“Buy low and sell high”

It definitely sounds easy but it is far from easy for me. There is a glamourous ring to being a stock trader in our financial city. Stock traders can afford big houses, nice cars and expensive wines. They only work during trading hours and once past trading hours, they are having fun at the bars doing “networking”. No need to bring work home or stay past office hours.

My few attempts on doing personal trading had never end up great. When I thought the stock could never go any lower after I bought, it fell another 20% the next day. My attempts at currency trading were worse. Every time I felt that it was a sure win, the position went the other way. I was so confident with my “skills” that I asked whoever who wants to make money for sure to bet against me. If I buy long and you sell short, you are 100% guaranteed to make money.

How then can I get involved with the stock market or plan to retire early in investing in stocks?

Fortunately, investment is not trading. We can adopt some discipline so that we can win in the long term.

In Picking our own stocks, we covered buying stocks in industries or companies that we have some inherent knowledge professionally or we interact with in our daily lives to provide us the investment instincts. We can hold these stocks for the long term (instead of trading) and continue to add onto our holdings by buying more during market dips.

For eg, I bought a renewal energy ETF and stock more than 15 years when there were many articles on how renewal and solar energy will be prevalent. The ETF and stock did not do well for many years. It is only in the recent years that I managed to get some good returns. Fortunately, I didn’t buy the ETF and stock for trading purposes. I would have lost money simply by holding on to the ETF and stock.

If we do not want to pick our own stocks, we can depend on mutual funds or ETFs that help us diversify across a basket of stocks. We can use Regular Saving Plan (RSP) to help us diversify the purchase over time (so we do not end up buying only when they hit all time high). We covered this in how to start investing.

So busy professionals can plan to retire early by investing in the stock market. Perhaps we will not get the big houses and nice cars, but this is a slow and steady way to work towards having a steady retirement income.

TRI-O RETIREMENT PLAN is a simple way to help you get started on your retirement planning. Learn the FUNDAMENTALS and HOW TO GET STARTED. There is also a spreadsheet to help you CALCULATE your monthly savings and your project monthly income at retirement. You can check out our BLOGS on topics pertaining to retirement planning. Feel free to CONTACT US if you have any questions or comments.

Diversification is one of the key strategies in investment. We can diversify the risk of owning a single stock by purchasing mutual fund or ETF. We can also diversify the risk of investing in the wrong time (buying high) by using Regular Saving Plans (RSP). We covered this topic in our main site (read INVESTMENT “O”). In our article “How to start investing”, we also proposed some large mutual funds with decent dividend yield to consider for new investors.

While funds reduces the risk of owning single stocks, it could also potentially mute the returns that we can get from picking our own stocks. In our Tri-O Retirement Plan, we are not against the strategy of picking our own stocks. For new investors, we recommend buying funds using RSP. For mature investors, we can do a hybrid strategy. In the income or growth portfolio of INVESTMENT “O”, we can set aside some money to invest in stocks that we pick. On the other extreme, if one is really confident of his/her own stock picking skills, one can also go solely on its own investment decisions without buying funds.

In Thomas J. Stanley and William D. Danko’s book The Millionaire Next Door, one of the successful traits they observed that millionaires have is that they invest in only industries that they are familiar with. Usually these are industries that the millionaires are involved in professionally as well. Although this may be an anti thesis to the diversification strategy (to diversify beyond one stock and industry), it is a strategy that have proven to work.

Personally, I adopt a hybrid strategy. Besides buying funds and ETFs in the growth and income portfolios of INVESTMENT “O”, I pick some of my own stocks. In the income portfolio, I selected some local REITS which provides good dividend income. These are office, retail and industrial REITS. Although I am not a real estate professional, I have visited the malls, office buildings and factories own by these REITs. Visiting these properties give me a sense of how well the real estate is doing. Are the buildings crowded with good footfalls or are there many vacant units within the building? These indicators give me the necessary instinct to pick the REITs to buy.

Being a IT professional for more than 30 years, I have also built a sense of which technology trends are sustainable and which ones will fizzle off. Some of the good bets in my growth portfolio are Apple and Google stocks with the advent of smart phones and Amazon, Microsoft and Google with the cloud computing era. Some of these good investment have provided me with a 10-fold return.

