COVID-19 & Your Investment Portfolio

The past couple of weeks have been the most insane period many investors have ever witnessed. The media has done a great job reporting it, there’s a lot of information out there. A lot of us are concerned and we should be concerned.

However, at times like these, we need to examine the facts. The fact is that COVID-19 is an event. It’s not structural, it’s not fundamental. And because it’s an event, we have to look back in history and we know how events like recessions eventually turn out. It’s not an “L” chart – markets don’t get knocked down and stay stagnant. But rather, it is a “U” or a “V”.

What you need, is to be very vigilant about your risk budget – making sure that you’re taking appropriate level of risk always make sense, especially in times of heightened volatility and the volatility we see now is probably going to continue. I believe we may possibly be down as much as 50% from the highs, similar to the financial crisis of 2007-08.

At this point you may question – why don’t I just get out and then get back in? Well, two reasons:

  1. First of all, you can be wrong. (I’ve learnt this the hard way at the beginning of my career.)
  2. Secondly, you would really have a hard time getting back in and the market does whatever it needs to do to prove people wrong.

Stock market volatility is akin to a roller coaster ride, it is dangerous for investors to unstrap themselves suddenly during the ride. Instead, during this period, it is advisable for investors to stay strapped in (invested) and average down the costs of investments in order to benefit when markets go up again.

To this day, I see people who got out in 2009 and never got back in – they missed a complete 10-year bull market. Warren Buffett has said, “The stock market is a device for transferring money from the impatient to the patient.”

And why will the markets go up again?

Historically whenever a recession happens, all of us – billions of human beings worldwide – always put in the collective effort needed to bring up our global economy again. 

In fact, governments are now doing all they can to ride us through this storm. The Federal Reserve has cut interest rates down to 0 – 0.25% to support America’s biggest corporations in meeting liquidity needs. The Bank of England has announced a similar plan. The International Monetary Fund has also pledged to mobilize its USD1 trillion lending capacity to help nations counter the outbreak.

So, don’t get caught up in the short-term emotion and the noise. Take care of yourself. Take care your family. And if you have an investment portfolio with me, rest assured that I’m paying attention to your portfolio during this period. If it needs to be re-balanced (when your equity-to-bond ratio shifts 20% or more), I will contact you promptly for a discussion.

Simple Financial Tips That Can Make A Difference

tips2018 has certainly flew by and wow.. we’re going into March already? Perhaps now is a good time for us to do a stock-take on our money. Here is a couple of tips on how to keep more money in your wallet this year.

1. Don’t Do Mental Accounting When Building Your Budget
Mental accounting means the behavioural thinking of having different piles of money for different reasons. You might have a “jar” that says this is for emergencies or a vacation, and you’re putting money in there every month – at close to zero interest rate.

Then you also have a credit card debt. You mentally classify it as a different thing and pay your debt with income each month.

Financially, this doesn’t make much sense. Money is fungible, it really is all the same. You shouldn’t have a jar with money sitting in it that’s getting no interest or growth while you still have credit card debt.

The solution is to think about all your money as the same. People like to put cash in different buckets for different reasons, but that’s mental accounting and we need to overcome that hurdle.

2. Prepaying your mortgage
Some people add a little extra to their monthly payments to pay the loan off faster. This brings up a common question – is this a good use of the extra cash?

With current mortgage rates at under 4%, you should not be prepaying your mortgage. In fact, mortgages have really low interest rates and are designed for long periods of payments, and you should stick to that payment.

Prepaying it means you are giving up opportunity to use that money elsewhere – whether it’s paying off credit card debt or just investing it, putting it aside for retirement. If you’d be getting 8% returns on your long-term investments, why put your money in something that’s only 4%?

So from a financial planning standpoint, it’s not a good strategy. Nonetheless, people feel comfortable doing that. I know you want to feel like you’re paying off the house faster, but resist if you can.

3 Obvious Ways to Build Wealth


You don’t have to be a rocket scientist to build wealth. The wealthy understand that while being smart can certainly help you earn money, that doesn’t necessarily mean you’ll build wealth with your earnings.

