Value investing

These are turbulent times in the market. With every possible bad scenario happening, the future of the financial markets look bleak and gloomy. Its at times like these, you really wonder if its even worth investing in the stock market and if you should really just cut your losses and keep your cash in a milo tin underneath your bed.

One of my favourite books (and I would never have thought this would be an enjoying read at all!) is Benjamin Graham's "The Intelligent Investor". Warren Buffett describes it as "by far the best book on investing ever written

The gist of the book can be summarize by the analogy of Mr. Market, an obliging fellow who turns up every day at the share holder's door offering to buy or sell his shares at a different price.

Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price.

The point of this anecdote is that the investor should not regard the whims of Mr. Market as a determining factor in the value of the shares the investor owns. He should profit from market folly rather than participate in it. The investor is advised to concentrate on the real life performance of his companies and receiving dividends, rather than be too concerned with Mr. Market's often irrational behaviour.

This is the concept of Value Investing. Not trading based on market sentiment but on companies and stocks that hold true value. Graham states certain rules and conditions that a company and stock must fulfill before it can be considered to be included as part of your value investing portfolio.

A definite must read for someone trying to figure out what to do in this current mess.

How to be a millionaire

Trading common stocks can be a harrowing affair. The other option to grow your wealth is to look at Exchange Traded Funds (ETFs). The best ETFs in my opinion are those that track broad based indices like the S&P500. The S&P500 tracks the top 500 large cap companies in the U.S and is generally used to indicate the state of the U.S equity market. If you look at historical returns, the S&P500 has delivered between 8 to 12 % gains annually. Compound this over a period of 20 to 30 years and you've got pretty substantial returns.

The ETF that tracks this is the SPDRS TRUST SERIES 1 (Stock Ticker: SPY) and the investing formula is dollar cost averaging. Because this ETF tracks the entire U.S market, it is essentially neutral and by buying into this ETF at consistent points every year with a fixed amount of cash, you can ride out the ups and the downs. When the market is up, you buy less units. When its down, you buy more. The point is to consistently accumulated units year after year and the earlier you start, the better.



Using the historical market returns of the S&P500 (taking a safe compounding rate of 5%, an initial amount of US$10,000 with a yearly investment growth of 10% (i.e. the same time next year, I will use US$11,000 to purchase more units and US$12,100 the following year), I can look to accumulate US$1,043,003 in 21 years.

The only concern is that your investment is in U.S dollars so there are also foreign exchange risks to consider. There's a local equivalent, the Strait Times Index (STI) and you can look to purchase the STI ETF (Stock ticker: ES3.SI) with the same strategy above.

Getting term insurance

As I've mentioned before, term insurance is possibly the cheapest way to get maximum protection without hefty premiums. Its more efficient as the premiums you pay go directly into getting maximum coverage unlike other investment linked or endownment plans.

The downside however, is the limited period or fixed term of the plan. However, most people get term insurance as a complimentary plan, alongside other whole-life insurance plans. They do well to give additional coverage during the most critical points in your life (young children still studying, aging parents etc).

For me as the quintessential Singapore male, the best term insurance has to be the SAF Group Insurance scheme underwritten by Aviva. For a mere S$81.20 a month or S$974.40 a year, I get S$400,000 coverage for term life and Total Permanent Disability and S$300,000 for Critical Illnesses.

To me, this is the ultimate form of peace of mind - Knowing that your dependents and loved ones will be well-taken care of should anything *touch wood* happen to you. Which is what insurance should be all about.

*A caveat though - Only Singaporean males who have served national service qualify for this. So, apologies to the ladies. But my take on term insurance applies nonetheless.

Petrol Saver

I carry 2 cards in my wallet most of the time. Actually, when I go to work, I carry a card case and a money clip so that there are no unsightly bulges in my pants. Don't want people to get the wrong idea. Oh and I digress...

The UOB One card is essentially used for all purchases, with the mindset of consolidating all my payments to qualify for the quarterly cash rebate. However, for petrol, the best card has got to be the DBS Esso Mastercard.



Along with the current station discount, this card will give you 10% on all fuel purchases at Esso and Mobil. Simply brilliant and if you think about it further, its an additional $15 savings (on top of station discount) for every $300 fuel purchase (my monthly average), a much better usage/reward yield than the UOB One card.

The One card

There are many credit cards available in Singapore and banks are offering a multitude of perks and offers to get people to sign up for yet another one.

The card that offers the best usage/reward yield has to be the UOB One Card. True to its name, the card encourages you to consolidate all your payments to it. The reward is simply a cash rebate credited back every 3 months to offset your credit card bill.

All you need to do is spend at least $300 a month on the card for 3 consecutive months and you will get a $30 cash rebate for that quarter. Spend $800 a month and you get $80 for that quarter.

A yield of 3.33% with no points or redemptions necessary. Its as simple as that!

Ever since its launch last year, I've swapped my previous main card of choice, the HSBC Platinum card (I believe in just using one or 2 cards regularly and consolidating my spend to get better rewards from the card issuers).

From a rewards perspective, the HSBC Platinum card then gave me the best yield ($20 Isetan voucher for just S$3,000 spent). I still keep the card as it offers free golf insurance.

Term Insurance - Its the only protection you will ever need

Insurance is an important facet of financial planning. And as with everything to do with money, it is good to start as early as possible.

However, financial education is not something that's taught within the realms of our education system. That's why most Singaporeans lag behind when it comes to managing their personal finances once they start working. The fact that many banks and insurance companies come knocking rather over-zealously in the form of telemarketers or people who accost you at roadshows, have forced many young professionals to further withdraw into their shell and ignore the need to properly manage their wealth.

The key here is that it is possible to do this by yourself; without feeling obliged to any sales person who has a vested interest to sell you a particular product or service.

Starting to save early is only one small facet of managing your personal wealth. The other is to grow and protect it - Against inflation and any unforseen events. Wealth management, summarized to the core is essentially just about investments and insurance.

The main thing is to clearly differentiate between the two - Banks and insurance firms have been packaging their products in many innovative ways these days, making it all the more complicated for the layman to understand what they are getting themselves into.

Insurance for that matter, should just be that - to insure and protect you and your loved ones against any unforseen situations. Forget about complicated investment-linked insurance products or even whole life insurance plans - All you need is a term life insurance plan; something that gives you high coverage at a reasonable cost. The difference in the premium payments (which can turn out to be a fair bit) can then be used for actual investing.

There are many potential ways you can look at growing your wealth. Buying stocks, bonds, unit trusts, trading currencies, options, deravatives - the list goes on. But the important thing is to clearly split the two - so that you know exactly what your money is doing and where it goes in terms of generating wealth.