Save More or Earn More

I would like to highlight an interesting mathematical relationship on why you should considered taking calculated risk in order to achieve your financial objective. In this case, the targeted financial goal to achieve $500,000 by age 62.

Don't forget the power of time! 37 years of accumulation which can be considered long enough to have achieved the expected rate of return of 7.68%. The expected annual saving would be just $5,596!!! ( i.e. only $466 monthly investing).

As compared with a return of 3.68%, you are required to save more!
How much more? $5139 (91%) more on an annual basis.


If these options are not attainable, work towards doing a little bit of both;
saving more money and earning a higher rate of return.

Having a good understanding on these relationship, you probably willing to take the calculated risk, so that you can make better use of that saving on other areas of financial concern.

Are your assets working hard for you?

Invest in appreciating assets.
So what are these types of assets to protect the value of money from eroding?

• Tailor-made well-diversified portfolio
• Stocks
• Bonds
• Real Estate
• Foreign currencies
• Gold
• Collectibles, subject to willing buyer
• Businesses, subject to proper management

Having the right mix of assets investment will cushion off the impact of inflation. Money idling in the bank is likely not earn enough interest to stop its purchasing power from declining during inflation, as illustrated above.

Therefore, selecting a portfolio that suits your financial objectives and risk profile based on your investment time horizon to grow your wealth to battle against inflation is a wise decision to make!

The Cost of Waiting!

There is never a right time to do your financial planning.
However, I would encourage you not to delay it because procrastination will hinder you from becoming financially successful.

 As illustrated, if you set aside $200 per month for the next 25 years (assuming no taxes and 6.5% annual rate of return), then by starting:

• TODAY, the outcome is $150, 579.
• After 5 years of delay, the difference is $51,963!
• After 10 years of delay, the difference is $89,541!!

So simple consistent savings will lead to big payoff.
Don't delay!
Start now!

Related article of interest "Systematic & Disciplined Investing that pay."

Don't put all your eggs in one basket!

One of the time-tested investment rules is "Diversify! Diversify! Diversify!"

Never put all your investment eggs in just one basket.
Different types of investments are exposed to different levels of risk and by diversifying, the losses in some investments can be offset by other investment gains.  (Refer to article here)

The whole idea is to reduce the overall risk by investing in a broad range of economic sectors. Studies show that proper allocation accounts for more than 90% of the total return.

How you could spread the risk...

• Different asset classes
• Different regions in the world
• Different industries
• Different companies
• Different currencies
• Different maturity dates, etc.

At which financial stage are you? And what's your strategies?

There are three basic financial periods that anyone could go through during their lifetime. They are the foundation, accumulation and distribution years. So it's important to have a sound financial plan to met their objectives in each period.

In the foundation years are the young and single, the young married and the young family. Generally, they need to have sufficient funds for emergency. Most will have a regular contribution saving program or start up an investment program by dollar cost averaging approach. It's always a challenge to live within their means because lack of accumulated savings and source of income flow. Obtaining life and medical insurance is always an added advantage because of relatively cheaper premium and their good health status.

Those who are married with kids and heading toward their retirement are in their accumulation period.The main objective is to maxmimise any savings dollars for their children education and retirement funds. To enhance their savings dollars by saving more and employ tax-saving or tax-exempted financial instruments. Proper risk management program like their life and medical insurance need to be constantly review to ensure "no shock" to their financial well-being.

The distribution years cover the period from the beginning of retirement to the time one reached their mortality. Advanced medical can last them for a long time. Standard of living is one major concern to ensure the accumulated fund is available to maintain purchasing power of that dollar. Coming to this stage, this group of people would have some health issues, so it's better to ensure all medical insurances have already put in place, especially the medical insurance and the long term care insurance. Considering what assets to pass on to who is also another important planning goals.

The Financial Strategy for....
Foundation Years
Because they have time, long enough to gain investment return to ride on the power of compounding. Next, because of time, they can afford to take risk to ride on the market and economy cycle. The strategy is to pursue a diversified investment portfolio with en emphasis on growth, and taking on riskier investments which generally yielded higher returns.