Likewise, being famous doesn’t necessarily mean you’ll be able to build wealth. Sure, it can help, but there are countless stories of those who earn a ton of money only to watch it disappear seemingly overnight.

So, what are the secrets to building wealth? And, once you build wealth, how do you keep it? The truth is that the “secrets” to building wealth really aren’t secrets at all.

They are simply common sense behaviors that, when practiced with purpose and over a long period of time, are likely to result in a pool full of cash. Let’s take a look at some of these behaviors.

1. Say “no” to debt.

Saying “no” to debt is truly a behavior at the heart of so many wealthy individuals. Why? It has something to do with interest rates.

Student loans, credit cards, personal loans, car loans, and many other types of debt all have interest rates. Some of these rates are higher than others, but one thing is guaranteed: you will pay a lot more money than necessary if you make minimum payments on a loan, and the interest rates will slowly drain any wealth you do have.

Unfortunately, that’s where many people get stuck. They are so used to debt, they think it’s normal and shrug it off as a way of life. Sure, it might be a way of life for some people, but it doesn’t have to be a way of life for you.

The way to get out of debt is to focus your energy on saying “no” to more debt. Make money fast, you might choose to attack your debt even faster than you might initially think possible.

2. Practice discipline and invest for the long-term.

It can be all too easy to get caught up in the hype of this stock or that stock. The media continually reports this or that “new hot stock.” Don’t fall for the trap. It is always better to diversify your investments and not get carried away by the allure of quick wealth.

The number one behavior that inevitably leads to more wealth is staying disciplined. Emotions are very real and very dangerous, and it’s hard to be objective about your money, especially when people around us are talking about doom and gloom as it relates to the economy. Most of your money is invested for the long-term – do not make short-term decisions about your long-term money.

The best way to get market-like returns is not to meddle with your investment mix. If you do, the probability of achieving your financial goals will most likely go down. Predicting where the stock market is headed and making decisions off the prediction is a fool’s game. It requires a crystal ball – and no one has a crystal ball. Stay disciplined.

3. Stay frugal.

It’s human nature for any increase in income to be immediately swallowed by lifestyle improvements, a phenomenon known as ‘lifestyle creep’. Avoid lifestyle creep and build guaranteed increases into your savings plan by changing the way you think about annual raises. The next time you are presented with a raise, challenge yourself to save half of the increase, and ‘creep’ with the other half. This strategy will allow you to pay yourself first, enjoy the fruits of your labor, and build wealth over time.

It’s better to stay frugal, build wealth, and have a firm financial position rather than squander your money on things that you really don’t need – especially over the long-term.

Volatility – a Friend or a Foe?

Nobody likes to see his investment portfolio going into the RED. When you first decided to invest, it was with the aim of making sizeable profits, not losses. However, the storm brewing in the US and Europe isn’t something that you really expected, and you’re at a loss as to whether you should sell, hold or perhaps, invest more.

The decision is going to be tough, and staying calm in a sea of panic is going to be tougher.

Despite what may seem to be an uphill task, staying level-headed is not that impossible, as long as you take the time to understand what investments are all about, and the crisis that seems to be looming in the background. Taking the time to read this article will do just that.

Volatility – A Necessary Friend

Like it or not, volatility is the common trait of all investments. Whether you are investing in stocks, bonds or currencies, or into something exotic like wine or art, volatility is the one feature that is going to be present in all of them. Think about it: isn’t volatility – the thing that you hate the most right now – the sole contributor to your profits?

That much-quoted adage, “High risk, high returns” is just a more cliché expression of the fact that volatility equals profits.

Thus, before kicking yourself for making the investment decision in the first place, remember the equation: Investments = Volatility = Risk. It is a reality that you have to face when you decide to invest, and as long as you don’t liquidate your positions, volatility – at the present moment – still does not equate to losses.

