By Fi Life Team
We know the benefits of a regular investment plan to achieve our life goals. But how do you do this if current cash flow is tight? Should you hit the pause button on your plan?
Guests:
Pauline Yong - Sigma Wealth Sdn Bhd
Wong Wai Ken - StashAway
Moderators:
Roshan Kanesan - Producer/Presenter, Ringgit & Sense
Malek Ali - Founder, Fi Life Sdn Bhd
Show Notes
1. You should continue investing because it is historically proven that recession is a good time for high investment returns, unless you have tight cash flow.
Pauline 1:22
During this Covid-19 period:
- Reduce unnecessary expenses, subscriptions, holidays, loans.
- Looking into the cash value of your insurance policy
- it can serve as an emergency fund in a tight cash position but remember to not sacrifice your protection benefits.
2. Get your Emergency Cash Ready
Ken 3:40 - Everyone should have 6 months - Those aged 35 and above need 12 months - Business owners need 2 to 3 years of cash because a bear market lasts for 2 to 3 years 3. Where do you put your Emergency Fund? Ken's Recommendation 10:25 - Ultra low-risk assets: Fixed Deposits (FD), High-Interest Savings Account, Money Market Fund (StashAway Simple). - StashAway Simple has no lock-in period. Pauline’s Recommendation 14:26 - A combination of FD and Fixed Income Fund - Although FD is low, there is security. - Fixed Income Fund’s expected rate last year was 8-9%, this year is 5-6%. Historically, it is 4-6% depending on funds. - When your emergency fund is large enough, move 10-20% of your funds to a more aggressive portfolio (Technology, US or global funds) - 80% of your funds are for your protection but the 20% can help you generate extra returns 4. When is the best time to enter the market? Pauline 6:49 - History taught us in the past 10 years, there were only 3 years (2014, 2017, 2019) that were positive. Most years are flat or down for Bursa Malaysia, China and the regional markets. The US market remains bullish. - This year was exceptional, we see a 10-30% increase (ever since the last financial crisis in 2019) but we shouldn't take this year’s return to forecast the future. - It's not about getting the right timing or picking the right stock, but rather to commit to a regular investment plan as a good strategy for the long term. - A regular investment/ savings plan is never too late. Malek & Pauline 41:29 - For older people, despite having a shorter compounding period, 20 years is good enough (there will be a market crash once in every 10 years). - Your strategy: 1st 10 years invest in an equity fund that is more aggressive, last 10 years shift to a fixed income fund to protect your capital. Ken 12:01 - Invest for the long run and you can eliminate the risk of changing investing styles as the rules change all the time. (for value investors, the last few years were not a good opportunity with rising prices. In March, there was an all-time high followed by a drop) - S&P 500 gives around 8% yield. However, if you miss 5 days of mega gains, your portfolio will be 30% down. If you miss the 12% and sell at 10%, your gains will be down 30%. - The key is to not jump onto the hottest hyped up assets but to get a diversified portfolio tied to your personal risk preference so you can hold for longer. 5. During this current economic climate, what is the expected rate of return Ken 12:56 - FD is at 1.8%, Money Market at 2%, Gold at 7%, US stocks at 11% (with dip and recovery), International Bonds at 3% Pauline 16:06 - Historically the equity market is at 7%, the US market is at 8-10% of compounding and emerging markets are more volatile 6. Invest for the Long Term with commitment, discipline and patience a) Apply dollar-cost averaging Pauline 30:32 - Select an above-average fund. It does not need to be the best as market performance differs every year. Choose one that has consistently outperformed the benchmark for the past 1, 3, 5 and 10 years. - If you have long years to compound, go for equity funds. Or 50% in fixed income and 50% in equity funds (so you can have 50% of protection) b) Diversify in terms of time instead rather than price. Roshan and Pauline 32:46 - Shift away from being price conscious (buy low, sell high) and do not let your emotions or optimism influence you to make a wrong decision) - S&P 500 was trading around 1,525 points, Today it is at 3,500 points (more than double) - Investing in the S&P 500 ETF every month on a regular basis with a consistent amount is diversifying over time and price. 