5 Savvy Retirement Quotes

These quotes can not only amuse but also impart useful advice that can make your retirement more pleasant.

Big and small minds alike have thought and quipped about retirement. The retirement quotes below aren't all meant to be profound, but each has a lesson or two for us -- and they can help us attain more comfortable retirements.

Here are a few retirement quotes that are not only pithy, but helpful.

"The best time to start thinking about your retirement is before the boss does."
-- Author unknown

What can you do to avoid being forced to retire you're ready? Well, if you save aggressively and invest effectively for retirement, starting it early will hurt less. You might also take better care of your health, to reduce your chance of being unable to work anytime soon. Above all, don't keep putting off thinking about and saving for retirement.

"The question isn't at what age I want to retire -- it's at what income."
-- attributed to George Foreman

This is brilliant, as it reminds us that we have the power to make our retirements more or less comfortable, depending on how well we save and invest for retirement.

By tweaking the amount you plan to save each year, how long your money can grow, and the average annual growth rate you expect, you can arrive at a workable plan. For example, if you have $50,000 in retirement accounts now and can sock away $8,000 per year, aiming to average 8% in annual growth, you can end up with more than $600,000 in 20 years.

Retirement: It's nice to get out of the rat race, but you have to learn to get along with less cheese."
-- attributed to Gene Perret

Retirement quotes such as this are great reminders that we will probably have to rein in our spending in retirement, as we'll likely be living on a smaller income. To some degree, this will happen automatically.

We will no longer be dry-cleaning suits, putting a lot of miles on our car commuting, buying lunches from eateries near our workplace, etc. It can be offset by increased spending on travel, though, or healthcare. To pare down your spending without going as far as moving into a smaller and cheaper home, you might sell one of your household's vehicles or trade in your cable TV for an inexpensive streaming service, among many other possibilities. (Stopping smoking, for example, can save you thousands per year.)

"Retirement can be a great joy if you can figure out how to spend time without spending money."
-- Author unknown

Along the same line as the quote above, this one has a great recommendation: Finding inexpensive activities to engage in during retirement. You might, for example, cultivate an interest in board games and have regular game nights with friends. You might do a lot of volunteering, too. Some volunteering can simply make you feel better, while other kinds can entertain or enlighten, too, such as if you become a theater usher or museum tour guide.

"A retired husband is often a wife's full-time job."
-- attributed to Ella Harris

Retirement quotes such as this point out another feature of retirement -- that our relationships can change, or at least how we interact with each other. When one or both spouses retire, they may end up seeing a lot more of each other, which may turn out to be suboptimal. Simply losing your old routine can be unsettling, too, leaving many retirees restless and aimless. It can be good for some to find a part-time job, just to get out of the house on a regular basis, to have a bit of a routine, to socialize with others besides a spouse, and on top of that, to bring in a little extra income. - The Motley Fool

How to Save for A Comfortable Retirement

THE habit of saving for one’s retirement seems to be slowly becoming a thing of the past for the younger generation. These days, the Gen Y in Malaysia have an endless wish-list of items that they rather spend their money on, encouraging the culture of accumulating debt, and living beyond one’s means.

The recent study done by the Asian Institute of Finance (AIF) highlighted that Gen Y in Malaysia are experiencing significant financial stress early in their life with many trapped in the habit of emotional spending.

The study, entitled Finance Matters: Understanding Gen Y – Bridging the Knowledge Gap of Malaysia’s Millennials, showed that Gen Y were accumulating debt at a young age, with 70% of respondents who owned credit cards reporting that they tended to pay only the minimum monthly payment while 45% did not pay debt on time at some point. 

This fact, combined with the unpredictable performance of our ringgit along with the rising cost of living (what with the recent drastic toll hike), presents an alarming outlook for our future in a financial setting. Can we afford retirement, let alone sending our children overseas for education? 

Many of us live with the motto ‘Spend now, save later’, believing we should enjoy our hard-earned money while we can and that YOLO (you only live once).

However, the fact of the matter is, if you don’t start cultivating the habit of saving now, you will likely not ever develop it. After all, the longer you’ve gotten used to a certain lifestyle, the harder it is to downgrade to a more prudent way of living. 

Why is our savings so important? 

Savings play an important role in building a financially secure lifestyle. Besides acting as a cash reserve for emergencies, your accumulated savings does something of further importance – it helps you grow your money by way of investment, allowing you to achieve your desired life goals such as purchasing a property or retire at ease.

The earlier you start saving and investing, the more years your money will have to accumulate interest, which gets compounded over time (Read - The Beauty of Compounding). In the case of retirement savings, the earlier you start saving, the less you will have to worry about enjoying a comfortable retirement. 

A HSBC report entitled The Future of Retirement, A Balancing Act released earlier this year, which reveals key findings of a global study, shows that on a global scale, retirement is not the main savings priority for 85% of working age people. 

Furthermore, 65% of retirees who did not prepare adequately for a comfortable retirement did not realise this until they had retired.

Relying on our EPF savings alone is not a good idea either. The EPF 2014 annual report released this February highlighted that by age 54, the majority of members (68%) had accumulated savings of only RM50,000 and below, due to the many qualified withdrawals they had made beforehand. This amount is hardly enough to live on comfortably beyond two years.

So, how does one ensure a good build-up of retirement funds?

Save first, then spend

Cultivate the habit of saving from now itself. When you receive your salary every month, pay off your bills and put aside about 20% to 30% of your income into a savings account which you should not touch unless an emergency arises. Continue this habit as long as you’re earning.

Grow your money

Savings alone is not enough. Keeping your money stagnant in your bank account is actually causing your savings to depreciate due to the rising rate of inflation.

Once you’ve built up a substantial cash reserve for yourself, invest a portion of your savings into things like unit trust funds, which will grow your money exponentially over time. Whatever the case, make sure your returns on your investments are above the fixed deposit rate of 4%.

Private retirement schemes (PRS) are also gaining in popularity due to government endorsement and incentives.

PRS works similarly to EPF, except that the contribution is completely on a voluntary and on an as-and-when basis. Your investments are able to be withdrawn once you hit the age of 55 years old, and in the meantime, you have the option of switching to other fund managers if you wish.