So how do we diversify over time to make sure that we do not buy on the high when we pick individual stocks? I am a long term investor and a lousy market timer. By keeping some buffer money in the growth and income portfolio in INVESTMENT “O”, I usually buy more of the same stocks when there were dips during the different crises (dot com bust, global financial crisis, Covid pandemic). These allows me to safely increase the holding of these shares at a reasonable price.

Is everything nice and wonderful? Of course not, I have picked the wrong stocks that have gone bust and have bought stocks when their prices were at their all time high. Fortunately, by being a long term investor and choosing to focus in industries that I am familiar with, the overall stock portfolio is providing a decent return.

Therefore, the hybrid strategy works for me. Investing in funds and ETF using RSP provides the necessary diversification and keep me continuously invested. Having a portfolio of individual stocks help provide higher returns in the longer term.

TRI-O RETIREMENT PLAN is a simple way to help you get started on your retirement planning. Learn the FUNDAMENTALS and HOW TO GET STARTED. There is also a spreadsheet to help you CALCULATE your monthly savings and your project monthly income at retirement. You can check out our BLOGS on topics pertaining to retirement planning. Feel free to CONTACT US if you have any questions or comments.

You are turning mid forties. Income is getting better as you approach almost twenty years of working. You manage to pay up the remaining loan on your mortgage. Finally, you fully own your first home. The kids are getting bigger and you are thinking that you may need to get a bigger space to live in. Should you trade up your current property to get a larger property or should you buy another smaller property and use it to generate rental income?

Came across two families recently with the scenario above. Both families decided that they should trade up and buy a larger property. The larger property costed more than twice the price they sold their first property for. Basically, they were getting into debt again, after taking almost 20 years to clear the mortgage of their older property. They figured why not since they were making better money at work.

Unfortunately, soon, these two families got into some trouble. With higher salary came higher responsibilities and more stress at work. At their forties, they were constantly pressured by younger colleagues who were more productive and paid less than them. If the economy were to go south, they knew that they would be the first to be lay off as they cost more to the company. Their health started to suffer with higher stress levels yet they felt trapped. They couldn’t resign and take a break or change their career with the prospect of a pay cut as they had monthly mortgage to take care of. The floating rate that the mortgage was based on was also increasing, which meant the monthly mortgage payment was also going up. It is certainly not a good position to be in.

Mathematically, lets work out the problems faced by the two families. Assuming that this is in the context of Singapore where property prices are high and lets assume that the family sold their first property for $1 mil and bought the larger property at $2 mil. The family took a 20 year loan for $1 mil with an interest rate of 3.5% and the monthly payment works out to $5,800. The combined income for the family is $16,000 per month (median family income in Singapore is $10,000). With both the husband and wife working, they are comfortable with the monthly mortgage payment. If one of them does not work (assume that they are paid equally), the family will be hard pressed every month surviving with a $8,000 income and a $5,800 mortgage. Therefore, unless they are very certain that their jobs are stable (for the next 20 years) or they can continue to see their income rising, trading up to a larger property at their age presents a higher risk.

So what should the families do instead? If they could turn back the clock, one alternative is to continue staying in their first property and invest in a rental property. The rental can help them in their monthly cashflow to cover a part of their mortgage payment. The difference between this model and getting a larger property is that the property that one lives in does not help to generate any income. Over time, this rental income is substantial.

Mathematically, lets assume that they invest in a rental property and take the same 20 years loan for $1 mil with the interest rate of 3.5% and managed to rent out their property at $4,000 per month. Right now, their monthly cash flow for their rental property is -$1,800 ($4,000 – $5,800). If one of the couple chooses not to work or take a sabbatical, they will not be so hard pressed as they can still survive with $8,000 per month. Therefore, although the family is going into debt again, it may turn up to be a worthwhile investment if they are good property investors. We covered some of these discussion in another blog – Good Debt vs Bad Debt. Once the rental property is fully paid for, the rental can function as their retirement income.

