Portfolio and Risk Management

It’s a boring topic, but when money is involved, is it still boring? I hope not! Investing is more than just buying and selling, it’s the art of handling risk and emotions. Having read through many blogs and seen many portfolios, there’s one similarity among all of them. They all have Portfolio Management. If the rich are doing it, there must be a compelling reason why they are doing it right? Having a good portfolio management can help enhance returns and reduce risk. Not everyone wants to have a portfolio that moves together all in the same direction, and not everyone realise that they may be having it. A good portfolio should comprise of several forms of assets and preferably in different industries because that way your risk will not be concentrated in a single industry. Yes, you may have a chance of making it big when the sector goes into a boom, just like the technology stocks prior to the .com bust. It is one thing to be overweight on an industry, but it is foolish to allow yourself to take on a risk that you may not be able to afford. The last thing you want to do when investing is to be wiped out completely. In this article, I wish to share using a top-down approach and gradually zoom in on how one can have a good Portfolio Management and avoid undertaking too much risk.

Portfolio Management

Welsummer Hen

As mentioned, a good Portfolio would be one that can withstand years of market movements and still stand strong. The word ‘Diversification’ may come to your mind when Portfolio Management is mentioned. There tend to be a misconception about diversification, especially towards investors. To most investors, diversification simply means diversifying your money into different sectors of the market. This isn’t entirely wrong, and there are indeed benefits to diversifying into different sectors. However, may I present to you a broader view of what diversification means. Diversify into different asset classes. A truly good portfolio should be one that is invested into different asset classes – Stocks, Bonds, Commodities, Forex, Properties, etc.

Having a portfolio that is diversified into different asset classes will save you from having your hard-earned money from being wiped out in a black swan event. You can be sure that even if the stock market crashes, you still have other streams of income from your different asset classes like bonds or rental income from your residential properties (Note that REITs is still classified as stocks). Imagine if all your money were in just the stock market alone, perhaps even diversified into a few sectors. Your portfolio would have experienced a hard pounding and it served as a wake-up call for many who did not diversify across the different asset classes. That’s not to say that being diversified into different asset class will make you immune to any big worldwide crisis like this, but at least it mitigates the damage dealt.

Risk Management

Risk_Management

In theory, everything sounds perfect. However, not everyone of us can afford the luxury to be invested in all the 5 asset classes mentioned. It would be nice to try to be as diversified as possible, but even if it’s just stocks, there’s another way to manage your risk. A part of portfolio management is Position Sizing. Always consider how much risk you are willing to take in a trade, preferably in dollar amount rather than in %.

Step 1: Consider the maximum loss(in $ amount) you’re willing to accept.

Step 2: Set a stop-loss level

Step 3: Calculate the capital exposure per unit (Entry price – Stop loss price)

Step 4: Maximum position size = Step 1 / Step 3

 

This formula can be found in Robert C Miner’s High Probability Trading Strategies book. If you’re interested, do head down to NLB to borrow because that’s where I got the book from! Although not everyone has the luxury to take up the maximum position size for every trade, it will still serve as a good gauge as to how much the maximum should be. This prevents you from over trading beyond your risk tolerance level. There are many strategies available and this is one of the strategies that I have found to have served me useful because I know exactly how many shares should I limit myself to. Hopefully you would re-look at your investment strategies and identify if you are carrying too much unnecessary risk.

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Psychology of Spenders And Savers

There are two types of people in the world: those who spend and those who save.

SPENDERS

Compulsive spenders do not want to delay gratification. If they want something, they will purchase it right away…as long as they are happy. It worked so well in the past, so they stick to the same habit. But, when expenses and debts extremely increase then, it is the time they realize that they need to kick that habit away.

Here are 3 ways to prevent your impulses and to help you save:

1. IDENTIFY YOUR FINANCIAL GOALS

How much do you need when you retire or how much do you need to pay for your child’s education? Ask yourself these questions to identify your financial goals. Then, be vocal about it to your friends and family.

2. NEED VS WANT

Before purchasing anything, evaluate and know whether you need or want the item. Then, purchase according to your budget.

3. STAY AWAY FROM THE PLASTIC CARDS

By using mainly cash and withdrawing it from your bank account, then you became more aware of your spending and your account balance.

SAVERS

For financially aware individuals, the act of spending can activate neural activity in the anterior insula and amygdala. These two parts are responsible for the mood and unpleasantness felt. This is why the more these two are activated; the less likely a financially aware individual will spend. On the other hand, the act of saving will bring immense pleasure to them.

While many people take pleasure in purchasing things, some savvy savers do not feel the same. Instead some of these people are uncomfortable when shopping, they constantly look for the price tag and calculate the total, and they feel emotionally painful when they are paying. If you are not experiencing enough pleasure in life, you deserve to loosen up and enjoy spending every once in a while.