Up to RM3,000 of PRS contributions are tax deductible each year, and for those below 30 years of age, the Government will sponsor a one-off payment of RM500 for those who contribute a total of RM1,000 to your PRS funds within a year. These incentives were put in place to encourage both the young and old to take charge of their retirement planning from early on. 

How to begin investing your money?

You may think that investing takes up too much time and effort. However, one company has come up with an Internet-based investment platform which is increasingly attracting the attention of many investors.

Headquartered in Singapore, Fundsupermart.com is a financial products distribution platform which reaches out directly to investors in a B2C business model, as well as independent financial advisories and financial planners in a B2B business model. 

Mainly dealing in unit trusts, the platform makes investment easy by allowing do-it-yourself investors to buy into unit trusts, savings plans, and contribute to PRS, all through one online platform, Fundsupermart.my.

Take charge of your financial health and retirement planning before it is too late. Start your saving and investment efforts now to ensure that you have a worry-free and comfortable retirement. - The Star

The Beauty of Compounding

Slow versus Fast – The Beauty of Compounding

In 1998, a very successful stockbroker in Malaysia wants to change the way he lived completely. He quit his job, sold his house and other worldly possessions and go walkabout. 

Before he departed on his odyssey, he had the problem of what to do with the proceeds resulting from selling everything he owned. In the end, he bought a good pair of walking boots, a rucksack, a change of underwear and a one-way ticket to Australia. The balance, which amounted to a seven-figure sum, he invested in several reputable domestic and regional unit trusts. 

He started off as a jackaroo in a sheep station in deepest darkest Queensland, then trekked across the Indonesian archipelago and claims to have sighted the Yeti in Nepal before he returned to KL in June 2002.

During this period, he never looked at a Bloomberg screen, read financial section of a newspaper or came in contact with anyone with the remotest knowledge or interest in financial markets.

In his four years of walkabout, the KLCI rose an impressive 270% during his absence, but the net value of his unit trusts rose by a factor of 412%. He hasn’t cashed them in and today they are up a net 524%. If he had been following his investments regularly, he probably would have liquidated 500% ago. Instead, he has saved himself a lot of stress and made a lot of money simply by having faith in the undoubted long-term structural growth trend (with a few hiccups here and there) we are enjoying in Malaysia and Asia in general.

The unit trusts in which he invested were able to outperform a strong market due to luck, judicious stock picking from skilled fund managers and very importantly, reinvestment of dividends.

Reinvestment of dividends demonstrates what is commonly known as “the beauty of compounding”: if you have a share in a company which pays out a regular dividend, and you use the dividend to buy more of the same shares, your assets will grow exponentially.

The benefit of the beauty of compounding can also be derived from “Dollar Cost Averaging” when you systematically (Systematic Investment Plan) and regularly invest a fixed amount of money, irrespective of price at the time of investment is made.

The below image illustrates the effect of compounding interest of 2 investors who started the SIP on different timing. This implied the cost of procrastination for the investor who started the SIP 10 years late was simply huge.  

This story published in local newspaper written by a MD of an asset management company and he wanted to share with investors.

Alternative Investments Combined with Fee-based Services Are Changing the Investing World

Financial advisers would be wise to embrace a fuller mix of services to satisfy today's investors and differentiate themselves.

The growing popularity of alternative investments is having a profound impact on investment firms and the growing practice of fee-based advisory services. And it's not just alternative specialists who are affected, but the entire asset-management landscape, from traditional wirehouses to private banks and platform providers.

Firms would be wise to embrace a fuller mix of services to satisfy today's investors and differentiate themselves from other asset-management firms.

The growing interest in alternatives is characterized by the demand for a more flexible asset allocation, with funds apportioned among various instrument types based on an ever-changing investment environment. And why not? After all, investors increasingly desire diversification and investment options suitable to various long-term goals and risk tolerance.

But the issue is not simply flexibility, it’s also performance. Yes, asset managers and their clients want to match performance benchmarks from traditional asset types. Then, by adding alternative products, they can gain true net yield.

In addition, the practice of charging a fee that’s based on the value of an investor's account, rather than a trading commission or flat fee, is particularly suitable to an alternative asset world.

Taken together, alternative investing and fee-based advisory services complement each other admirably.

A CHANGE IN APPROACH

It wasn't too long ago that the typical portfolio was all about conventional stocks and bonds, with perhaps an occasional hedge fund thrown in for a particularly adventuresome investor. Investing and client engagement were pretty commoditized, portfolios were made up of a few favored mutual funds, and any one investment firm had very little to differentiate it from the one down the block.

Today, the range of alternative investment vehicles extends well beyond hedge funds, including such asset classes as private equity funds, commodities, real estate, alternative mutual funds, venture capital, precious metals and more.

Investors' desire for increased and sustainable long-term investment returns is showing up in the flow of capital. Between now and 2020, alternative assets are expected to grow to as much as $15.3 trillion on the strength of friendly monetary policies and stable economic growth, according to PricewaterhouseCoopers' “Alternative Asset Management 2020: Fast Forward to Centre Stage.” That's up from $7.9 trillion in 2013, with the greatest growth in private equity, real assets and hedge funds (or funds of hedge funds), according to the study.

We anticipate that alternative assets will likely comprise 15% of client portfolios within the next five years as investors become more sophisticated and demand greater strategic variety in their portfolios.

This is where alternative investments and the fee-based advisory model have become natural mutually reinforcing partners.

A BETTER CLIENT RELATIONSHIP

Alternative asset advisory and investing, administered via fee-based advisory services, provide for greater client interaction and a “sticky” customer base. Clients may remain loyal to their advisers when returns are excellent, but in most economic environments (and especially today) what they really want is a richer adviser-client dialogue. This in itself helps cement a closer bond between the two, and encourages long-term relationships.

Naturally, regulators expect to see evidence that new types of products are reviewed and understood by operations, risk management and stakeholders. Since alternative products are relatively new compared to more traditional investment vehicles, they can require greater due diligence by a new-products committee, and new approaches to training, assessing customer suitability, marketing and robust liquidity risk management.

The greater challenge is how to differentiate one firm from the competition. Investors are rightly asking their investment firms about what makes them unique enough to do business with.

