Retire Comfy

The 7 Deadly Sins of Investing

There are a few investing errors that many people make — mistakes that are detrimental to their overall investment strategies. Here are the Deadly Sins of Investing that you should avoid…

Not taking your goals into account

Make sure that the investments in your account and their risk levels reflect what you are trying to accomplish. If retirement is 20 years away, and you have your money sitting in cash or bonds, you may not reach your goals. Conversely, if you plan to buy a house in six months, and you have that money invested in the stock market, you might lose your money and not be able to recover the loss in time to buy a home.

Basing your investment strategy on someone else’s risk tolerance

You wouldn’t buy shoes based on someone else’s shoe size, would you? So why would you copy your friend’s portfolio holdings without taking into account your own goals and risk tolerance?

Making too many short-term moves with your long-term money

While buying and selling stock can be fun, it should be done with money that is not intended for your long-term goals. If you are really set on short-term buying and selling, open an account that is just for “play money” and leave the rest of your “serious money” in well diversified, long-term investments.

Having too much money in one investment

If your income depends on your salary from a company, make sure your investments don’t also depend too heavily on the same company. A good rule of thumb is to have no more than 20% of your investments in any one company’s stock — and ideally closer to 10% or less.

Not knowing what you’re actually invested in

You don’t need to know the exact stocks in the index or mutual fund that you have, but you should have a general idea of what is in your portfolio. If you use a financial advisor to manage assets, and you have no idea what they’re doing with your money, ask him or her to break it down for you in simple terms or, graphs and charts.

Basing investment decisions on the news

You can’t predict what’s going to happen in the market based on what you read in the news. It can’t tell you that the stock market is really going to tank tomorrow, and that you should sell everything and go to cash. Research shows that having a well-diversified portfolio that you leave alone is a better strategy than trying to time the market.

Not saving enough

This is crucial. If you aren’t saving enough, it is going to be really hard to get to where you need to be.

For example, say you make $60,000 a year. If you save 10%, or $500 a month, for the next 30 years, with an average 9% return, you’d have around $900,000 to work with come retirement. If you saved 15% and made the same return for the same time period, you’d end up with around $1.34 million. That’s a big difference!

So make a plan to bump up your savings. You don’t have to go from saving 5% of your income to 15% instantly. You can set up automatic increases of 1% every 6 months until you get there.

The Important Role of Estate Planning in Your Financial Plan

last will

Estate planning is a commonly misunderstood aspect of financial planning, with people asking me “Is it the planning of real estate?”. When done right, what estate planning really means is when we are no longer around to express our love to the people dearest to us, a legacy of love is left behind for them in the form of our wealth.

Put simply, estate planning involves preparing for the distribution of one’s wealth in the event of death. It helps ensure that you can give away:

whatever you have
to whoever you want
however you like
in an orderly way;

and keeps you and your loved ones away from unnecessary court costs and professional fees.

Here are the critical estate documents anyone should create:

1. Will

What can go wrong if you don’t have a Will? You may leave behind assets which beneficiaries may quarrel over or an undesirable person may be the lawful beneficiary. Assets can also be distributed using half the time taken if it was according to the Intestate Succession Act (on average 6 months vs a year).

If you own joint assets (e.g. real estate, bank account), a Will caters for situations if both joint tenants or accountholders pass away at the same time.

For married couples, a guardian can be appointed in a Will, to care for the child if both parents were to pass on at the same time.

2. Nomination for CPF accounts and life insurance policies

Nomination forms can be obtained from CPF Board and your life insurance company. You will be able to name your intended beneficiaries and the amount of share each of them gets.

Asset distribution is also the fastest using this document, just that it only applies to CPF accounts and life insurance policies. Probate costs associated with Wills, which could be upwards of $1K, can also be avoided.

3. Lasting power of attorney (LPA)

This is not an estate planning tool per se. But this is definitely one legal document everyone should have to protect themselves and their assets if one becomes mentally incapacitated.

With an LPA, you are able to decide your future right now so that if you lose your ability to communicate, your appointed loved ones can help manage your legal and financial affairs in your best interests.

We all know that we don’t live forever. But with careful and responsible planning, we can protect and provide for our loved ones even when we are gone.

12 Questions to Ask when Reviewing Your Life Insurance Coverage

Policy review

I recently came across an article about an expectant mum who found out she had stage 4 cancer at age 33. Feeling the unpredictability of life, I’m compelled to write this piece.

Reviewing your life insurance coverage is a crucial part of financial planning and there are some key questions to ask to ensure you still have the right policy in place at the right cost.

Getting started: what you need

A copy of your original life insurance policy illustration
Summary of the policy features and benefits

Your current policy and circumstances

Is my life insurance policy still in force?
What type of policy is it? For example, term insurance or whole life insurance
Have my needs changed?
Is this still the right type of policy for my needs?
Do I need more or less life insurance cover than I currently have?
Can I still afford the premiums?
If I need to increase my cover, has my health deteriorated or am I leading a healthier lifestyle that could mean better pricing for increased cover I may want?

Beneficiaries of your life insurance policy

Who are your named primary beneficiaries?
Are your name primary beneficiaries still those you would like to benefit from the proceeds of your policy?

Policy features and benefits

Does my policy have any guarantees? If so, what are they? Are they still beneficial to me?
Are there any ‘policy review’ points that I can benefit from? E.g. ability to increase the cover without further medical underwriting.
Can I borrow against the cash value of my policy from the insurance company? If so, do you want to take advantage of this feature?

Investment Tip for 2017

screenshot-1040

2017’s global economic outlook is, as we can all see, filled with uncertain events. A few of them are: President Trump abandoning the Trans-Pacific Partnership, the broadly anticipated rate hike by the Fed and Britain’s withdrawal plans from the European Union.

In times like this, it is only human to feel anxiety and fear. But as American businessman and stock investor Peter Lynch says about investing, “Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.”

So here’s a tip for you in 2017 – Remember that time is your friend.

A big part of making money grow is to take advantage of time. People in their 20s or 30s might shy away from investing these days, but they are actually the most suited to own riskier investments like stocks.

That’s because young people have lots of time to recover from market setbacks. A ride up is followed by a ride down, and the ride down inevitably is followed by a climb back to high ground. The longer your time horizon, the less market risk is a factor.

Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.

So if you’re waiting for significant signs of market stability or for the market to hit low ground before you start investing, that could be very costly. The longer you wait to invest, the more growth you miss.

Instead of trying to time the market, letting your money “spend time” IN the market is the secret sauce that allows your wealth to multiply, due to the long-term effect of compound interest.

2017: Try Budgeting Yearly

As the year 2016 draws to a close, I invite you to try something different for the coming year: yearly budgeting.

If you’ve done any kind of budgeting exercise, you’ve probably made lists or spreadsheets of your monthly expenses. Things like rent or mortgage payments, utility bills, and student loan payments.

Why should we budget for a full year? It’s because if you set aside just enough money to cover your monthly bills, you won’t take into account all the unexpected or one-time expenses that are bound to happen. Such expenses do not only include bad stuffs like car repairs and medical bills. One-time expenses include holidays too!

Budgeting yearly makes it easier to save up for those expenses. By working those items into your budget, you can work backwards and save a little each month toward your goal.

If you’ve tried monthly budgeting in the past and found yourself coming up short because of unexpected expenses, try yearly budgeting to give yourself a cash cushion.