The above is the 4-3-2-1 formation in football. It is often referred to as the Christmas Tree formation, due to the shape it represents when in a set shape or block. We know the role of the keeper is to save every shot at him. While he seems to be the least important player because he usually doesn’t score, the fact is he is one of the most important player. If he save every shot, the worst case scenario is a draw but letting in goals means losing a match. The back four are defenders and will deal with the opposition’s front line. The three midfielders working back and helping with defence if necessary and they also support the striker in an attack. The single central forward or striker provides the main height in attack, occupying spaces between and around the opposing defenders. This striker’s job is to either hold the ball up and link with the supporting number 9 or 10, or provide movements in behind and create space for them to exploit. Before I bored you further with football, let’s look at how we can invest using this 4-3-2-1 formation.
Before I continue, do note that everyone's risk and returns profile as well as investment objective is different. The following is not a financial advice and it serves as a general guide. Do speak to a professional financial planner to plan according to your financial goal.
For a start, it is recommended to start a financial plan with savings. Ideally, an individual should have at least 6 months of savings for emergency. While the guide is to save 6 months of expenses, I would encourage to bring this savings amount to at least 6 months of income if possible. This is extremely important because if we did not set aside this amount, we may get into debt if emergency arised.
Once we have settled our savings, we need to build our defence line which are the different type of insurance which we need. One of the most important insurance we should consider is health insurance. In Singapore, it is common that we use integrated shield plans. Depends on individuals, these plan complements our mandatory Medishield Life. It allows us to stay in a better ward and also covers pre- and post-hospitalisation bills plus other benefits.
Personal accident plan should not be ignored . These plans are relatively affordable costing a few hundred dollars a year.
Critical Illness plan can mitigate the financial loss if we are unable to work if we suffer from a major illness such as stroke or cancer. The Monetary Authority of Singapore (MAS), in conjunction with the Association of Banks in Singapore (ABS), Association of Financial Advisers (Singapore) (AFAS) and Life Insurance Association (LIA), today launched a Basic Financial Planning Guide to help Singaporeans take steps to enhance their financial well-being. In the guide, it is recommended to have 4 times annual income for critical illness.
The most common recommendation to cover our liabilities is to use either a whole life or term insurance for Protection. Without these four forming the pillar of ‘defence’, we can be hit badly by a huge medical bill or unexpected death. We may even wipe off our saving or fall into debts.
Once we built a solid defence line, we can plan our attacking force. We can start with moderate risk investment such as Bonds, passive funds like ETFs or active managed funds like Unit trust. It is a good idea to have a balanced portfolio that includes both bonds and equities. Just like the midfielders in a football team, they assist in attacks and help out in defence. Such a portfolio allows flexibility to be more aggressive in a bullish market or we can shift to a more defensive allocation in a market downturn.
When we have more spare cash and experience, we can strengthen our ‘attacking force’ to seek more growth in our resources. Having the midfielders who are attacking minded. They usually will not fall back to help out in defence if the team is losing and , in a way, they help the team to get back into the game by scoring more than the opponents did. Similarly, Real estate and equities can give much higher returns than most investment instruments but in a bearish market, we may see a significant drop in their value or difficulty in selling off these assets. Thus, it is crucial to check if our defence is strong before committing into these asset. It is important to have a longer investment time horizon for these ‘attacking’ oriented assets.
Lastly, we have a striker who is a lone ranger upfront in a 4-3-2-1 formation. This player is also know as the target man. He will never help out in defence and the lowest he will fall back is to the midfielder’s position (if the midfielders are helping with defending). In financial planning context, these investments are at the apex of the risk pyramid and are speculative in nature. These could be precious metals such as silver or gold, small-cap stocks, or speculative ventures like Bitcoin, options, futures and warrants. The fact that we only have one player in this position is also a reminder the pyramid apex consists of high-risk, high-reward investments and only the few people with deep pockets and strong heart should try.
My IFA@Sg 