Devising new business models in which asset variety and customer engagement are paramount, and a better fee structure is an undeniable plus, can go a long way toward answering that question. - Investment News

10 Best Tips to Invest, Spend and Save Better

How many times have you been told to 'spend wisely' or 'save more'? Most of the advice we get are almost always vague and don't delve into the how, where and how much.

Planning your finances is important and it doesn't end at having a heavy bank balance-investing your money in the market is equally essential. While it may not give immediate results, patient and disciplined investment, experts say, definitely yields fruitful returns. Here's a list of advice from financial experts around the world on how to invest, spend and save better.Planning your finances is important and it doesn't end at having a heavy bank balance. Investing your money in the market is equally essential.

1. KEEP THINGS SIMPLE, DON'T FALL FOR QUICK PROFITS: According to legendary investor Warren Buffett, one must invest in places one knows best. He was quoted as saying, "If you don't invest in things you know, you're just gambling." Elaborating on the same, in the 2014 letter to his shareholders, he had said, "You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't, you must recognise your limitations and follow a course certain to work reasonably well. Keep things simple and don't swing for the fences." To those lured by quick gains, this is what Buffett has to say, "When promised with quick profits, respond with a quick 'no'."

2. THE 'RICH AND POOR' PHILOSOPHY: A popular perception in financial planning is that we need to save a little after all the spending and invest that little saving. Robert Kiyosaki, American author of the book Rich Dad, Poor Dad, believes otherwise. "The philosophy of the rich and the poor is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left," he says.

3. THE FRUGALITY APPROACH: When overcome with guilt at the end of the month for spending too much on that watch you loved or the new iPhone you absolutely had to pocket, you make idealistic promises to cut down spending on 'frivolous' things. Is it the right approach though? Can we realistically achieve equilibrium by taking drastic steps? Ramit Sethi, author of the popular book I Will Teach You to Be Rich, proposes Planning your finances is important and it doesn't end at having a heavy bank balance-investing your money in the market is equally essential his idea of frugality. "Frugality isn't about cutting your spending on everything. That approach wouldn't last two days. Frugality, quite simply, is about choosing the things you love enough to spend extravagantly on and then cutting costs mercilessly on the things you don't love."

4. LIMIT YOUR BORROWING: Credit cards can be alluring. Borrowing money that is unaffordable now somehow becomes affordable in a couple of months. Here's what Buffett says about the practice of borrowing: I've seen more people fail because of liquor and leverage-leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing.

5. MAKE A PLAN: We spend a lot in a certain month, curb spending in the next to make up for it, and end up in a vicious cycle of debt and little savings. Make a simple expenditure plan as well as an investment plan without delay. As late Americanborn British stock investor Sir John Templeton once said, "The four most expensive words in the English language are 'This time it's different'." Closer home, some of our investment gurus have words of caution and advice for those stepping in or already kneedeep in the markets. They all seem to impart one common advice: 'Be disciplined in your investments'. - Business Today

6.INVEST FOR THE LONG TERM: You must have a long-term view and invest in an asset class that thrives in a period of market upturn. Well-known certified financial planner Surya Bhatia lives by this philosophy. "Look at equity as an asset class of your portfolio. Yes, you do equities, the volatility goes hand in hand and the risk is there; that's why we always talk about long term. Look at longevity of asset classes and create a portfolio which is meant to be invested for the long term.

7. SIPS TAKE AWAY THE HUMAN BIAS: A systematic investment plan (SIP) is something experts harp on. It is believed to be a disciplined form of investment. Sundeep Sikka, chief executive officer (CEO), Reliance Capital Asset Management, says, "SIP is the easiest way to create wealth. We are all aware of RDs-recurring deposits-in which a small amount that moves out of the bank account goes into a fixed deposit month on month; it's very similar to that."

8. REVIEWING YOUR PORTFOLIO IS AS IMPORTANT AS MAKING ONE: A sound investment plan is nothing but matching your assets and liabilities, believes Abhishake Mathur, head, investment advisory services, ICICI Securities. This is how he defines a good financial plan: Assets comprise all your investment and liabilities. "A successful plan is one which ensures that you have the required assets at the required time to meet a goal, and that's why asset allocation is very important. Classifying goals into critical and discretionary helps one make a sharper plan."

9. DO YOUR HOMEWORK: While there are financial advisers to fall back on, it is easy to gather knowledge of your own in this Internet age. Before you invest, find out about the industry you're investing in, the company you want to buy stocks from and the general market conditions at the time of investing.

10. THE ANSWER LIES WITH YOU: As an extension of the previous point, it is important to note that nobody can truly understand your goals and financial needs. If the question 'How should I pick the right scheme?' ever occurs to you, the answer is simple: it lies with you. - Business Today

Protect Your Investment Portfolio From Market Shocks

Since investment is subject to individual needs and requirements, there can’t be a single approach; rather, there should be many roads leading to a single goal.

Ever wondered if there is a way to guarantee success through investments? Which is the best asset class or asset mix to have? Investing is a systematic approach towards creating wealth, if practised on a regular basis. The approach doesn’t stop here; the money invested needs to go into appropriate asset classes, which should suit one’s risk appetite to optimise risk-adjusted returns.

Since investment is subject to individual needs and requirements, there can’t be a single approach; rather, there should be many roads leading to a single goal. Some basic principles, if kept in mind, can bring substantial growth to one’s wealth.

1. Power your wealth with a multiplier effect by investing early

It is rightly said that the early bird catches the worm. An investment made early helps one to multiply wealth and create a higher corpus. This is brought about by the compounding effect over a period of time, in which returns start earning returns. Your money starts working for you rather than you working for your money.

2. Build your portfolio systematically by investing in mutual fund SIPs

The first step is usually confusing and difficult. Thus, it is ideal to start investments with a Systematic Investment Plan (SIP) of a mutual fund scheme. SIP is a form of continuous and regular investment in mutual funds, which in turn invest in equity markets. However, allocating money to a mutual fund scheme should be based on one’s risk appetite. The allocation can be towards large cap, mid and small cap, balanced and debt funds.