So, what brings the pleasure back as a savvy saver that is spending?

1. STAY AWAY FROM THE PLASTIC CARDS

Give yourself the vacation or rest day you deserve by budgeting a portion of your money to a category called “personal incentives”. With that money, you would not need to use your credit or debit card since you have already set aside the cash to cover it. Now all you can do is relax and take your mind off the expenses.

2. PURCHASES=REWARDS

At the end of the month and once you meet your savings goal, reward yourself with the pampering you deserve for working hard and doing so well. To prevent frugal fatigue, reward yourself by using a responsible amount of 4% – 8% of your savings.

3. THINK OF THE FUTURE

Study has shown that people are happier when they spend their money on experiences (e.g., sky diving) than in goods (e.g., Gucci bag). So, do the same with your personal incentives. Do you really want to regret experiences you did not take because you don’t want to spend money on enjoyment?

Image Credits: Tax Credits via Flickr

Image Credits: Tax Credits via Flickr

Even though you belong in one category now…you can still change! Whether you are a saver or spender, you hold your financial present and future.

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Budget 2015: What it means for you and me

Budget 2015 Featured

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam announced on in Parliament what to expect for the Jubilee Budget.

As PM Lee reiterates: “This year’s Jubilee Budget focuses on the future, building Singapore and helping Singaporeans prepare for changes to come.”

It is evident Budget 2015 aims to tackle the future by investing in equipping Singaporeans with important skillsets, notably with the SkillsFuture initiative.

Here’s a roundup of Budget 2015 (does not include measures for businesses):

Budget 2015e

 

 

For more information, visit http://www.singaporebudget.gov.sg/

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7-Day Spending Cleanse Ideas You Must Try

It is amazing to start the Lunar New Year with a clean financial slate and increased savings. So, begin the year with a 2015 spending cleanse: short yet impactful exercise to help you clear your mind, focus on your goals, and improve your buying habits. There are no excuses because a short-term intervention (7 days) is a good place to start.

In just a week, your financial awareness can help you stop spending on unnecessary items and eventually help you break the bad habits. Try these 3 Spending Cleanse Ideas and come out more motivated, focused, and richer.

You must first figure out a budget plan that helps reach your financial goals before starting the cleanse. Seek guidance from family, friends, or YouNeedABudget.com.

1. ELIMINATE THE UNNECESSARY

Plan: Identify a category where you are overspending then, slash that problem area.

Purpose: To allocate more money for shopping, emergency fund, and savings.

If you a person who does not pack for lunch and only go for local restaurants, gourmet counters, and coffee shops everyday then your expenses can take about S$450 of your income. With this cleanse, you will have to go on cold turkey and avoid buying for outside food for 7 days. You will find yourself save more afterwards.

Just by reducing expenses in one category such as switching back to basic cell phone plan; you can save up for your dreams in just a few years. It is so simple! There is no sense if you go back to your unpleasant ways.

2. HAVE AN “AUTO-SAVE” SYSTEM

Plan: Program regular account transfers to help you reach your goals while having a busy schedule.

Purpose: To save money for retirement, emergency fund, and vacations before you spend it all.

Contemplate upon your budget and begin writing a list of the things you want to save for from your needs (e.g., emergency fund) to your wants (e.g., Christmas vacation in Paris). Divide your income to the needs first then, divide what is left to your wants. You need at least two bank accounts: one for your needs and one for your wants. The next step is to set up automatic transfers or direct deposits that will move your money into each account on payday.

3. NO MORE PLASTIC CARDS

Plan: Withdraw the week’s spending from the bank in cash. When it is gone…it is gone.

Purpose: Saying no to credit cards will cut down the impulse purchases.

Most people talk about how important their long-term financial goals are but their regular buying decisions do not support their goals. This cleanse will have you keep your credit and debit cards at home so you can easily notice when you are losing money for every purchase. Before the week begins you must spare 25% of your income and divide it to your spending categories and put all in different envelopes.

Image Credits: wikihow.com/Do-Envelope-Budgeting

Image Credits: wikihow.com/Do-Envelope-Budgeting

This will be your only allowance for the whole 7 days and all for purchases shall only come from it. Research showed that the act of relying to cash for spending makes you savor the paying process, think more, and spend less. Trust me, it works.

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Which Bank To Deposit Your Ang Bao Money?

Banks Deposit

After days of Chinese New Year, many of us feel “richer” after collecting red packets from your parents and relatives. (For those that gave out red packets, i hope your rubbed shoulder with God of Fortune and got your windfall) Now as you hold and sniff your stacks of new notes, you may be thinking of the best place to put away this sum of money other than your tin can or under your pillow. Should you just deposit these money to your standard POSB/DBS account?

We take a look at the banks you should be putting away your money with, which includes fixed deposits and your daily saving accounts.

