Inovatif

Category: Behavioural Finance

  • Cultivating Healthy Financial Literacy for Kids

    Cultivating Healthy Financial Literacy for Kids

    “I wish I knew about this earlier. Why were we not taught this at school?” Thus begins the lack of education and awareness of financial literacy in kids.

    Whenever I discuss financial planning and other sub-topics with clients and prospects, this is the most common thing I hear. 

    Have you ever thought about how great it’d be if good money management skills were nurtured in our young ones? And how it’d be even better if we’re prepared to face the challenges in handling money from young? 

    One of the best skills that parents can teach children from a young age is smart money habits. It’s important to impart good knowledge and attitude in handling money during the early years as it’ll shape their attitude towards money as adults.

    Undeniably, this will largely be influenced by parents, peers as well as the media. If their foundation is strong, they’ll be able to rationalise the idea of money and become financially savvy in the future once they become adults.

    However, it’s getting tougher to teach kids about the value of money since we’re firmly in the cashless era now. More and more people are no longer used to paying for things in cash, with more online transactions and card payments used.

    Thus, kids do not see physical money transactions when their parents and people around them purchase goods and services. In addition, with the easy availability of credit today, the need to be able to manage money is even more important.

    So how can we start teaching our kids about good money management?

    1. Start Them Young

    Parents can teach their kids from as early as three years old. Kids at this young age learn through observations so for a start, parents can teach the concept of money by exchanging it for food or toys, which is likely to be their primary interest at such an age.

    2. Value of Money

    For kindergarteners and school-going children, you can start to teach them about the value of money. This is to prepare them since they will need to purchase their own food when at school. At this age, parents must be more involved by instilling confidence in their kids. 

    For instance, get your kids to approach the cashier and pay when making purchases, while you observe.

    To assist when they’re paying to ensure that they can calculate the money to give and balance to receive.

    Provide them with a fixed allowance and rationalise with them by suggesting substitutes if the item they choose is more than what’s budgeted. As a result, you’re also teaching them that not everything can be purchased, and we should spend within our means.

    3. Include Your Kids in Conversations

    When your children are in their teenage years, do include them in conversations when making money decisions.

    You may ask for their opinions and discuss the advantages and disadvantages, repercussions, and rationalisation behind making decisions with regards to financial decisions like buying a car, a television, a phone etc. 

    You can also discuss with them their aspirations for college and the cost it entails. This is important as they will learn that it’s okay and safe to talk about money with someone that they trust i.e. family members.

    In addition, they will feel involved and should develop a sense of responsibility towards money as their opinion is heard.

    As a result, they’ll have more understanding and familiarity about how money works and how better to manage debts.

    4. The 3 Jars System

    Parents should provide a consistent allowance to school-going kids so they can practice handling money and learn how to manage their allowance.

    One of the ways to inculcate a healthy financial mindset is to set up jars that signify a percentage of their money eg. 70% for spending, 20% for savings and 10% for charity or donation. 

    At the end of each quarter, bring your kids to the bank to save the money accumulated and bring them to the charity of their choice to share some of their savings.

    Consequently, you are teaching your kids about sharing with the less fortunate, how to save for their future, and budgeting for spending on what they need and want.

    5. Paint the Picture that Things Can Go Wrong, Sometimes

    Kids should know that sometimes, things will not be in our favour and it’s not always rainbows and butterflies.

    Parents may share with their kids if they’re facing money difficulties and some compromises or sacrifices need to be made by the family. At times like this, where the economy is not as good, most people face pay cuts, unpaid salaries, and even retrenchment. 

    Thus, it is best to layout the expenses that can be dropped temporarily, for example, extra classes like piano, art, taekwondo, swimming etc.

    Do involve the kids in the discussion where some expenses need to be cut off as this will affect them, physically and mentally. Explain to them what needs to be prioritised for the time being.

    In this way, you also teach them that when things don’t go your way, you’ll need to have a mitigation plan in place without sacrificing what truly matters.

    6. Be a Good Example

    Parents should always portray a good attitude towards money in front of children. Avoid quarrelling about money due to overwhelming debts or spending lavishly above your means.