3. Don’t put all your eggs in one basket — diversify your portfolio

Knowing where to invest and how to divide your money into different asset classes is one of the most important skills. Effective diversification of investments will help reduce risk as well as enhance returns. However, the question is how to diversify and what are the different levels of diversification.

Diversify across different asset classes like equity, debt, gold
Scout within the available universe. For example, within equity, if you choose to invest in mutual funds then the same should be spread across categories like large cap, mid and small cap, balanced fund and arbitrage fund.

Diversify across different geographies to hold investments in different countries. These can either be through a structured investment platform or mutual funds.

4. It’s not just about generating returns, you should also protect your money

The golden rule for investment is: do not lose money. This is the first and the most important principle, so design your investment mix in such a way that it stays above the water and impact on your investments by a dip in markets or volatility will be minimal. In this way, your portfolio is safe from market shocks. It is believed that the best offense is a good defence.

While investing, one of the objectives is to earn higher returns, but risk level should not be compromised.

5. Look for asymmetric risk/reward

Higher the risk, higher the returns is the most commonly-followed perception in the investing world. However, the case is not so. Even within an asset class, returns can be optimised for the level of risk assumed and earn higher risk-adjusted returns. It is often said, “Be greedy when others are fearful”. This means buy when people are reluctant to invest. This is often seen when there is a huge correction in the market, leading to panic. In such a scenario, people choose to stay away from investing. In this state, investments are often available at a discounted price. Also, the SIP mode of investments in the equity market helps one to garner higher risk-adjusted returns since it ensures averaging of costs in the long term.

6. Tax efficient avenues

The key to earning higher returns lies in allocating investments smartly and in choosing tax efficient avenues. - The Hindu

Sales of Structured Products Tell Us a Lot About the Global Search for Yield

Reach for returns, retail edition.

What can this year's sales of structured products tell us about investors' mindsets?

A lot, according to the flows and liquidity team at JPMorgan Chase.
Annual sales of retail structured products are expected to reach their highest level for seven years, according to analysts led by Nikolaos Panigirtzoglou. 

Global sales of retail structured products reached $466 billion in the first 10 months of the year, on track to reach $560 billion by the time the curtains are drawn on 2015, driven mostly by demand from Asia.

While the world's collective search for yield has sparked a rise in total sales of structured products, it has, conversely, also led to a relative decline in the safest such products that come with the smallest returns for investors. The portion of structured products boasting full capital protection, which are generally favored by risk-averse investors, has fallen to a fresh all-time low level of 33 percent of total structured product sales.

As the JPMorgan analysts note (rather dryly): "The sharp fall in the universe of structured products with 100 percent capital protection is likely a reflection of the still low level of interest rates, which effectively makes the purchase of zero coupon bonds for capital protection purposes a lot more expensive. It is almost impossible for issuers to currently offer both 100 percent capital protection and a decent yield or upside."

In the meantime, sales of reverse convertible bonds — which can be converted to shares at the discretion of the issuer — are also said to be booming. Investors in such notes generally receive a higher coupon to compensate them for bearing both the credit risk of the issuer plus downside risk in the equity, but don't get any extra benefit if the shares rise.

"The strong demand for reverse convertibles is reflective of the high appetite by retail investors for stable and high coupons and/or their doubt of the upside potential of the equity market," the JPMorgan Chase analysts conclude. - Bloomberg

When It Pays to Be a Naïve Investor

Naïveté is not normally considered a positive, especially in a take-no-prisoners world like Wall Street. However, an investment portfolio-building approach called “naïve diversification” -- also called the “1/N portfolio strategy” -- is simple, cheap and easy enough for any retirement saver to do it.

Naïve diversification is straightforward and intuitive. You take the number of asset classes or individual investments you plan to invest in and divide it into 1 to get the percentage of your portfolio that will go into each asset class.

Say you are going to invest in three asset classes: stocks, bonds and real estate. Dividing one by three gives 1/3. You put a third of your money into each of those asset classes. That’s it.

This is far simpler than the portfolio optimization pioneered in 1952 by economist Harry Markowitz, who won the 1990 Nobel Prize for it. Today, Markowitz’s complex mathematical formulas underlie Modern Portfolio Theory, which fund managers and their ilk use to attempt to most effectively and efficiently balance risk and return.

Interestingly, for his personal portfolio Markowitz eschewed the complexity and used naïve diversification. In interviews, he has revealed that he himself put half his savings in stocks and half in bonds. No struggles with portfolio optimization, Monte Carlo simulation or any arithmetic that couldn’t be done on the back of an envelope. Markowitz later said he wanted a portfolio that performed about as well as the overall market and didn’t want to risk doing a lot worse.

Portfolio theory’s premise is that different asset classes, such as stocks and bonds, tend to move in different directions. Relatively speaking, one tends to be up when the other is down. This allows an investor to, among other things, buffer the effects of a downturn by having funds invested in different, uncorrelated asset classes.

Nobel notwithstanding, the theory has showed a few holes, notably during market declines like the one in 2008, when all asset classes lost big and diversification provided little protection. The problem is that average asset class correlations can cover up major fluctuations, and nobody can predict when one of those outliers is going to hit.

“It relies on the idea that you have an accurate forecast of how every asset class is going to perform,” explains Marcy Keckler, vice president of financial advice strategy for Minneapolis-based Ameriprise. “And we don’t really know that.” Some studies suggest the estimation challenge is so significant that it would take centuries for an optimized portfolio to reliably beat naïve diversification.

Another objection is that recently asset classes that seemed uncorrelated have correlated more closely. “Over the last couple of years, whether you owned large caps, small caps, domestic or international, they’ve all been moving in unison,” says Michael Chadwick, a financial advisor in Unionville, Conn. “Even stocks and bonds had been negatively correlated and now they’re correlated.”

So if naïve diversification performs about as well as fancier approaches, why not do it? One problem is that as assets gain or lose in value relative to each other, investors need to maintain the 1/N ratio.

“If one doesn't periodically rebalance, then one has an imbalance of securities as the outperforming stocks will have a larger weight than the stocks that have underperformed,” explains Robert R. Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pa. “Moving forward, stocks that have underperformed in the past tend to outperform in the future. In other words, there is a reversion to the mean in stock returns.”

