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!