    Talk about money from positive angles and paint money as a tool that can help us achieve what we desire eg. education in the university of choice, to live comfortably within our means, and the freedom to work towards what we want to acquire with peace of mind. 

    Children learn about money from observing you. Thus, parents need to learn how to speak the right money language and develop the right money attitude and skills.

    Children will absorb these money habits from their observation and listening while growing up.

    Your beliefs become your thoughts,

    Your thoughts become your words,

    Your words become your actions,

    Your actions become your habits,

    Your habits become your values,

    Your values become your destiny.

    A famous quote from Mahatma Gandhi

    Kids that are taught good money management skills will have a better chance of making sound financial decisions and not getting into money troubles when becoming adults.

    They’ll also be better prepared to face any challenges in the future.

    As parents, we should discuss openly with kids and share our financial mistakes so that they won’t repeat them in the future (touch wood!).

    Nonetheless, in order to cultivate a healthy financial mindset in our children, we should also equip ourselves with the right skills, knowledge and good money management!

    About the Author 

    Fateen Binti Rosli (IFP) is a Licensed Financial Planner. Her expertise is in holistic financial planning that includes health care planning, children education planning, retirement planning, wealth accumulation and cash flow management. She can be contacted at fateen@wealthvantage.com.my

  • The Importance of Financial Planning

    The Importance of Financial Planning

    Have you ever thought about what would happen if Malaysia’s government re-implements the Movement Control Order (MCO)? With the upward trend of Covid-19 cases in Malaysia, this is a big possibility.

    Be honest for a second – are you well-prepared for the next MCO? Many seasoned working adults in Malaysia are struggling to manage their cash flow, let alone fresh graduates or youths.

    This highlights the importance of financial planning and being financially literate from an early age.

    A survey conducted by AKPK in 2019 shows that only 24% of Malaysians are able to survive on their savings for up to three months, while just 10% are able to sustain for six months or more!

    Are you among the 76% of Malaysians who won’t be able to cover expenses for more than three months? If so, what can you do to improve your cash flow?

    Differentiate between “needs” and “wants”

    Many Malaysians lack financial knowledge in general, especially in the area of financial planning. A study conducted by the Financial Education Network (FEN) showed that Malaysians are not confident about their own financial knowledge.

    Although 76% have set a personal budget, two out of five people were unable to stick to it. 

    In addition, one in every five Malaysian working adults couldn’t save any income in the last six months, while three in every 10 needed to borrow money to buy essential goods.

    In other words, these people had to rely on credit cards, government incentives or even loans just to buy food!

    To restructure your personal finances, you must learn how to differentiate between ‘needs’ and ‘wants’. For example, food, rent, petrol and insurance fall under needs.

    Conversely coffee, streaming services, the latest smartphones, and other luxury goods are not necessary to survive. If you are spending more on wants than needs, you should consider reviewing your cash flow and potentially cut down on luxury expenses.

    You could explore carpooling or taking public transport, or cooking at home to reduce spending on dining outside.

    Make saving a habit

    The rising cost of living in Malaysia, especially in cities, has forced many young working adults to become more frugal.

    Even with extra jobs, many are still unable to allocate any earnings to their savings, with a 2017 Bank Negara Malaysia survey revealing that 75% of the Malaysians are unable to raise RM1,000 in emergencies. 

    Due to poor saving habits, many youngsters rely heavily on credit cards to finance their needs and wants. As a result, they may fall deeper and deeper into credit card debt. When they fail to settle their balance, it becomes a debt that carries forward to the next month’s bill with compounded daily interest. In simple terms, they’re spending their future income in order to support their lifestyle.

    When planning your personal finances, I strongly encourage you to set a budget and always keep track of your expenses, and avoid using a credit card if possible. Below is a rough allocation budget I would recommend:

    30% Savings and investment
    50% Necessities
    10% Commitments
    10% Insurance and protection
    100% Total take home income

    It is advisable to allocate at least 10% to 30% of your income to savings and investments. These savings serve as emergency funds for you to cover the cost of getting sick, accidents and more.

    You should also look into exploring small investments that can help to grow their wealth. I highly recommend that you save or invest before spending so that you won’t spend all your income. 