Having said that, Johnson says 1/N diversification can be effective. And you can do it by investing in just a handful of stocks. “Somewhere in the range of 90% of diversification benefits are achieved with as few as 10 stocks,” Johnson said. “You don't have to have dozens of individual holdings to diversify.”

The easiest, most effective and efficient way for individual investors to do naïve diversification is through funds. Johnson says investors could look at index funds, which attempt to represent the composition and performance of a broad index like the S&P 500. Keckler says another option is target funds, which are managed to achieve diversification appropriate to a person retiring in some specific future year, such as 2025.

Chadwick, skeptical of diversification’s ability to help investors prosper during periods of high volatility, favors a more sophisticated approach involving managed futures. These allow individual investors to hedge against risk with the help of professional money managers.

While financial advisors differ about whether naïve diversification is sufficient, as well as the details of how to go about it, they agree that attempting to manage risk by investing in different assets classes is centrally important. “We do know what when some asset classes are performing well, other asset classes might not be performing as well, and vice versa,” says Keckler. “That’s really the heart of a diversification strategy.” - The Street

Four Key Financial Investment Planning Tips for Women

These days, financial education is imperative to acquire financial success. However, while some of us might be well-versed with financial theories, staying updated and accurate with the latest financial news is also important.

There are women who go the extra mile to provide for their family, both financially and emotionally -- as a professional, mother, daughter wife, friend. However, women also tend to get fondled by emotions easily. It is important for her to focus and make decisions logically and not emotionally when it comes to matters of financial planning. 

Here are some smart financial planning tips for women:

1. Choosing best option to invest:

It is not only important to invest, but also to choose your investment plans wisely. This stands true for everyone, not only women, but it is especially important in the case of women because they tend to have a longer life span. It is very important to start planning for retirement or for financial stability in the event of a partner's death. 

2. Take charge and make a budget:

Many women in India still depend on their husbands for financial decisions. With growing complexities in life, it is advisible for a woman to take charge of her financial life as she may be in a better position to predict her needs going ahead. For this, make a budget that fits your requirement with ease and is flexible enough to accommodate needs with time. It is advisible to start as early as possible and select investment options which will also help you save in taxes.

3. Research & Plan: Take a financial advisor’s help if needed:

Since the financial world is full of technical jargons and complexities, a thorough research before buying into a financial product, including considering factors like inflation, return on investments, market sentiments, and taxes while planning your finances. Seek advice from an expert if needed, but eventually make the final decision on the basis of your judgement and thorough research. Plan, calculate and research before investing.

4. Review your income & savings on a regular basis:

After carefully planning and investing, the next, and constant, step is to review your finances on a regular basis. You need to be on the top of your game when it comes to managing finances with respect to the changes in your life -- marriage, becoming a parent, career changes, moving abroad/shift, and so on. Then there are other changes that are beyond one's control -- changes in tax laws, interest rates, inflation rates, stock market volatility, recession -- so make sure you plan ahead of time and are always ready to accommodate these changes. - DNA India

A Value Investor’s Take on Diversification and Risk

The two key tenets of modern portfolio theory is that investors invest in well-diversified portfolios and that, in this setting, the only risk that matters is beta – a measure of a stock’s volatility in relation to the market. Finance courses at universities around the globe and the CFA program are embedded in these two concepts.

Value investors reject both parts of modern portfolio theory.

The notion of diversification

According to theory, in efficient markets, investors will not be rewarded for risk that can be diversified. A strategy that attempts to outperform the market based on stock picking – in other words, selecting stocks that seem to be underpriced – will lead to a poorly diversified portfolio and risk for which there will be no reward. Diversification helps investors minimize risk and, so doing, avoid losses.

The notion of diversification, however, assumes that all risk can be measured, namely, risk that we know we do not know and risk we do not know we do not know! This realization is not new. As early as 1930, John Maynard Keynes had indicated that some of the risk in the stock market could not be quantified and measured. Unfortunately for Keynes, English clergyman and mathematician Thomas Bayes had a different opinion of risk, that risk could be quantified and measured by a probability distribution (like putting bets on roulette and observing and plotting the outcomes in a bell curve). His views prevailed over those of Keynes and dominated modern finance theory. The notion that risk resembles a game of roulette has permeated modern portfolio theory and risk-management strategies. But the bell curve assumes that we know what we do not know. In roulette, the odds are known and what investors do does not affect the odds. Unfortunately, the stock market is not like roulette, but rather like a poker game in which the odds are affected by what we observe around us.

Adhering to this idea of measurable risk, investors over the years loaded up on risk, believing that risk is eliminated through diversification or diversification’s derivatives, such as securitization and structured investment vehicles. The problem is that adherents to this idea of measurable risk did not count on the likelihood that something we did not we did not know would occur. In recent years, a large number of mathematicians and finance PhDs working on Wall Street and their models were proven wrong because they put too much emphasis on bell curve probability distributions and diversification.

Value investors have concentrated portfolios, not because they reject diversification, but rather because they operate within the boundaries of their competence; they select only securities they understand; they prefer companies with stable cash flows and a history of steady earnings that can be reliably valued. “The right method in investment is to put fairly large sums into enterprises which one thinks one knows something about,” Keynes wrote. And Gerald Loeb, co-founder of E. F. Hutton, wrote in his 1935 book on The Battle for Investments Survival, “Once you attain competence, diversification is undesirable.”

Why beta?

Finance academics define risk as volatility or its derivative, beta. But is beta relevant? Is beta an appropriate measure of risk? TD Waterhouse reports that Intel Corp.’s beta is 0.88, while Sierra Wireless beta is 0.66. Based on beta, Intel is a riskier company than Sierra Wireless. But does anyone believe this? For value investors, volatility is not an appropriate measure of risk. Value investors see risk as the probability that adverse outcomes in the future will permanently impair the business’s potential cash flow and investor’s capital.

What is material for value investors is whether a company continues to have strong long-term prospects and fundamentals, be well managed and financially sound, as well as “cheap” – that is, its stock price is significantly below the intrinsic value (by a predetermined margin of safety). Value investors want to ascertain that a company has the ability, financial and operational, to withstand adverse states of the world and “sustain pain.” In the absence of the above, companies will have high probability of “permanently impairing their business’s potential cash flow and investor’s capital” during bad economic times. In this sense, value investors have implicitly aligned themselves with Keynes. That is why they developed the concept of margin of safety (MOS) – not buying a stock unless it falls significantly (about 30 per cent) below its intrinsic value. The MOS protects investors from the unknown unknowns. - The Globe and Mail

What Makes a Good Balanced Fund?