Triple Whammy

The recent bloodbath in the markets is nothing more than just a crisis of confidence, a crisis sparked off by what I term to be the triple whammy of global economics, which include:

  • The downgrade of the sovereign credit rating of the United States of America;
  • The brewing debt crises in Europe; and
  • The slowing down of the global economy.

Whammy #1: Uncle Sam Has Been Downgraded

On 5 August 2011, world-renowned credit rating agency Standard and Poor’s (S&P) took the unprecedented step of downgrading the US from its AAA rating to an AA+, something inconceivable since Uncle Sam attained this top rating in 1917.

For those who are unfamiliar, the AA+ grading is just one notch lower than the AAA rating, and a rating of AA+ still places the country within the investment grade category. Other rating agencies like Moody’s and Fitch have left Uncle Sam’s sovereign credit rating untouched, though they have warned that additional deficit-reduction measures are required if the rating is to remain so in the future. So what is this big fuss about the downgrade all about?

Many countries have deposited their foreign reserves with the US, making it the world’s largest bond market. One example of these countries would include China, which holds more than $1.0 trillion worth of US Treasury bonds. Being Uncle Sam’s largest foreign creditor, the land of the dragon has been very critical over how the US has been handling the debt issue, and the way they are raising their debt ceiling.

Yet, the fear surrounding the downgrade is unwarranted. Many governments around the world, including Singapore, have expressed confidence in the US Treasury.

Instead of being an alarm, the downgrade should serve as a wake-up call for the US government to recognise the need for them to focus on reducing their debt.  This will have long term benefits for our global financial system, which does not need another shock since the global financial meltdown.

Whammy #2: Europe Is In Debt

Europe – with its old school charm in the likes of countries like Italy and Spain – is embroiled in a debt so deep that global markets are worried. Due to uncontrolled spending, countries like Greece are now saddled with a debt that is larger than its national economy.

While things might look bleak at the moment, I do believe that not all hope is lost. The combination of the European Financial Stability Fund (EFSF) – when its use has been confirmed by parliaments – and the purchase of Spanish and Italian bonds by the European Central Bank (ECB), in the meantime, should provide stability to the markets.

Europe will certainly need more time to sort out their problems but the European Union (EU) has demonstrated their commitment to resolve the hanging issues. The EU, being an economic and political union of 27 member states, will stay united as it is in their benefit to do so.

Whammy #3: The Global Economic Locomotive Is Shifting To Lower Gear

The third and final attack on confidence in the markets is the slow-down experienced by the global economy. Economic data released recently indicated that the slow growth scenario is indeed playing out in some developed economies. And with China’s inflation hitting record highs, the fear is that further monetary tightening will result in a hard landing.

The slow-down, together with fears of further monetary tightening in China, has raised fears that the world might be going into a recession. While such fears might seem logical, especially in the presence of cyclically weaker economic data, a full-blown recession remains very unlikely because of emerging markets.

Other than that, very positive signs are also showing themselves. Since the subprime crisis of 2008, US consumers have become more prudent as they have taken to cutting down on their spending and rebuilding their savings. Many US companies are reporting strong earnings and very healthy balance sheets. The US Federal Reserve has also assured the markets that they will be maintaining the current interest rate till year 2013.  The Chinese government will be watching the effects of their recent monetary policies as time is needed to scrutinise its effects.

As such, the emergence of weaker economic data should be taken as an opportunity to invest in the market.

Opportunities Abound In A Crisis

In the face of the triple whammy mentioned above, speculators have decided to ride on the wave of fear by stirring further panic by short-selling to add pressure to the market. Automated sales calls made by computerised trading systems further added to the pressure.  In an environment where there’s much rumour-mongering and consistent news of high borrowing costs, countries like France, Italy, Spain and Belgium have imposed bans on short-selling.

Opportunities arise in a crisis, and markets always tend to over-correct themselves.

In any extreme bull or bear market, there will be excessive buying and selling. The current environment is definitely one where the ‘bears’ take it to the extreme.  When the tide changes, however, ‘short-sellers’ – in all likelihood – may be converted into ‘buyers’ to either stem losses or ride the rising trend.

