Measures have to be taken!


An article on Business times (BT) that caught my attention today. It was about those late baby boomers in Singapore, those born between 1945-1960+ , having their financial freedom or so called retirement accounts being wiped out due to the recent financial turmoil happening in this century, the story goes on to depict sad scenarios where most of these people's investment portfolio were not only wiped out, some even have huge outstanding loans/debts/margins to pay. Their jobs and future prospects don;t look good and many of them are thinking of liquidating their investments (Unit Trust, Mutual Funds etc) to make ends meet. The article goes on to say, that good financial planning and habits are vital skill that one has to acquire or seek help early to prevent these scenarios from ever happening in future again, then they go on to recommend financial advisers etc etc.

Having read the article, i have to ask myself, have i done enough to prevent such a situation from happening to me? I really do not want to be in those sad scenarios as described by the article, like having to still pay back car/credit card debts/housing/margin loans while your 50 plus and still have to support family like their children, aged parents and spouses while your job is at stake.


So i just did a little review on what are the factors or variables that contribute to these so called "sad" scenarios that some of these baby boomers are facing and what have i done or going to do in the future to ensure this will not happen to me.

Looking at the article one more time, the first factor i noticed is..
DEBTS

Things like credit card debts, housing loans, margin debts, other outstanding loans. Some of these people have up to 4 credit cards that were used to do shopping, paying bills, paying credit card statements and other leisure activities.

No doubt some debts can;t be avoided, like study loans and tuition fees owed to parents etc, i for one am no fan of debts. Even my $5,100 loans used to get my thru my studies in Polytechnic , which are due in 10 years with a fixed rate of 3% via CFP really annoys me to the core. I just hate the feeling of owing someone money, be it my parents or a close relative.

Other then this study loan debt, im in fact considered debt free, i have no credit cards , no housing loans or any car loans to pay. But don't get me wrong, i think getting a few credit cards , maybe one or two to enjoy the previllages and perks is also a good idea, but i have to always remember to pay up on time or before time. Never ever bring forward owed credit to the next payment period. And if i keep this mentality of hating to owe others money and never borrow what i couldn't afford, i think i should be fine in this area of debts.

The second factor is ...

Spending Habits
The more money you have, the more likely you will spend and the more "wants" will surround your life and these things that were once not needed, now appear to become needs itself. If one were to apply self discipline and control on spending regardless of the increased in amount of income he or she brings per mth or per year, that is skill which im developing and hoping to master in the future. One good example will be my personal bring home income. During the first few months of service i only brought home $400 a mth (LOL), my needs were simple, eat, transport and buy a few books etc. After 4-5 mths, my bring home income increased to $1200 (Muahaha) thru tuition, swimming lessons etc. My needs suddenly included, eating at restaurants, buying DVDs, getting nicer presents for my friend (Every mth sure got one friend's birthday) etc etc. So this is an observation of myself and my habit of spending in relations to the increase of my bring home income. So lets say, if my income were to increased to $4000 in the future, $7k by 28, $11k by 33 etc, will be spending habits also increase? Definitely, but what if my income were to decrease , just like how the article mentioned about high flyer feeling the pain of adjustments , from driving BMs to sitting cabs. Will i have the ability to adjust to this deprovement of lifestyle? It will , likewise be painful, but what if, i separate my actual needs and wants in doing so reducing the latter? What if, i took measures like asking myself this question, "Do i really need this thing?" and "What returns can i get from buying this?". Definitely this way of thinking will result in lesser unnecessary spending and more savings in my bank account. Unnecessary spending for example (in my opinion) is like buying LV products frequently (every year perhaps). To me, LV is very expensive, plus the style and design look like brown sh!t. So what for spend soo much?!

Of course one can argue that by thinking this way im depriving myself from the enjoyments of life and making myself feel miserable. But guess what! Being able to save a huge amount of income brings enjoyment and fulfillment to me. If i can save $550 out of $1200 per mth, i would be delighted, and if in the future, should i get a proper career, if i can save like 60-70%, its like WOW and would definitely bring a big smile to me.
Adding value to your job