In the past, fund managers were predominantly stock pickers. Most of the money that went into unit trusts was invested in general equity funds that tried to maximise returns from the stock market.

While there is still a large element of this, it is no longer what investors demand most. The skill that they are most interested in these days is asset allocation.

“Especially in the current environment where we have had this big run up in equity markets post the financial crisis, multi-asset funds are definitely becoming more popular,” says Nadir Thokan, investment analyst at 27Four Investment Managers. 

“Investors are seeking to diversify their sources of risk and return.”

Put another way, investors have come to a better understanding of the benefits of using more than one asset class.

Three things investors want

Anthony Gillham, multi-asset portfolio manager at Old Mutual Global Investors, says that their customers consistently ask his team to deliver three things in terms of how their portfolios behave. They want consistent investment performance, downside cushioning, and diversification.

“Consistency in performance is about the smoothness of the ride,” Gillham explains. “It is not just about total returns, but the manner in which those returns are achieved.”

Blending together asset classes that will perform differently at different stages of the cycle is therefore essential. The big benefit to the investor is that this takes out the worst of the volatility and discourages the wealth-destroying behaviour of buying at the highs and selling at the lows.

The second key thing multi-asset funds need to deliver is protection against big draw downs in the market.

“It is incumbent on managers to try to mitigate the worst of market downturns,” says Gillham. “That means being sensitive to what is going on in markets and taking money off the table when the risks are high.”

While investors might rejoice when they see their portfolios outpacing the market when times are good, the most important time to seek out-performance is actually when markets go down. Minimising losses can have a major long term impact.

Consider, for instance, that if your portfolio loses 50%, it then has to gain 100% just to get back to where it was. If it only lost 15%, however, the growth required to recover would be just 18%.

Restricting the downside therefore not only means that returns are smoother, but you also don’t have to take as much risk on the way up again.

The third key component in multi-asset portfolios is diversification. This might sound obvious, but there is more to good diversification than just tossing different asset classes together.

“Diversification is about the ability to produce low-correlated returns,” Gillham explains. “That means a broad spread of assets, a range of different strategies, and also diversification in terms of position sizes. I don’t want a fund to be driven by just one or two economic views. I want lots of small active positions because that is going to help me produce the most consistent performance.”

Active asset allocation

While some investors might be happy to manage their own asset allocation decisions, the complexity of blending assets and styles together in the right mix is something many prefer to leave to a professional manager. That is why multi-asset funds have become so popular.

“The ultimate value added by good asset allocation decisions dwarfs the alpha that can be delivered in the underlying building blocks,” argues chief investment officer at Coronation, Karl Leinberger. “This is the big call and you need to get it right. I think it makes sense to leave the asset allocation decision to someone who has the appropriate skill set and then to hold them accountable for those decisions.”

He believes that this will become particularly important in the coming years in which real returns are likely to be much lower than they have been over the last decade and a half.

“Active managers are going to get some calls right and some wrong,” says Leinberger. “But in these unique times, I would rather have a team with skill and experience making bold and decisive decisions on my behalf.”

In essence, good asset allocators are most valuable in uncertain markets. That is when their abilities are most tested, but also when they are most needed.

“Diversification is the only free lunch you get in investing,” Thokan says. “You can achieve significant risk reduction by including more than one asset class without reducing your returns all that much.” - moneyweb

To Hold or Not to Hold Stocks?

A long investment horizon is good if portfolio has ample time to grow.

A widely regarded financial adage says that holding investments for a longer time increases the likelihood that the investment will yield a positive return. Take a long-term chart of 20 years of any stock market and you typically would find positive returns at the end of the period.

However, experienced investors have come to use the term "long-term investment" in a tongue-in-cheek manner when their stock or investment starts to perform poorly by saying that it would now go into their "long-term portfolios".

So is it true that holding equities "long term" always pans out well?

In October 2007, the Singapore Straits Times Index (STI) reached a lofty 3,800 before subsequently crashing 60 per cent, thanks to what is known today as the global financial crisis.

Many market players held onto their horses and waited for the STI to recover. An investor would have had to wait until 2013 to regain his capital if he had invested at the peak six years earlier .

Japan in the 1990s presents another example. More commonly known as the "lost decade", the Japanese Nikkei Index was trading close to 39,000 at its peak in 1990. Today, the same index, which has been one of the top performers this year, is trading closer to 18,000, less than half its value more than 20 years ago.

While it is not common to find another well-documented case of a market as big as Japan having gone through such a long and painful period of underperformance, there are hundreds, if not thousands, of stocks that have undergone similar horrific fortunes in recent years.

So the question that beckons is: Do we wait for them to recover? How long can an investor wait?

Consider an investor who decides to start investing at the age of 30 and targets to start drawing down on his nest egg by the time he is retired at 65. That is a good 35 years.

The reality is that many investors buy into the markets in chunks and, while they might have started at age 30, it is often not the bulk of what they were going to eventually put into their portfolio. If you look through the age group data of investors, you will find that the average age is closer to 45.

This suggests that most investors have less "investment time" for their portfolios to flourish than the hypothesised 35-year gestation period. That is cutting it quite close to the 15-year timeline that it took the Nasdaq to recover from the tech-led crash of 2000 to 2001.

The strategy of holding investments for the long term is not wrong; investors should try to plan their portfolios such that they can take advantage of a longer investment horizon.

One of the ways to do this is to have a very disciplined approach to investing at an early age. A regular savings plan, which helps you to systematically invest over a period of time by setting aside a portion of your income or savings to put into the market, is a tried and tested way of smoothing out volatile market conditions.

There are also other investment strategies to reduce your chances of being caught in a market crash.

The first has to be the most ancient saying in the oldest investment strategy book - "Diversify: Do not put all your eggs in one basket".