    Do also allocate at least 10% of your income for commitments such as PTPTN loans to reduce the principal and compounded interest. Another 10% should be allocated for protection, as you are human and unable to foresee unfortunate incidents in your future.

    By purchasing insurance, this offers peace of mind and a reduction of your financial burden during times of sicknesses or unfortunate events.

    If it’s too good to be true, it probably is!

    High-return investments always sound good on paper, which is why it continues to attract many people, young and old alike. However, if you aren’t able to self-engage in comprehensive and thorough financial planning, you may lack a clear understanding of financial risks and returns.

    This makes you prone to errors of judgment, which leads to high-risk or unwise financial decisions. 

    It’s very easy to fall into investment traps and suffer huge losses. Many are also jumping into the deep end of trading in forex and bitcoin, or worse still – pyramid schemes and other scams.

    Without proper financial planning or knowledge and understanding, it’s easy to be misled by shiny numbers and figures without considering the risk or feasibility of such schemes.

    Don’t be susceptible to financial traps and irrational financial decisions – read and learn everything you can about investing before jumping in to avoid becoming another statistic.

    In a nutshell, it’s incredibly important for you to learn how to manage your cash flow and have your own simplified financial plan.

    By better understanding your cash flow analysis, you can re-allocate your income wisely.

    Always remember to save before you spend and understand the financial risks and returns before investing into anything. Be sure to avoid investing in platforms or schemes that aren’t legally recognised by the Securities Commission Malaysia. 

    Finally, remember that it’s never too early to start your financial planning journey!

    About the Author

    Edmond Tang Zhen Han is a certified financial planner that is passionate about helping people achieve financial literacy in order for them to reach financial freedom. He can be contacted at edmondtangzh@genexus.com.my

  • Life Lessons Learnt From Investing

    Life Lessons Learnt From Investing

    Investment has been a big part of my personal finance journey. And with that, there have been a lot of life lessons learnt from investing

    There are so many things we can learn about investing in modern society (share market, private equities, debt, commodities, properties, mutual funds, derivatives, robo-advisors, crowdfunding, digital assets, etc) that it seems far-fetched to ever think of mastering them all.

    One of the things I was mulling on was the similarities between investing and life itself, while it was interesting to see that how we invest tends to reflect how we live our lives. Here are five life lessons that I’ve observed from my own investing journey.

    1. Hard Work Pays Off (Eventually!)

    All seasoned investors know that proper analysis is key to successful investments. Although all investment comes with risks, it’s important to make sure that the reward is worth the risk taken.

    If you want your long-term investment to pay off in the end, you must put in the work to ensure that:

    • Your investments is aligned with your investing principles
    • You’re comfortable with your asset allocation and not taking on too much risk
    • You know exactly what investments we are entering into (e.g. equities, ETFs, robo-advisors, StashAway Simple, ASNB funds, mutual funds, etc)

    Similarly in life, you work for what you want. Successful people don’t get to where they are overnight. It takes years of hard work, building the foundation in knowledge and experience, to eventually master something in life.

    An important caveat is that the effort put in must be something that contributes to the goal or the hard work will be worthless.

    This is like looking to invest in property but analysing the materials used to build the place. Not exactly useless, but definitely pointless for the purpose of an investment property!

    2. Diversification vs Focus

    All investment professionals mention the need to diversify your investments. It’s a valid argument for you to distribute and lower your risk across different assets.

    If one asset class/industry drops in value, your other investments can help to alleviate the damage.

    However, the counterargument to that is that your returns are also muted in conjunction with lower risks.

    If you had the power to accurately predict the movements of your investments this year (and no one does!), wouldn’t you have focused on glove stocks in May 2020 which saw 3x – 5x growth in only four months? Of course, the risk is that you may also have lost all your capital if this didn’t work out. Is it worth it?

    We are also often faced with the same in other aspects of life such as:

    • Studies (double/triple degree, ACCA, doctor, law, psychology etc.)
    • Career path (work and side hustle, or go all-in and start a business)
    • Employment (stay in one job for a long time or continue job hopping)
    • Skills (master a single skill or learn multiple skills)
    • Holiday (save and go somewhere far and exotic, or go on several cheaper trips nearby)

    3. People Will Talk, Regardless

    In investing, all market news and announcements are met with either a positive or negative view. Short-term traders will trade based on news, whilst fundamentalists will always look at the news with a long-term view in mind.

