Happy New Year

We very often forget our financial goals as we review our resolution for 2009 & set new goals for 2010. This is important as we often heard about friends or relatives saying that ” if only I have the money, I will do this or that.”

Although most analyst see 2010 as a good year, there will still be financial bad news, companies going bust & some other bad news . The current bullish situation reminds me of the months before the crash in 2007 in a what I can as a ‘Buy what also make’ market. One of the few lessons I learn in my years as a IFA is when people are greedy, be worry & when people is worry, be hungry.  Another lesson I learn is when you hear about the aunties in the market talking about how good is a stock and not how fresh is the fish, then its time to get worried. You are not safe if you sit back and don’t do anything because you get crush by the escaping crowds.

Many people tells you how much they can make by investing in certain instrument. I suggest they think about the loss appetite before putting your first dollar. Risk appetite means how much risk an investor can afford. Some can take up to -5% or even -20% but some retirees cannot even afford a -1% risk. So, what is loss appetitie?

However, how much can you lose? Assuming both Mr Rich & Mr Average decides to invest $10,000 today and both of them has an risk appetite of -10%.  Mr. Rich has another $100,000 in the bank after this invesment and Mr. Average left only $10,000. Both lost -10% of the invested amount of $10,000 which is $1,000. Although the face value is both -$1,000 but the lost affects both investors very differently. Again, I emphasis that the safest way is not by doing nothing.

All these resolve simply first doing a cashflow statement of your own income and expenditure. To do a Balance sheet by having your assets minus your liabilities allows you to have a back up plan to take care of the liabilities if any unforeseen circumstances arise. A good gauge will be setting at least 6-12mths of your monthly expenditure aside in the low interest savings account or some money market funds. The rest can put to better yielding instrument thru asset allocation & diversification. A smart way is to have a long term approach to your investment time horizon. 

One of the important and often missed out steps is to review! Alice in Wonderland was lost & she ask the caterpillar which path she should take. The capterpillar replied by asking where she wanna go & Alice said she don’t know. The caterpillar then told Alice that it does not matter which path she takes if she does not know where she is going because it will never be wrong. While knowing your destination is important, knowing where we are starting from and where we are now is equally important. I would strongly suggest  to review and assess your current portfolios before taking the next step. If you need help, get a professional advice.


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