If one had invested his nest egg in a varied portfolio of investments - bonds and stocks in more than one sector or country - rather than all his money in technology stocks in 2000, the value of his investments would have held up much better. Aim for investments that are negatively correlated to get the best out of diversification.

On the day that the Nasdaq peaked on March 10, 2000, Mr Warren Buffett's Berkshire Hathaway was hovering at its two-year low. Mr Buffett had no interest in investing in technology stocks and had been widely criticised for missing out on the huge rally.

The subsequent collapse in the Nasdaq saw a 78 per cent crash from peak to trough over the next two years, while Berkshire Hathaway climbed 75 per cent over the same period.

Second, be forward looking. When I was still in university, I asked my father if I could do a review of his portfolio of stocks. To my surprise, his portfolio looked nothing like those that I had studied about, but rather just a mishmash of penny stocks. Not that penny stocks are poor investments but, over the years, my father had sold off all the stocks that made money, and kept all the loss-making ones.

He was waiting for the stocks to appreciate before selling them so that he would not crystallise his losses. He had unintentionally chosen to keep the loss-making stocks and sold off the best ones.

It was a lesson for me that when we invest, we need to be forward looking.

Our decisions to buy or sell should be made based on the future outlook of the company and not whether we had lost money on the stock.

These two strategies can be used in conjunction with a long-term investment plan. This way, you build a well-diversified portfolio that has ample time to grow. At the same time, you give yourself the flexibility to rebalance investments that no longer seem viable in the long run and replace them with those that fit your investment objective. - Straits Times Singapore

•The writer is head of investment advisory, strategy and managed investments at Standard Chartered Bank Singapore.

How to Make a Good Investment Decision?

It is time for people to move from traditional investment options to financial products in order to maximise the profitability and to increase the net worth. For which, one needs to understand the risk involved in the financial products and how to avoid the common errors in making effective and timely investment judgment.

Broadly financial instruments can be divided into two categories: listed and unlisted. While listed products can be traded on the exchanges and unlisted instruments shall be returned to the issuer after maturity of the instrument.

Unlisted instruments: Unit trusts and mutual funds, investment-linked assurance schemes, tax-free and structured investment products, mandatory and voluntary provident funds, retirement and pension funds, paper gold schemes, investment-linked deposits and unlisted shares and debentures.

Listed instruments: Exchange-traded funds, real estate investment trusts, close-ended funds (traded mutual funds), listed shares and debentures.

Let us discuss generally how one has to take an investment decision and issues considered to be vital for investment. However, the author is not explaining how to manage investment portfolio during volatile markets and also it is not an invitation for investment.

First, one should have a financial roadmap. It means, before taking any investment decision one should understand one’s financial situation, more so, if the prospective investor never prepared a financial plan earlier.  

Financial Roadmap

This is the first step while preparing for investment in any financial instrument. One has the figure out the investment goals and the capacity to withstand to risks. It is recommended to take the help of financial professional here. Mind you, there is no guarantee that one will make money from investments. Of course, by understanding the fact of investments and savings and draw an intelligent plant, one can able to secure the investment amount over the years and in the process manage in making some money.

Fixing the comfort zone

It is very vital task for the first-time investor. One should understand the risk involved in the invest option. If the intention is to buy shares or bonds or traded mutual funds – please understand that the investment in these instruments involve high-rate of risk including losing the amount in portion or full. Unlike fixed deposits with banks etc, the money invested in securities has no guarantees. One may lose even principal, leave alone interest.

But, if one is ready to take the risk, the return on this kind of investment is higher depending on period of the investment – long term investment options. And for the short term return options one can invest in cash-equivalent instruments.

Always try to find out appropriately a mix of investments with in one’s portfolio which will help against significant investment losses.

13 Everyday Habits That Destroy Your Retirement Fund

We all have habits — some good, some not-so-good and some downright bad. We typically realize that those bad habits are hurting us. Sometimes, though, it can be difficult to recognize that something we regularly do has become a habit or that it’s harming us. This can be especially true when it comes to preparing for retirement. Seemingly harmless habits might be sabotaging your retirement savings.

1. Spending Now Rather Than Saving for Tomorrow

It’s much easier to focus on the present than to think about the future, said Erik C. Olson, a certified financial planner (CFP) with Arete Wealth Management. After all, when bills are due now, finding room in your budget to save for retirement might not seem as important.

But if you take a good look at your spending, you likely can find ways to trim it so that you can set aside more money for the future and actually retire someday. For example, Olson said you could lower your monthly expenses by hundreds of dollars by dining out less, opting for a cheaper cell phone plan, cutting the cost of cable TV — or eliminating it — and getting rid of credit card debt.

“Maybe you’re thinking, ‘Well, that wouldn’t be as much fun,’” Olson said. But ask yourself how much fun it would be to work the rest of your life because you can’t afford to retire.

The sooner you start saving, the more time you’ll have to grow your money. “What you save and invest in your first five to 10 years can grow to be the majority of your portfolio at retirement, even if you keep saving and investing for decades more,” said Olson. “Compounding growth is that powerful.”

2. Underestimating How Much You’ll Need in Retirement

Maybe you actually are keeping your spending under control so you can save for retirement. But, your efforts might not pay off if you haven’t bothered to figure out how much you will need to live comfortably in retirement.

“To avoid being caught off guard when that day comes, get with a capable financial planner … to get a clearer picture and a plan in place,” Olson said. At the least, use an online calculator, such as Vanguard’s retirement income calculator or the Fidelity myPlan Snapshot, to get a general idea of how much you need to save.

3. Putting All Your Money in the Best-Performing Mutual Funds

CFP Michael Hardy of Mollot & Hardy said he often sees people pick the mutual fund in their 401k lineup that has the best performance record, hoping that it continues to climb as it has in the past. It might seem like a logical strategy, but it’s actually a mistake.

“What history shows us is that, over time, the best performers will become the worst and the worst the best,” he said. “You may jump in at the top and find yourself getting out of that fund as it is crashing.”

Instead, choose a target-date fund if your retirement plan offers them. These funds keep your money diversified among stocks and bonds and get more conservative as you get closer to retirement, Hardy said.

4. Confusing Owning Many Funds With Diversification

You’ve heard that your portfolio should be diversified. So, as you make your investment choices for your 401k, you might be saying to yourself, “I guess I’ll just spread my money out across the 10 best funds and call it a day,” Olson said.

