Updated: Sep 28
Across the next few weeks, I don't have any intention to discuss investments. This is because most of my clients have already done what they need to do, be it DCA, invested more, held their securities, etc.
The feeling is WEIRD. After what has felt like a good month of putting out fires, taking phone calls and drafting out $100 mass messages, I actually feel some peace of mind at last.
Seeing as my job is done, I felt it important to summarize some of the investment lessons to always put across to my clients – as well as you readers, that your investments are pretty good to go as long as you don’t muck it up with shoddy Financial Behaviour.
Most of my clients rely on me for execution, but there’s no reason you can’t give yourself a headstart.
In no particular order of importance…
1) You can, and should, still invest aggressively if the opportunity and time frame works for your situation
Some of my competitors have been sharing this non-stop, which I’m quite flattered. Mostly, I present analysis that shows you the disproportionate rises and falls of the market.
Most markets bounce back quite aggressively, and even those that don’t recover from their highs have produced decent returns (which I reluctantly concede that even the STI ETF wouldn’t be completely worthless in this area).
For the record, the average market bounce back in the first year is 46.4%.
From our last recession (GFC, or Great Financial Crisis), it was close to 70%. So if you had $100,000 and lost 30% of your portfolio in this time so far, hopefully you get a similar bounceback from GFC and have a 19% return overall [$119,000].
But I also show how market timing for this is severely flawed if you tried to time that first-year return by switching it out early.
This was recently supported by Mr Money Moustache, which suggests that I actually do know a thing or two about FIRE and investing despite being a greedy, commission based Financial Consultant.
2) You still need to have riskier investments - in order to make significantly more money
Two in particular – firstly, most of the portfolios I assigned to my clients have still produced 6 - 9.5% despite recessions.
So they’ve endured a bear market or two and still produced a result historically, much like the SNP500 has – but obviously, better.
I demonstrate a clear understanding of the history of recessions in the article above, so you clearly need to have more weight in aggressive stocks and equities even in the face of what we are experiencing now.
The second lesson is in relation to Financial Portfolios – aside from some lessons about diversification, people rarely understand the institutional definition of risk (I’m not the one who came up with it) and as a result, what is safe is not always useful and what is risky may not be risky at all.
If you’re curious about it, just read the article to understand, and if you need recommendations and an investment specialist to manage and grow your money, you can let me know.
3) Time in the Market is REALLY far more valuable than timing the market:
The risks you have in timing the market is quite exponential, and I realize the irony of saying that as a supporter of active funds in specific spaces like emerging markets and bonds.
To further emphasize this point, the article demonstrates this, as the lump sum, poorly timed return of 5.2% still outperformed a Dollar Cost Averaging (DCA) strategy of 6.5%. Vanguard has dictated over and over again that DCA is a short-term strategy. There is absolutely nothing wrong with DCA-ing when you have to, but for the most part if you have lump sums of money, time in the market wins the overwhelming majority of the time.
4) While riskier investments typically withstand recessions eventually, a conservative option may be better for some people
My niece has grown to 1 year and 8 months, which terrifies me. Back when I wrote the article, she was barely 6 months. At the time, my sister was insistent on a savings plan and I was a little down about the decision because I believed that I could net her higher returns if she trusted me. But sometimes its little to do with trust and more to do with risk profiling - not to mention this statistic below, which can still paint a grim worst case scenario where you can net only 1.89% returns after 20 years of time in the market.
It's not realistic to suggest that this kind of thing can happen again since even Financial Crisis's aren't subject to that kind of additional inflated losses anymore, but it's understandable. I am no slouch at conservative financial planning. In fact, for all the complaining that people have done about Whole Life and Endowment plans, they can actually raise their bonuses too - not just reduce them. This is on top of your Financial Security, particularly' for things like Children's education.
Even in a time of crisis, you are not lacking for options, and us Essential Personnel are out there, waiting to help you ease your Financial planning burdens.
5) You can consider Investing your CPF Monies for Higher Returns
READ ARTICLE: My Guide to the CPF Investment Scheme [CPFIS]
Yes, you can.
There are specific terms and conditions, but its been suggested by quite a few economists that we can bounce back from Covid, like how we typically bounce back from most disasters - and as a result, it may be opportune to invest your CPF and try to beat 2.5%.
[Investing your SA should be a separate and private discussion with me, it's wildly discouraged except under very specific circumstances, which I have clients who have done so.] I've taken the liberty of coming up with a excel list of CPF investments available through a consultant like myself that aren't limited to ILP sub funds - since I also manage accounts.
Do refer to the individual articles for the sources of the information: e.g. Dalbar, Vanguard, some books, etc. I look forward to taking a break from writing about investments for a while. At least until something drastic comes up. But in the meantime, I'll be talking about it non-stop with prospects, and I'd love if you wanted to be part of Team Maverick and let me make you money.
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