1. POSBPOSB 1.88

If you are not aware, POSB launched a cash gift promotion of 1.88% for 12 months on 23 January 2015. What this means is that any single sum deposit between SGD 1,000 to SGD 1,000,000 to your saving account will earn you an interest of 1.88% for 12 months. The catch is you cannot withdraw these top-up amount during this 12-month period.

Note: You must sign up before 28 February 2015 to be eligible for the promotion.

For more info and terms: http://goo.gl/0YxWqk

2. DBS

DBS 3.96

DBS launched the same promotion earlier this month for customers who deposit SGD 1,000 to SGD 3,000,000 can earn an additional 1.88% p.a for 3 months on top of the 2.08% of their DBS Multiplier Account. Likewise, you need to register with them by 28 February 2015 and make a one-time top-up to be eligible for the promotion. You will need to hold on to the fund for 3 months.

For more info and terms: http://goo.gl/ZaUqht

3. OCBC

OCBC Saving

For those who makes a larger deposit of fresh funds of SGD 10,000 and more can consider OCBC Bonus+ Savings Account with up to 2.35% p.a. All funds will earn a base interest rate of 0.05% p.a if no withdrawals are made. If no withdrawals are made in a month, you get an additional 0.55% p.a. Get an additional 0.55% p.a if you do not withdraw in that calendar quarter and a whopping 1.20% p.a top-up bonus if you deposit $10,000 of fresh funds. (0.05% + 0.55% + 0.55% + 1.20% = 2.35%)

For Premier customers, you get an additional 0.05% p.a on each tiers which means you could earn up to 2.50% p.a.

OCBC Bonus

For a 12 month Time Deposit, earn up to 1.40% when you deposit a minimum of $20,000 in fresh funds.

For more info and terms: http://goo.gl/0qx9YC

4. UOBUOB Bonus Rates

Enjoy bonus rates of 0.8% p.a when you deposit fresh funds of at least $15,000. If you deposit fresh funds of $50,000, you will get 1.0% p.a bonus rates and 1.2% p.a if you deposit $100,000 and more. Get an additional 0.1% if your account balance is above S$350,000.

Receive a limited edition 24K Gold-Plated RISIS Magnificent Goat Figurine (valued at S$238) with S$108,000 fresh funds deposit*.

Goat Figurine

This UOB Lunar New Year Savings Promotion ends on 28 February 2015. 
For more info and terms: http://goo.gl/f53ncU
* For those who want a higher rate can opt for their SGD Fixed Deposit, where you can get up to 1.30% p.a with a 13 month tenor and a minimum of SGD 20,000. Promotion ends 28 Feb 2015.
More info here: http://goo.gl/gOZIF

5. Maybank

Maybank Time Deposit

Maybank offers more choices for their Time Deposit plans and the interest rate varies depending on the amount and tenure of your deposit. From S$25,000, you can get 1.10% p.a if you can lock away for 12 months and can go up to 1.28% p.a if you can stretch longer to 24 months. If you have double the amount (S$50,000 and above), you fall into the higher tier and can receive up to 1.55% p.a for a 24-month Time Deposit.

 

If you deposit S$150,000 for 24 months, you stand to receive a Corningware 6-piece Meal Maker Set “Dancing Floral” worth S$145.

More info and details: http://goo.gl/5n4oyN

6. CIMB

CIMB Time Deposit

Deposit a minimum of $25,000 to get an interest rate of 1.25% p.a for their 12-Month SGD Fixed Deposit Account. For larger amount deposit of $250,000 and more, you will receive 1.30% p.a. That’s not all, depending on the amount of fresh funds you deposit, you stand to receive a New Moon Abalone Set.

CIMB Abalone Set

Register no later than 5 March 2015 to be eligible for the promotion.

For more info and terms: http://www.cimbbank.com.sg/promo/cny2015/

7. SCB

SCB Time Deposit

Deposit a minimum of S$25,000 and get up to 1.40% p.a for 6-months and 1.35% p.a for 12 months. For larger amount of S$128,000 and more, you stand to receive a choice of two 24K Gold-Plated Goat Medallion coins OR a Coin Set. Promotion ends 28 February 2015.

More info and details: http://goo.gl/GYWzxy

* For those who want to deposit a smaller amount (with no min deposit) and no tenure can opt for their e$aver Account where you stand to earn an interest rate of 1.35% p.a until 31 March 2015. More info: http://goo.gl/18oKdx

8. Citibank

Citibank Fixed Deposit

Want time deposit with a shorter tenor? Then go for Citibank’s 9-month Time Deposit and receive an interest rate of 1.18% p.a. You will need to deposit a minimum of S$50,000 and up to a maximum of S$5,000,000 of fresh funds. Promotion ends on 28 February 2015.

More info and details: http://goo.gl/1VfPsT

 

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