However, those funds might have a good track record because they were invested in the same sort of stocks or bonds that performed well recently. “What you might have gotten was portfolio concentration disguised as diversification,” he said. So if one starts tanking, they all could, and you’d have a portfolio meltdown.

Avoid this by doing your homework, asking for help from your plan’s advisor and learning how to build a truly diversified portfolio that fits you, Olson said.

5. Saving Only When the Market Is Doing Well

If you’re only setting aside money in a retirement account when the market is up, it means that you’re paying a premium because stock prices are higher. “This is actually the worst time to put your money into your retirement account,” Hardy said.

Rather than try to time the market, Hardy said you should have a set amount deferred from every paycheck to your retirement account. Increase that amount as you can afford to do so.

6. Overreacting to Market Volatility

It’s hard not to be tempted to pull all of your money out of stocks when market downturns deal a blow to your retirement savings.

“It’s easy to get emotional when you turn on CNBC and see nothing but red,” said Shannon McLay, founder and president of The Financial Gym. “But you need to try to stop yourself before trading in your retirement accounts as a result. Even if you are close to retirement, you need to have patience. As long as you have the right asset allocation and a rebalancing strategy in place, you will be fine in the long run.”

History shows that the markets bounce back, she said. And so will your portfolio. It might mean you have to delay retirement by a few years. But that’s better than cashing out your retirement account after it’s taken a big hit because there’s no way it will bounce back if you’re not invested.

7. Setting and Forgetting Your Contribution Level

You don’t pull money out of your retirement account when the market’s down or only invest when the market is up. And, you also don’t want to set your retirement contributions entirely on autopilot, said Marguerita Cheng, a CFP with Blue Ocean Global Wealth.

If your retirement plan doesn’t automatically increase your contribution rate annually or you don’t increase it yourself, you might be at risk of not saving enough for a comfortable retirement. Most experts recommend saving at least 10 percent to 15 percent of wages annually. If you can’t contribute that much, make sure you’re setting aside enough in your 401k to get any matching contributions from your employer. Then, set aside more each year as your income rises.

8. Making Only Pretax Retirement Contributions

You get an immediate tax benefit by contributing pre-tax dollars to a 401k, 403b or similar plan because this lowers your taxable income. And contributions to a traditional IRA or SEP can be tax-deductible. “At first glance, it seems like this approach uniformly would be the smart move, since you’re immediately avoiding taxes, and therefore probably can contribute more,” Olson said.

However, it overlooks the fact that when you withdraw this money in retirement, it all will be taxed as ordinary income. If you think your tax bracket will likely be higher by the time you reach retirement, it makes sense to invest in a Roth IRA, Olson said. You don’t get an upfront tax break with a Roth, but withdrawals in retirement are tax-free.

9. Not Factoring in Rainy Days

If you’re channeling all of your savings into a retirement account but haven’t set aside money for emergencies, you could be putting your retirement savings at risk. That’s because you might have to raid your retirement account to keep yourself financially afloat if you lose a job, can’t work due to an illness or have a big, unexpected expense.

“To avoid being caught off guard, develop a rainy day emergency fund to cover the risks you can afford, and put some basic insurance policies in place for the ones you cannot afford,” said Olson. “This can help you not only get through the rainstorm — or hurricane — but may also help you keep your retirement plan closer to being on track.”

10. Putting Too Much of Your Income Toward a House and Car

If you own a car and house, you’re likely in the habit of making payments for them. But have you fallen into the habit of overpaying by buying more house or car than you can afford?

If so, there might not be much room in your budget to save for retirement. “Cutting your housing and auto expenses by 25 percent will have more of an impact on your long-term retirement savings than if you never bought another coffee or enjoyed a dinner in a restaurant for the rest of your life,” said Vince Wagner, CFP and president of Guide Tower Financial Planning.

You might argue that if your home is paid off by the time you reach retirement, that’s one expense you won’t have to worry about. But you won’t be able to afford the upkeep, insurance and utilities if you don’t have enough retirement savings.

So ,you might need to downsize now to a less-expensive home. Or, trade in a pricey vehicle for a used one that you can buy without financing. Then, boost retirement contributions by the amount you’ve saved on housing and car costs.

11. Paying for Your Kid’s College Education at the Expense of Your Retirement

It’s understandable that you want your child to get the best college education possible. “But many families overestimate the value of the more expensive schools and underestimate the deterrent to their own retirement savings stemming from either saving for these colleges in advance or saddling themselves with enormous student loans,” Olson said.

Making it a habit to save for your kid’s education is great if you’re not doing so at the expense of your retirement savings. But if you can’t afford to save for both, remember that there are no loans for retirement. “And don’t be ashamed or feel like you’re cheating your kids if you impart to them early in life an important lesson about weighing benefits and costs,” said Olson.

12. Tapping Your Retirement Account for Cash

If you’ve gotten in the habit of tapping your retirement account for cash — to pay off debt, buy a car or make a down payment on a home — you could  be putting a serious dent in your savings and taking on a big tax bill.

“First, your retirement savings is now smaller, and you forfeit all the compounding,” Olson said. Then, you’ll have to pay taxes on any withdrawals from a 401k or traditional IRA, and a 10 percent early withdrawal penalty if you’re younger than 59 ½. You can, however, withdraw contributions to a Roth IRA tax- and penalty-free.

For example, if you prematurely withdraw $25,000 and are in the 25 percent tax bracket, you’d owe $6,250 in federal income taxes and another $2,500 in early withdrawal penalties, leaving you with a net of only $16,250, Olson said. If you had left that $25,000 to grow for another 25 years with a 6 percent annual return, you would have more than $107,000.


13. Withdrawing Money Too Quickly in Retirement

Your savings might not sustain you through retirement if you’re withdrawing too much each month. If you’re withdrawing more than 3 percent of your nest egg each year, “you may be too optimistic about how generously both market returns and inflation will treat you during retirement,” Olson said.

To ensure your money will last, you might need to scale down your lifestyle expectations. Or, you might need to work more so you can funnel more into your retirement accounts and delay tapping your savings. - gobankingrates