    As long as an investor believes that negative news will not affect his long-term prospects, then noise in the market from forums, news and analysts will be ignored.

    Conversely, even if positive news keeps pushing prices higher, the investor will assess the company based on his / her gauge to ensure that the investment remains sound.

    In life, all decisions you make will be met with judgmental eyes and “advice” from family, friends, colleagues, or even people you’ve just met! It takes a lot of mental discipline to shut out the noise and focus on what you want to do in life.

    Remember, even if you get “advice” from others, ultimately you are the one that decides what action to take.

    4. Be Clear on Your Goal and Know When to Cut Losses

    When investing, you should know the reasons behind why you bought into a particular asset, share or business.

    Each investment carries their own goals, be it for capital preservation, income generation or capital gains. Keep your eyes fixed on the goal. If the investment turns sour, cut your losses and move on to the next.

    The epitome of this is when you discover your purpose in life and focus all your energy into achieving it. Of course, we plan for things we want to achieve in life and go for it a little at a time.

    For example, building an emergency fund, accumulating your first RM100k, getting the next promotion at work and so on.

    On the other hand, you also need to acknowledge when you’ve given it your all and things just don’t work.

    Knowing when to cut losses is a valuable skill in life to save time to work on something more worthy. I’ll be the first to acknowledge that I’m very bad at cutting losses when it matters, meaning I usually suffer more than I should! 

    5. Luck is a Factor of Success

    The Roman philosopher Seneca famously said “Luck is what happens when preparation meets opportunity”.

    Whilst the majority of life and investments hold true to tried and tested principles, I believe that there is a part where luck is purely just that… luck.

    In investing, you don’t control market movements. It’s made up of various different gears (business direction, scandal, market makers, insider movements, retail investors, traders, fund managers, etc) that are set into motion every time the market is active. In most cases, you invest without knowing which way the market will go.

    By pure luck, if the gears decide to move in your favour, the prices will move in our estimated direction earlier than expected. 

    It’s similar to other aspects of my life which I attribute to pure luck:

    • When my speaker broke down and I happened to have enough credit card points to get a new one
    • The time when I wasn’t able to stay in Australia after graduation but managed to land a decent job in Malaysia
    • Surviving a major car crash due to driver fatigue
    • Landing a dream job but having to put up with a terrible boss

    Some may call it attraction or guidance by a higher power of sorts.

    All in all, I’d say it’s luck and it plays a big part in our lives to get us around. So don’t be too down on yourself if luck isn’t going your way – the tide will eventually turn at some point!

    About the author 

    This article was originally published at betweenthemoney.com, a personal finance website by Jason Loh that focuses on money matters and investment topics for Malaysians.

  • Does Money Make You Happier?

    Does Money Make You Happier?

    Is there something that we’re afraid of talking about?

    YES. We’re all afraid to talk about money.

    We were taught and trained to be polite when talking about personal finances. Most of us feel awkward when we’re approached by someone to talk about it, and tend to be alert and sensitive when asked about our personal finances.

    This taboo in treating money as a touchy subject hinders people from learning about it.

    Despite this, many young people nowadays turn to social media to learn about making money, growing money and many other money-related issues.

    There is nothing wrong with this, only the potential consequences of your actions thereafter. Most of these money questions on social media lead you to take some form of action.

    As a result, you might have SKIPPED and MISSED the opportunity to understand your relationship with money and your purpose of money.

    To gain a different perspective, you should ask the following questions:

    1. What does money mean to you?
    2. Does money make you happier?
    3. What have you done to grow your happiness by leveraging on money?

    What is Financial Happiness and Why is it Important?

    Finnian Kelly, the financial happiness expert, defines Financial Happiness as a philosophy and a practice that guides you into an intentional relationship with money.

    With this intentional relationship, you can unlock the financial confidence to enjoy your life NOW while also feeling excited about your big vision and plans for your future. 

    Managing money can be simple. Most of the time we merely focus on how we earn it, save it, invest it, and protect it. Nevertheless, the underlying purpose – happiness, is in actual fact the ultimate factor that motivates and drives us to work better in these areas.

