing present and future, we must learn the mistakes of the past vicariously through the recorded experiences of smart players who have survived the investment boom and bust cycles.

Visit a library now and start reading about investments
When I visit investment forums, there are many people who ask "noob" or newbie questions about investments. That is to be expected as there is a sucker born every minute! I was one of those suckers once too and had my share of losing money. However, if you are serious about developing a realistic roadmap towards financial freedom, you must invest in educating yourself in investments. While the best things in life tend to cost a lot, knowledge can be gained if one is willing to invest time and effort in it. Our tax dollars pay to run the public libraries located conveniently across Singapore and really there is no excuse not to make a trip down during evenings or even weekends to avail ourselves to the wealth of knowledge that resides in the libraries.

The book I am reading comes from the Central Lending Library located along Bras Basah road. You can find this and similar books scattered all over the business or investment sections of the public libraries. Simply wander around the business section, hop on to the online catalogue and search for books on investment or ask the nearest librarian staff for help, they will direct you to where true riches first exist...In your mind as ideas and thoughts supported by a strong desire to grow your financial literacy and education.

Some of the books that you can consider reading include, "The Richest Man in Babylon", "Think and Grow Rich" and "One Up on Wall Street". All of these and more are available in our public libraries.

Financial freedom is a long journey, equip yourself with the ideas of the best brains in the business by spending a couple of hours a week reading. On the train/bus, in the loo, on a lazy weekend morning or just before bed. This small investment in your own personal development will reap rich rewards as you grow in your financial quotient!

Be well and prosper.

Does Singapore educate its young enough about personal finance?

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Originally uploaded by panzergrenadier

There are literally hundreds (and perhaps thousands) of questions to personal finance on some of the forums that I monitor and it reveals the abysmal lack of foundations built for our future generations when it comes to financial literacy. I too was ignorant about personal finance until I started working and I learnt some painful lessons the hard way, through losing some of my hard earned savings through investments in unit trusts that I didn't really understand.

Common financial questions
Some of the common questions posed by forummers are simple ones that can be answered by googling or searching for the right websites.

Take for example, this common question:

Q: "Where can I find the best interest rates for savings and fixed deposits"?
A: You can visit Qotion.com or check out the money section under Hardwarezone forums

Another similar question about loans:

Q: "Where can I find the best loan rates?"
A: You need to shop around different banks as loan packages can be customised to the requirements on the customers. You can also visit Dollardex or Qotion.com for some indicative rates.

Others who have just started working begin to think about their insurance needs. While there are a plethora of independent financial advisors, financial planners representing the big life insurers etc. There appears to be a relative lack of resources in our mainstream schools, polytechnics and universities to teach our young about personal finance. How can we be truly building up a nation of knowledge workers who know where to search for information if we do not equip them with the foundational financial literacy skills to chose between the bewildering range of financial products both suitable and unsuitable for them?

Are we leaving our young to the financial wolves
Is it because we want to feed them to the ravenous financial planning industry, the fund management industry, the financial service sector that will sell and sell and sell them the financial products they think they need?

When I started this blog to share what I knew about treasury bills, I am amazed that virtually everyone I talk to in the physical world (including financial planners themselves!) are not aware about how they work and how retail consumers can invest in them either direct with the primary dealers or through poems. This scares me as it shows how a low cost and safe instrument that yields at fixed deposit rates for low minimum sums of SGD 1,000 is given so low publicity while financial institutions hawk credit linked notes and other derivative products to the unsuspecting investing public while relying on fine print and brandishing the famous latin phrase "caveat emptor" (let the buyer beware!).

I do not think this is a satisfactory state of affairs. Do you think that we should continue to allow our youth to find their ways into debt, not learn about personal finance until they unwittingly get into trouble with banks, financial institutions, credit bureaus and be declared bankrupts until we are satisfied?

Let me know your views by leaving a comment! I'd love to hear what you have to say be it as a consumer, a professional in the financial planning world or staffer in a bank, financial institution or even the regulator!

Be well and prosper!