Of course, there is one more alternative if the families chooses not to upgrade to a larger property or buy another rental property. They can choose to invest their monthly savings and not get into additional debt. They can buy income generating instruments like REITs (read REITs vs Physical Rental Property) or Mutual Funds (read How to start investing), build up their INVESTMENT “O” and start to enjoy some retirement income without getting introducing additional stress in their lives.

Buying a larger or more luxurious dwelling is emotional. There are definitely arguments on why this is more beneficial. However in keeping up with the Joneses, please do take note that getting a mortgage loan is a long term commitment. If the two families are forced to sell their larger properties and move to smaller properties due to cash flow issues, they may be forced to sell at a time when the property market is down. There are also inherent cost like renovation, agent commission and government stamp duties that may be hard to recover.

TRI-O RETIREMENT PLAN is a simple way to help you get started on your retirement planning. Learn the FUNDAMENTALS and HOW TO GET STARTED. There is also a spreadsheet to help you CALCULATE your monthly savings and your project monthly income at retirement. You can check out our BLOGS on topics pertaining to retirement planning. Feel free to CONTACT US if you have any questions or comments.

Some readers upon reading from our site Tri-O Retirement Plan are keen to start investing for retirement planning. There are quite a few instruments which can provide regular retirement income as listed in our INVESTMENT page. For this particular blog, we will cover investment in Mutual Funds or Unit trusts. One advantage for this instrument is that many financial institutions or platforms allow investment in mutual funds using Regular Saving Plan (RSP).

RSP is suitable for busy executives or employees. It automates the purchase of investment products on a monthly basis. For busy executives, it is almost a “set up once and forget about it” type of operation. The other advantage is it enforces the discipline of investment over different market conditions. We, as humans, tend to get emotional when market goes up or down and may end up buying high and selling low (which is bad). RSP helps remove this need to make any buy decision in the accumulation phase and hence provides diversification of investment over time.

On our INVESTMENT page, we spoke about having an INCOME PORTFOLIO and GROWTH PORTFOLIO in INVESTMENT “O”. We recommend using RSP on large mutual funds which provide regular dividends for the income portfolio and RSP on high growth thematic funds for the growth portfolio.

The specific mutual fund or ETF to invest in will depend on which country you are from and which financial institution you trust your money and investment with. There is also a currency decision to make based on the country you are from as some mutual fund or ETF may or may not offer them in your country’s currency.

Using Singapore as an example which we are from, there are many options that we can choose from. Most financial institutions in Singapore allow investment in mutual funds using RSP and the RSP amount can start with $100 per month. You can choose from pure equity funds, bond funds or balanced (consists of equities and bonds) funds. They have different characteristics on how they fluctuate with the market and dividend they provide. Using the funds selector from your financial institution, you can pick up different attributes of funds that you are interested in.

These are some examples of balanced funds.

We like funds from large asset management companies like Blackrock, JP Morgan, Fidelity, Goldman Sachs, Vanguard etc and large fund sizes (at least $1 billion of AUM – asset under management). Look for funds with lower annual expense ratio so that it does not erode your dividend or growth of the fund.

These are examples of equity funds

And these are examples of Bond Funds

The above funds (balanced, equity or bond funds) are good to be considered as part of your INCOME PORTFOLIO of your INVESTMENT “O“. Assuming you have more than $300 per month (in the context of Singapore) allocated to the income portfolio of your INVESTMENT “O”, you can look at buying three funds, one from each category, to spread out your risks as well as to learn their different characteristics. For eg, a bond fund tends to fluctuate less than an equity fund. It means it will not go down as much in value in down markets but of course, it will not gain as much in a buoyant market.

We are not recommending any specific funds but provide broad categories that you can consider. Do some research from your financial institution websites and read the fund fact sheets. Please do take note that your financial institution may layer in a sales charge for any funds bought. The sales charges are usually lower for funds that you can buy online, without going through a banker or sales person. Look for a financial institution or platform that you are comfortable with in terms of security, customer service and charges. Please spend time doing your homework instead of relying solely on bankers or financial product sales people. They will tend to push for products that they receive higher commission and may not have 100% of your best interest at heart.

As for the GROWTH PORTFOLIO in INVESTMENT “O”, you can look at thematic funds. For eg, if you are a big believer of clean energy or autonomous vehicles, there are funds that focused on investing in these companies. When autonomous vehicles become mainstream, your fund may start performing very well. These funds are usually smaller, riskier, fluctuates more widely and do not pay regular dividends.