    In life, we spend money and put in time and effort to pursue happiness. According to psychologists David Myers and Ed Diener, there is a scientific correlation between money and happiness.

    From a data-driven perspective, money can buy happiness, but only up to a certain point. In reinforcing this, happiness economics studies in various countries by leading economists also led to similar conclusions.

    This perspective is compatible with what was suggested by Tal Ben-Shahar, professor of the most popular course at Harvard, “How to Be Happier” who describes happiness as the ultimate currency. With the progress of the times, Financial Happiness is becoming a trend.

    Principles to Achieve Financial Happiness

    Good information alone will not drive you towards Financial Happiness; you need to take action. Here are a few general principles to practice towards this goal:

    1. Focus on habits that increase your financial happiness

    • Keep your eyes on small expenses – building good spending habits are important but it is more practical to increase your awareness on small expenses incurred, for example the supposedly RM1 unlimited premium music subscription fees. Small leaks will sink a great ship, so stay alert on small purchases that can eventually help you save a big sum of money.
    • Grow your personal capital – resources such as time, energy, talent, network and money represent your personal capital that are vital in your wealth building process. Most of the time, you’ll start by trading time and energy for money. With time and better exposure, you’ll probably have more options. Your wealth creation journey can be easier if you can identify important and meaningful resources to grow and sustain yourself from an early age. So take action now to develop your blueprint to build, expand and manage your personal capital required for long term wealth building.
    • Connect with your inner self – a profound body-mind interconnection is crucial. Maintaining physical and mental health will enhance your abilities and strengths. Once your relationship with your inner self improves, your relationships with nature and people around you will strengthen as well. 

    2. A happy present leads to a happy future

    Dwelling on the past will affect your achievements in the present and failing to concentrate your efforts on the now might affect your future happiness. To have a balanced orientation in life, you must embrace your past, present and future. 

    • Don’t underestimate what you can do TODAY – big things have small beginnings. You must discipline yourself to focus on practicing the habits mentioned above. Your persistence will determine your future.
    • Don’t be too optimistic about the future – many only start thinking about financial planning at a later age and are optimistic that the future will bring a better job or better income. However, no one has a crystal ball to see what the future holds. As such, you should take action now and do the best you can, and select the best options available to you right now.

    3. Establish ‘financial goals’ as a positive strategy  

    Never be afraid to speak out about what you want – all of us know what we actually like and dislike; what we want and don’t want.

    The reason less people speak about it is because many are scared of knowing what is needed of them to fulfil their wants. It’s always good to establish specific “financial goals” and use them as your yardstick for future success.

    4. Stay curious, stay simple

    Curiosity and simplicity are the keys to happiness. Curiosity allows us to explore new opportunities while simplicity keeps our thinking process grounded. People prefer simplicity and are always looking for easier ways to achieve what they want.

    The simplest way to practice this is to always stay alert to new information, find out more by asking appropriate questions and make simple decisions as we go along the way. Connecting curiosity and simplicity in your financial matters will lead you to more possibilities and an easier route to achieve Financial Happiness.

    5. Balancing egoism and altruism

    Proper discovery about yourself and your own values will empower you to continue to create value for others while not sacrificing your own position.

    Uphold the principle that the more money you create and accumulate, the more you will be able to benefit others. This will streamline your decision-making process and add more value to those around you.  

    So, if your peers are searching for ways to grow wealth or are seemingly successful, don’t jump to the conclusion that they’re doing better.

    All of us deserve a unique financial journey. So does money make you happier? Ultimately, your small steps today will lead you closer to the Financial Happiness that you dream of. For easier practice, you might want to start practising from top to bottom and you will realise the importance that these principles should rank bottom to top once you successfully adopt it!

    About the Author

    Jess Hon is a Licensed Financial Planner and can be contacted at jesshon@finwealth.com.my.

  • Weathering the Storm with a Solid Financial Plan

    Weathering the Storm with a Solid Financial Plan

    So which financial plan predicted COVID-19?

    None, unfortunately. In the financial services industry, product pushers will always tell you “failing to plan is planning to fail”.