The next factor would be job security. I shall not comment much on this factor, as i still have not entered into the working world and experience the working life in Singapore. But needless to say, and i "think", why most people are afraid of losing their jobs, is because they do not or don't really add value to their companies or organisations they are working in. Yes, no doubt, factors like the economy, financial turmoil,credit crunch are responsible for job losses, but since these factors are uncontrollable by the individual, shouldn't the individual focus on things that are

controllable like adding value to yourself and your organisation? To me, if the individual were to add enough value to an organisation, there comes a point where you will obtain the title "indispensable" to the organisation or at best, make it very hard for your boss to fire you. Examples of value would be a sales girl mastering the art of persuasion thru courses and books, a hotel cook focuses on learning other exotic cuisines or dishes, an engineer obtaining skills like leadership, quality management, upgrading his diploma to a degree etc. By doing so, the chances of being fired at least will be reduced. So likewise, what measures have i taken to add value for my future job? Currently im looking into

-Learning Japanese, their language and business culture

-How to be a master at communication

-Character development, integrity and sorts

-How to be a good negotiator for dummies

-Courses like mastering Microsoft Office, Excel and PowerPoint

-Present your presentations like a pro.

-How to make a good impression, dress nicely and create a good self representation
Hopefully these mesures are enough.


And the last factor, involves investment..

Investments

Develop good investment habits writtern by Mr Ooi Kok Hwa,

Habit 1: Be risk-averse and preserve your capital
Some retailers have the misconception that being risk-averse in the stock market means making less money. Based on my observation, risk-averse investors are the ones that are able to make some gains despite the recent slump in the stock market.
In fact, risk-taking investors have been suffering huge losses lately. I believe investors need to be risk-averse and try your best to preserve your capital.
Even though investing in the stock market cannot guarantee returns, by being a risk-averse investor, you can still make good gains and have less risk of losing your capital.
According to Warren Buffett, buying good fundamental stocks can give high gains with lower risk. Risk-seeking investors normally get low returns while taking high risk. Hence, an investor that takes higher risk does not necessarily get compensated by higher returns.

Habit 2: Only invest in the business that you understand
A lot of investors do not understand the business of the companies that they invest in. They believe that they do not need to know that much detail as they can make fast money by listening to market rumours.
However, they do not realise that by the time they get the so-called first hand “insider information”, the market has already reacted to it and there is not much upside left to profit from.
Even worse, if after the purchase price goes down, the investors will be forced to either sell at a loss or hold for a longer term. If they understand the business, at least they would not end up buying poor fundamental stocks. The chances of good stocks appreciating in price are definitely higher than for the poorer ones.

Habit 3: Develop your own personal investing system
Some retailers are looking for a foolproof stock investing system that can consistently beat the stock market. They are willing to pay huge amounts of money to acquire that knowledge. We believe every investor should develop his own stock investing system that suits his individual needs and constraints.
All investing systems, whether based on fundamental or technical methods, require high levels of discipline and efforts. Unfortunately, most investors do not like to do homework. They believe there is someone somewhere who can beat the market all the time and all they need to do is to find him.
Hence, they will follow this so-called “guru” in buying stocks but are reluctant to follow his advice to cut losses. As a result, they will end up with a lot of poor fundamental stocks


Habit 4: Always search for new investment opportunities

Investors need to develop the habit of always seeking new investment opportunities. In Malaysia, sometimes you may need to look at 10 stocks before you find one or two that are suitable for long-term investment.
The best available information on any company is always the annual reports and public announcements. Investors need to spend time analysing the information and then make their own calculation and check whether it is cheap to buy those stocks at the current price.

Habit 5: Have patience to wait for the right time and right stocks to invest

Sometimes, certain investors believe that they have to predict the market’s next move to make big returns. According to investment gurus like Benjamin Graham and Warren Buffett, do not try to time the market, as you will always fail in predicting the next move.
Instead, what the investors really need to know is the value and the stock price of a company, rather than trying to predict market movement. Investors need to have the patience to wait for the right time and right stocks to invest.
As long as the stock price is selling far below the intrinsic value of the stock, you may consider buying those stocks even though the market may still be on the downtrend.

Habit 6: Able to hold on good fundamental stocks for long term
We believe all investors should own a portfolio of stocks that they will hold for the long term. As long as the businesses have the potential to grow and the companies are paying good dividends, investors need to develop the habit of holding the stocks for a longer term.
They should not be tempted to sell those stocks even if they may sometimes be trading at higher prices.

2 comments

musicwhiz said...

Hi Akatsuki,

Good write-up and I enjoyed reading it ! I especially felt that the part about Debts and Spending are very relevant in times of crisis and recession, as they will define whether you get into financial trouble or you can still survive.

Regards,
Musicwhiz

Leader of Akasuki said...

Hi mz, thanks :) Youre one of my investment mentors, look for the next write up.

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