As an illustration, if your monthly contribution to INVESTMENT “O” is $1,000, you can allocate 80% to INCOME PORTFOLIO and 20% to GROWTH PORTFOLIO. For your income portfolio, you can pick 4 funds (1 equity fund, 1 bond fund and 2 balanced fund) with a RSP of $200 each per month. For your growth portfolio, you can pick 2 thematic funds with a RSP of $100 each per month. This strategy will provide you sufficient risk diversification.

Investment is a big topic. This blog just touches on some basic concepts and possibilities for retirement planning. Subscribe to our newsletter if you are keen to read more blogs in these areas.

TRI-O RETIREMENT PLAN is a simple way to help you get started on your retirement planning. Learn the FUNDAMENTALS and HOW TO GET STARTED. There is also a spreadsheet to help you CALCULATE your monthly savings and your project monthly income at retirement. You can check out our BLOGS on topics pertaining to retirement planning. Feel free to CONTACT US if you have any questions or comments.

In social settings, most friends only share their success stories in investing. This may or may not be the full picture.

Had dinner with a bunch of ex-colleagues. Two of them did very well in their careers and are now happily retired. They are both well to do and are private banking clients.

The conversation invariably led to investments and what each of us are doing in terms of investment. Mine is boring, using RSP (regular saving plans) to buy broad ETFs and multi-asset income funds and hence did not share much.

A started speaking about currency pairing and borrowing money in swiss francs to purchase instruments in another currency. It sounded complex. I am trained in corporate finance and it took me a while to understand exactly what he is doing or rather what his private banker advised him to do.

B, whom I know is a risk taker, was sharing about structured products…using loans to purchase bond funds. At one time, she was sharing that she is earning dividends of US$20,000 per month. Basically, her ideal retirement income every month.

I am sure many of us have such friends and social settings like this could be common. Many of us are even tempted by their investment strategies. We are keen to find out how to earn a pretty penny during retirement and participate in them.

Since we knew A and B for more than 20 years, we could also start putting the pieces in place.

A was in the company the longest and benefited from the company stock option plan when it had a big ramp before it crashed (unfortunately, I joined the company after the ramp and did not benefit as much). He bought physical investment real estates and earned a significant amount of retirement income from rental. He is only using a small portion of his wealth on risky instruments. We know that he bought Bitcoin at US$60,000 (it is about US$24,000 currently) and lost money in risky corporate bonds when oil price crashed. In a social settings, he was only sharing “exciting” investments he is making. Boring investments are not good conversation topics in social settings.

B comes from a wealthy family. She is a risk taker. We have no doubt that some of her investments made her good money but we also knew that she lost money together with A on risky corporate bonds.

So while we may be tempted to look for sophisticated investment vehicles to earn us higher returns for our retirement, please be mindful that the higher the returns, the greater are the risks. There is always a common saying that there is no free lunch on Wall Street (or for the matter, anywhere). Please do your due diligence and if in doubt, walk away. Bankers are keen to push sophisticated products to their clients as they make more fees and commissions from them.

Tri-O Retirement Plan is boring. We are proposing that you buy broad based funds or ETF on a RSP (regular savings plan). A good case is you can make 10% per annum on this strategy although we tell our readers that even 5% to 6% is good (assuming risk free rate is 3%-4%). We like it boring and safe.

We proposed two portfolios in your INVESTMENT “O” – income portfolio and growth portfolio. Keep your income portfolio boring and safe. If you like, you can take a portion of your growth portfolio to participate in riskier instruments. You could be one of the lucky ones who bought Bitcoin at US$100 or Apple shares at US$17 (pre split) many years ago and find the next big thing.

TRI-O RETIREMENT PLAN is a simple way to help you get started on your retirement planning. Learn the FUNDAMENTALS and HOW TO GET STARTED. There is also a spreadsheet to help you CALCULATE your monthly savings and your project monthly income at retirement. You can check out our BLOGS on topics pertaining to retirement planning. Feel free to CONTACT US if you have any questions or comments.