    But is that true? Which product could have predicted Covid-19? No salesman, financial planner or even fund manager could have possibly envisioned this pandemic a year ago.

    When unprecedented events like these occur, any plans you made, or were sold, are bound to crumble like a house of cards.

    Is There No Point in Having a Financial Plan?

    Well, yes and no.

    Yes, because a financial plan is just a static document. It is only true today, and its authority will fade with each passing day when the assumptions used in the plan turn out to be different in reality. In fact, I believe that the plan has no tangible value at all.

    No, because I believe that a financial plan is not the main focus. Rather, the real value lies in the planning process. It is here that the client reflects on their life, assesses their financial position, identifies challenges and issues, thinks of action plans, and sets KPIs that propels them forward.

    Evidently, no one could have predicted Covid-19. However, if you have gone through a proper planning process, you may be able to deal with this better than most. Here are a few reasons why.

    Liquidity in Net Worth

    For many, their net worth is a good indicator of financial health and could even be in the millions. However, if this value is tied to illiquid assets, this means they are asset rich but cash poor.

    In this case, the planning process would show the client that most of their net worth is tied to non-liquid assets that cannot be sold quickly. This may help the client to see things in different light, resulting in them using future cash surplus to build a portfolio of assets that is easily liquidated.

    Emergency Fund

    A fundamental part of my work is ensuring clients have an adequate emergency fund.

    The current pandemic has shone a spotlight on emergency funds, as many without one have been caught out and now face a huge mountain to climb.

    It is crucial to have emergency funds as this is our fallback plan when unforeseen events strike.

    Cash Flow Management

    Most people have a strong tendency to opt for instant instead of delayed gratification. Going through the financial planning process allows us to honestly assess our spending habits and lifestyle choices.

    Looking at your cash flow also helps you understand if you are being hindered by excessive debt. If your debt-servicing-ratio is high (over 50%, or 60% in extreme cases), you will suffer greatly during salary cuts or retrenchment. Even if ignoring Covid-19, you are likely to be tied down to your job because you cannot afford to lose this income.

    Prior to taking on new loans, look at your cash flow situation and be certain that you will still be able to work towards other life goals.

    Are You Saving for the Future?

    Covid-19 may have disrupted your plans for 2020 and even 2021, but it surely will not destroy what you want to do in five or ten years.

    For example, if you began to prepare for a big event like a wedding at the start of this year, the MCO may have prevented you from building the funds required.

    However, if you have been steadily saving for years, you would have your wedding money prepared by now. You might have to postpone your wedding, but not because you were not financially stable. We cannot control external factors, but we can certainly control our preparation for life.

    Risk Management and Dependent Care

    What if you unexpectedly left your family earlier than you wished, like many who fell victim to Covid-19? What about children or elderly parents who depend on you for their living expenses like food and shelter?

    The process of financial planning forces you to think about the what-ifs in life. If you have not planned in advance, your dependents are at your life’s mercy. You could (and should) do better.

    Diversification and Asset Allocation

    If you make investment decisions on a piecemeal basis and only chase after returns, chances are your investment portfolio is not optimised.

    With proper planning, you would have an asset allocation and portfolio strategy that fits your risk tolerance, risk profile, and investment objective. When the stock market fell earlier this year, not every asset class fell with it. That is why you will benefit from not putting your eggs in one basket.

    If you are yet to sit down and plan your finances for life and finances yet, this is a good time to do so. It will help you build a stronger base so that during the next crisis, you can say, “it could have been worse”.

    About the author

    Kevin Neoh is a NextGen Money Coach at NextGen Independent Advisors and a certified member of the Financial Planning Association Malaysia (FPAM). He can be contacted at www.kevinneoh.my.

    financial plan kevin neoh

  • What is Millennial Wealth Management?

    What is Millennial Wealth Management?

    While millennials may sometimes be seen as flippant in their attitude towards wealth, this is far from the reality as many young adults are financially aware and understand the importance of saving and investing for the future. When it comes to millennial wealth management, this tech-savvy generation also expects convenience and automation in their investments while demanding top value for their dollar and solid returns from their investments, says Affin Hwang Asset Management chief marketing & distribution officer Chan Ai Mei.