7. Long Term Investment Structure Malek 15:17 - StashAway in addition to the retail stock market - Work out how much you need for retirement - for the money you need in 15 years you invest in equities, and money you need earlier in safer funds such as bonds. 8. RoboAdvisor (StashAway) - Robo advisors optimise portfolio - looks up economic data and financial market data, uses systematic logic to craft the portfolio hence it won’t go down too below the benchmark because it is already diversified. - StashAway is positioned in an All-Weather strategy: 50% of allocation more growth-oriented, 50% more protective. - There are 12 funds based on investment objectives - 20 years fund will be more aggressive, 5 years fund is more balanced. - Most Stashaway users are between 30 to 35 years old professionals from banking, legal, consulting and tech. They are quite busy to monitor stocks hence they choose Roboadvisory. - 40% of investors do recurring investment every month - and most invest 25-30% of their take-home pay into StashAway. - Malek’s Stashaway recommendation: have different portfolios for 5, 10, 15 years etc. 9. Cryptocurrency as an Investment Ken 44:16 - Great speculative vehicle for traders due to its volatile nature, invest an appropriate amount (0.5 - 1% for the long term) for diversification’s sake. - If it grows to 5%, invest the 4% in something safer. - Use only licensed digital exchanges (Luno), stay away from coins for raising capital. Pauline 47:00 - Bitcoin is like the dotcom bubble in 2000 with the possibility of becoming more common in 6 to 7 years. - Still in the infancy stage, hence to not give it too much attention due to lack of regulations, unstable structure. 10. Value-Averaging Strategy vs Dollar-Cost Averaging Roshan 50:36 - Theoretical value-averaging is buy in the low and keep buying every time the market dips but it is not easy to execute. - Dollar-cost is a mechanical strategy so you won’t have to make decisions to buy or sell. Pauline 51:21 - Dollar-cost is investing a fixed amount monthly or quarterly while value-averaging requires market timing. Therefore, recommends dollar-cost for its simplicity. Ken 52:31 - Human emotions are very flawed, thus its good to use systems such as value-averaging to pre-program our responses to market movement. - Value-averaging has a better return, but you have to track the market. When the market goes down 3-5%, you will be scared, but you have pre-program responses. - Value-averaging works best for index, not for singular stocks.
Ken 3:40 - Everyone should have 6 months - Those aged 35 and above need 12 months - Business owners need 2 to 3 years of cash because a bear market lasts for 2 to 3 years 3. Where do you put your Emergency Fund? Ken's Recommendation 10:25 - Ultra low-risk assets: Fixed Deposits (FD), High-Interest Savings Account, Money Market Fund (StashAway Simple). - StashAway Simple has no lock-in period. Pauline’s Recommendation 14:26 - A combination of FD and Fixed Income Fund - Although FD is low, there is security. - Fixed Income Fund’s expected rate last year was 8-9%, this year is 5-6%. Historically, it is 4-6% depending on funds. - When your emergency fund is large enough, move 10-20% of your funds to a more aggressive portfolio (Technology, US or global funds) - 80% of your funds are for your protection but the 20% can help you generate extra returns 4. When is the best time to enter the market? Pauline 6:49 - History taught us in the past 10 years, there were only 3 years (2014, 2017, 2019) that were positive. Most years are flat or down for Bursa Malaysia, China and the regional markets. The US market remains bullish. - This year was exceptional, we see a 10-30% increase (ever since the last financial crisis in 2019) but we shouldn't take this year’s return to forecast the future. - It's not about getting the right timing or picking the right stock, but rather to commit to a regular investment plan as a good strategy for the long term. - A regular investment/ savings plan is never too late. Malek & Pauline 41:29 - For older people, despite having a shorter compounding period, 20 years is good enough (there will be a market crash once in every 10 years). - Your strategy: 1st 10 years invest in an equity fund that is more aggressive, last 10 years shift to a fixed income fund to protect your capital. Ken 12:01 - Invest for the long run and you can eliminate the risk of changing investing styles as the rules change all the time. (for value investors, the last few years were not a good opportunity with rising prices. In March, there was an all-time high followed by a drop) - S&P 500 gives around 8% yield. However, if you miss 5 days of mega gains, your portfolio will be 30% down. If you miss the 12% and sell at 10%, your gains will be down 30%. - The key is to not jump onto the hottest hyped up assets but to get a diversified portfolio tied to your personal risk preference so you can hold for longer. 