Accumulation years
The strategy is to continue with equity-dominated portfolio to optimize it's potential growth, while gradually shifting to income investments where equity funds are slowly replaced by bond or bond funds. It is also advantageous to maximize tax-deferred plan like SRS and tax-exempt investment instruments.

Distribution years
At this stage, the emphasis is to protect the accumulated assets, to reduce overall debt and to minimize tax. Since the planning horizon is short, the strategy is to shift a large portion of assets from equity to more conservative fixed-income. To balance between growth and income, annuities, bond funds and income funds could be invested. There is still the need to keep growth-type of investments as it can be used to battle against inflation.

Be S.M.A.R.T. in setting your financial goals

It is not good enough to know what your financial goals are.

Financial goals need to be "S.M.A.R.T."!

Set it by clearly defined what you really want to achieve it by being Specific.
It is wise to convert all your financial goals to "dollar and cents" for it to be tangible and Measurable so that you aware of how much you can work on it. Of course, the goals you set need to be Achievable within your financial means and desires. More often than not, we tend to set high goals for ourselves. However, I feel it's always good to set a Realistic goal; something you are capable of achieving it, something that you will be going to be proud of. A goal without having a Time frame is like living without urgency. How much time you need to arrive your financial destination will determine the quality of lifestlye you get to enjoy your fruits of labour.

To make sure you arrived your financial destination safely, placing appropriate yardstick along your financial journey is great importance to ensure that you are always on track.

With proper goal setting, you can achieve your goal SMARTly!

Save SMARTER, not Harder.

The Power of Compound interest?

Never underestimate the power of compound interest
because it is the rock on which your future wealth is built.
The sooner you begin, the more likely your plan will succeed.

Compounding occurs when the earnings on savings or investments are added back to the principal, or reinvested, which in turn generates additional earnings which are again invested, and so forth. This is such a basic process that it’s hard to see where the excitement is. And yet, compound interest can get the blood pumping when you realize the potential in smart investing.

Consider starting at the age of 21 by saving $2,000 per year each year. Though sound investment, you get a reasonable 8% interest on the principal. At age 30, you decide to stop and you leave your money growing at 8% until you retire at age 65.

Now assume you decided only to start saving at 30, but now you diligently save $2,000 every year until 65, again investing 8%.

Of course you reckon that having saved so much harder for so much longer, 35 years rather than just 10 years, you will have more than made up for lost time when you were young.

Well, the 10 year plan, in which you invested $20,000, will reap $428,378!
The 35 year plan, in which you have invested $70,000, will reap considerably less: $344,634.

Hence, the magic of compound interest.

Use compound interest to boost the value of your investment.
Work hard to improve the percentage return and stick with it.
Not letting compound interest reward you later years is such a waste of all the effort put in the first few years when nothing much seems to be happening. So, let's start investing now.

Related Articles on Save Smarter, Not Harder.

Systematic & Disciplined Investing that pays

It is possible to improve investment portfolio by timing the market, but can it always be done correctly? Any unsuccessful attempts to time the market will seriously hurt the returns on investment.

The solution is to invest a fixed sum of money on a regular basis. Such discipline investment approach is Dollar Cost Averaging.

DCA is setting aside a percentage, say 15% percent, of your monthly income in a unit trust. Regardless of market sentiment, this strategy enable a specific dollar to be invested on a consistent manner.  During bad times, more unit units are acquired and in good times, less units. In this way, the average price per unit is being driven downwards.

DCA does not guarantee a profit, but it can help to smooth out the market's ups ad downs (volatility) and reduce the risk of loss. It foster discipline in investing regularly, and take full advantage when the market recovers.

Above all, DCA helps to remove the emotional factor from your investment programme, allowing you to focus on your long term investment goal and avoid the pitfalls of buying high and selling low in the market.