The issues, i.e. the triple whammy mentioned above, are not going to be resolved overnight. Markets will remain volatile until clarity is in sight. Yet, where clarity has returned, the market would already have risen, and any opportunity to profit from it would be long gone.

As Warren Buffett would put it, “Be fearful when others are greedy and greedy when others are fearful”. Staying true to his own words, Buffett is buying into the current market.

Another good reason to invest now is the very low interest rate enviroment that the US Federal Reserve has committed to keeping low. With inflation rising, the need to ensure that our capital is working harder is all the more critical.

I’m not advocating that you should invest all your money now. You can’t ignore the volatility in the market either.  Opportunties abound when others are fearful but you will need prudence, the right strategy and an informed adviser.

One investment strategy that I really like is ‘Dollar Cost Averaging’ (DCA) which is really effective in a volatile market. Applying the DCA methodically will enable you to invest in the market without the accompanying emotions of fear and greed. And when the crisis of confidence is eventually resolved, you will be glad to know that your money has been working real hard for you.

Are Your Debts Good or Bad?

Debt is like a double-edged sword. It can help you, but it can harm you too. Making good use of debt can create wealth for you, but mishandle it and you can possibly be put into bankruptcy.

Therefore, we should learn how to use debt wisely to let our money grow. Debts can be classified as bad debts and good debts. Here’s a table showing annual interest rates of various types of loans currently:

Type of Loan Interest Rate
Mortgage 1.8% – 3.75%
Education 4.6%
Car 5%
Renovation 5% – 7%
Personal Unsecured 14%
SME Unsecured 5% – 10%
Credit Card 24%

Bad Debt

bad debt

What types of debt should be considered bad? Any expense-related debts can be classified as bad. Examples include taking a loan for travel and taking up a hire purchase with interest for your home furniture.

This is because the value of these purchased goods usually drop after you purchase them. For example, after getting a new TV at $3,000 hire purchase, the value of it drops by $500 in the following month.

Another popular form of debt comes from something almost all of us use – credit cards. If used smartly, credit cards can help us enjoy discounts and savings when we make purchases from relevant merchants. On top of that, it allows us to carry less cash in our wallets and makes payment convenient. However, if you were to delay your credit card debt repayments, the interest payment can be as high as 24%. Let’s say a person has just charged $10,000 to his/her credit card today and defaults on his/her repayments for the next 3 years. Based on the rule of 72, the total debt would have grown twice the size 3 years later. Yes, that’s a whopping $20,000!

Therefore, please think twice before you use your credit cards or when taking up bad debts. You may land yourself in huge financial trouble if you fail to make repayments on time.

Good Debt


A loan that helps you to acquire an asset which can potentially earn a higher rate of return than the loan interest rate can be classified as a good debt.

Mortgage and business loans are examples of good debt. In fact, the interest rate on mortgage is the lowest among different types of loans which we can get. Although a HDB Housing Loan is at 2.6% per annum currently, you can potentially earn a higher yield if your house is timely sold in the future. At the same time, CPF Board credits a return of 2.5% per annum into our CPF Ordinary Account (CPFOA). This means that your HDB Housing Loan interest is offset to 0.1% annually.

Many successful entrepreneurs have also benefited from the use of good debt. Through the use of business loans, small enterprises are able to expand their businesses. Large companies are able to grow even bigger.

Another example of good debt is your education loan. The knowledge gained through your education allows you to acquire a good job and earn living. It is definitely a worthwhile investment.

In summary, leveraging on good debts to grow your wealth is one of the important principles to growing rich.

Be careful not to over-borrow

Here’s a warning – do not over-borrow, as you may get yourself into trouble. How do we ensure then, that we do not over-borrow?

Your monthly debt repayments should not add up to more than 35% of your monthly salary. If your monthly salary is $4,000, then your monthly debt commitment should not exceed $1,400.

Avoid bad debts and use good debts smartly – this is a sure way to create great wealth for yourself.