5. During this current economic climate, what is the expected rate of return Ken 12:56 - FD is at 1.8%, Money Market at 2%, Gold at 7%, US stocks at 11% (with dip and recovery), International Bonds at 3% Pauline 16:06 - Historically the equity market is at 7%, the US market is at 8-10% of compounding and emerging markets are more volatile 6. Invest for the Long Term with commitment, discipline and patience a) Apply dollar-cost averaging Pauline 30:32 - Select an above-average fund. It does not need to be the best as market performance differs every year. Choose one that has consistently outperformed the benchmark for the past 1, 3, 5 and 10 years. - If you have long years to compound, go for equity funds. Or 50% in fixed income and 50% in equity funds (so you can have 50% of protection) b) Diversify in terms of time instead rather than price. Roshan and Pauline 32:46 - Shift away from being price conscious (buy low, sell high) and do not let your emotions or optimism influence you to make a wrong decision) - S&P 500 was trading around 1,525 points, Today it is at 3,500 points (more than double) - Investing in the S&P 500 ETF every month on a regular basis with a consistent amount is diversifying over time and price. 7. Long Term Investment Structure Malek 15:17 - StashAway in addition to the retail stock market - Work out how much you need for retirement - for the money you need in 15 years you invest in equities, and money you need earlier in safer funds such as bonds. 8. RoboAdvisor (StashAway) - Robo advisors optimise portfolio - looks up economic data and financial market data, uses systematic logic to craft the portfolio hence it won’t go down too below the benchmark because it is already diversified. - StashAway is positioned in an All-Weather strategy: 50% of allocation more growth-oriented, 50% more protective. - There are 12 funds based on investment objectives - 20 years fund will be more aggressive, 5 years fund is more balanced. - Most Stashaway users are between 30 to 35 years old professionals from banking, legal, consulting and tech. They are quite busy to monitor stocks hence they choose Roboadvisory. - 40% of investors do recurring investment every month - and most invest 25-30% of their take-home pay into StashAway. - Malek’s Stashaway recommendation: have different portfolios for 5, 10, 15 years etc. 9. Cryptocurrency as an Investment Ken 44:16 - Great speculative vehicle for traders due to its volatile nature, invest an appropriate amount (0.5 - 1% for the long term) for diversification’s sake. - If it grows to 5%, invest the 4% in something safer. - Use only licensed digital exchanges (Luno), stay away from coins for raising capital. Pauline 47:00 - Bitcoin is like the dotcom bubble in 2000 with the possibility of becoming more common in 6 to 7 years. - Still in the infancy stage, hence to not give it too much attention due to lack of regulations, unstable structure. 10. Value-Averaging Strategy vs Dollar-Cost Averaging Roshan 50:36 - Theoretical value-averaging is buy in the low and keep buying every time the market dips but it is not easy to execute. - Dollar-cost is a mechanical strategy so you won’t have to make decisions to buy or sell. Pauline 51:21 - Dollar-cost is investing a fixed amount monthly or quarterly while value-averaging requires market timing. Therefore, recommends dollar-cost for its simplicity. Ken 52:31 - Human emotions are very flawed, thus its good to use systems such as value-averaging to pre-program our responses to market movement. - Value-averaging has a better return, but you have to track the market. When the market goes down 3-5%, you will be scared, but you have pre-program responses. - Value-averaging works best for index, not for singular stocks.