Five Cents Ten Cents's 101st Post!

This blog has been in existence for seven months since February 2007 and I've managed to write my 100th post in the previous blog article!

The journey of a thousand miles starts with a single step
Wow, 100 blog posts about personal finance, investing and above all, how we can move step by step towards our own financial freedom on our own terms. :-)

When I first started out this blog, I honestly didn't know if I'd have enough topics to blog about so that the content doesn't become stale. Looking back, I realise that there are some themes that I do revisit from different angles but certain values and beliefs I hold towards money and investing still hold true and it tends to reveal itself through my thoughts about my own personal experiences in learning about what financial freedom is to me.

What does this 100th blog post help me achieve my financial freedom
What this blogging experience and birth of this blog fivecentstencents taught me was to take concrete action in my personal finance decisions. Instead of just thinking about the concept of multiples sources of income, I made use of the opportunities that Google AdSense opened up to try to monetise this blog. So far, it has yielded small returns that pays for my broadband costs. :-) My AdSense income will not replace my day-job but it taught me the importance of having multiples sources of income and also allowed me to exercise my article writing skills. This opens up other possible career opportunities in being a columnist or perhaps even writing my own book eventually!

This blog also allowed me to articulate my thoughts about my own approach to investments and financial awareness about how my day-to-day decisions in life about savings, spending or investing all impact upon my ultimate goal for financial freedom. It has sharpened my focus on why I live the relatively frugal life that I do, so that the savings I get from my paycheck go towards building up portfolio investments in equities, in time deposits, in savings accounts that all ultimately work for me by earning dividends, interest and capital gains.

It also allowed me to come into contact with like-minded individuals like yourself, who are salary men/women who work but want to build up our investments so that we can retire on our own terms and not be reliant on the Central Provident Fund (CPF) system that is being changed virtually every 5 years.

Taking action
One of the most important thing I learnt about investments is the power of compound interest. A simple way to apply it in our day-to-day lives is to learn the rule of 72. What the rule of 72 says is that the number of years it takes for an investment/debt to double is to take 72 and divide it by the interest rate.

So if you invest your money in treasury bills yielding 2% per annum, your investment in treasury bills will double in about 36 years. But if you invest in higher risk equities that potentially yields 10% returns (capital gains + dividends), it takes you about 7.2 years to double your investment. This helps you realise that it is important to consider investments that yield higher than the virtually risk-free returns of treasury bills and time deposits in banks (up to first $20,000).

However, higher returns are usually matched by higher risks and it is by being an educated and sophisticated investor through reading books on investments, learning from others, joining investment forums etc, that we slowly pick up the relevant skills and experiences to help us mitigate the risks. For example, I recently placed a deposit in a New-Zealand dollar foreign currency fixed deposit that yields 8%. I was fortunate that I placed the deposit during a recent correction in the NZD which has since risen due to the US Fed Funds rate being cut from 5.25% to 4.75%, this helped to push up demand for higher yielding currencies like the New Zealand and Australian dollars. Such foreign currency fixed deposits are not without risks and there is a very real risk of capital loss not interest and principal because of currency gains by the Singapore dollar against New Zealand. However, because I took action and placed some of my investible savings into this, I am now able to ride on this wave of both high yields in NZD plus the currency gains (which is mainly due to factors outside my control nor knowledge.)

We cannot 100% time the market, i.e. to buy at the lowest of the low and sell at the highest of the high. However, with experience and a keen interest supported by strong motivation, most of you can learn to better read the signs and key trends of stock markets, currency markets and global economic trends. The reality we have to face is that as globalisation creates greater disparity of wealth and income, those who are equipped to understand the global marketplace have a higher chance of benefitting and getting on the right side of the rich-poor divide.

What concrete steps in investing have you taken?
You don't have to immediately rush in and buy equities to take concrete steps in investing. Spend some time in our excellent public libraries and read "One Up on Wall Street" by Peter Lynch or "A Random Walk Down Wall Street" by Burton G. Malkiel. Read up the Singapore Government Securities website to find out about treasury bills. Visit SGX's website to find out how our equity market works. There are so many things you can do before you get into the market. Read, read and read more to equip yourself to make the right decisions about investments.

Be well and prosper.