    In an interview with Smart Investor, Chan gives her take on Malaysia’s millennial investors.

    Smart Investor: Technology and innovation have altered the investment landscape, especially for millennials. How has the investment landscape evolved?

    Chan Ai Mei: Millennials are certainly more discerning when it comes to investing. A product of their environment, this digital-savvy generation desires much more convenience and automation in their investments without necessarily going through a financial adviser. 

    Most millennial investors instead prefer a DIY-approach and doing away with face-to-face meetings or phone calls. Also known as a generation of instant gratification and speed, you would be hard-pressed to find millennials which aren’t glued to their smartphones.

    As a result, asset managers today have to evolve together and cater to the needs of this new generation through a rich front-end digital platform (whether through an app or an online portal). The objective here is to create a seamless investing experience from the process of on-boarding, selection of funds, making a deposit, fund transfers, portfolio monitoring and financial advisory.

    How do you think millennials differ in their investment approach and what do they desire from their investments?

    Millennial investors are very savvy consumers and they do pay a lot of attention to cost. These includes not just consumer goods and services, but also extends to financial products. However just because an item is cheaper, it does not mean that they are willing to forgo quality. They still demand top value for their dollar and want solid returns from their investments. 

    Another area that millennial investors might differ are their value systems and openness towards championing a cause that they believe in. Most millennials would only invest if it is aligned to their own personal values and they can see sustainable outcomes. This has also led to the rise of impact investing as well as the growing importance of environmental, social and governance (ESG) considerations. 

    Millennials sometimes get a bad rap about their attitude towards wealth and can be rash in making financial decisions. What’s your take on this? 

    We think more credit should be given to millennial investors. There are a lot of assumptions about millennials being reckless about their finances and only knowing how to live in the moment. However, most are financially aware and understand the importance of saving and investing for the future. 

    A key factor that may be hindering millennial investors from achieving their goals is perhaps in striking a balance between immediate and delayed gratification. Learning to control one’s impulses and practicing self-control would ultimately help investors achieve their long-term goals. However, striking a perfect balance may be difficult to achieve with competing priorities.

    That’s why it’s crucial that investors first sit down and properly plan their investment goals (both short-term and long-term) and then draw up a financial roadmap towards achieving them. Don’t be afraid of setting ambitious goals, but the plan should also be realistic by incorporating measures to meet your short-term needs and lifestyle.

    For instance, if you do enjoy forms of entertainment like movies, concerts or social events, you should also ‘treat’ yourself and consider allocating a portion of your budget towards these forms of discretionary expenditure. 

    What are some healthy investing habits millennial investors should adopt?

    It’s first important to have this realisation that investing is a marathon and not a sprint. Millennial investors living in the digital age may find this paradoxical, when they are used to getting everything quickly at the tip of their fingertips. 

    But investing is a different ball-game altogether and rewards the patient.  As legendary investor Charlie Munger puts it, “It is waiting that helps you as an investor, and a lot of people just can’t stand to wait”.

    For millennial investors just starting out in their investment journey, our advice is for them is to stay disciplined and stick to their investment plan regardless of how markets behave. Dollar-cost averaging is a simple yet effective technique to ease one’s way into the market over periodic intervals and helps reduce the impact of volatility in one’s investment. 

    Newer investors’ nerves can be easily rattled when faced with choppy market conditions and this may drive them to making impulsive decisions in their portfolio and selling too early. However, our advice is for them to stay invested and avoid timing the market. 

    Let the professional fund managers make adjustments to the portfolios when market conditions warrant them. For individual investors, you should stay focused on your goals and rebalance annually to correct any portfolio drifts that will ensure you are on track towards achieving your goals with a level of risk you are comfortable with. 

    What should a millennial’s ideal investment portfolio look like? 

    Time is on the side of millennial investors and they should make the most of this finite resource. Whilst some millennials may be wary of taking too much risk and getting jittery quickly, they should also realise they have a much longer investment horizon to recoup back losses and compound returns further.  

    Thus, if circumstances allow, a millennial investor’s portfolio should be tilted more aggressively towards capital growth via equities and growth funds. The remainder of the portfolio can be diversified through allocations in fixed income that can provide stability and consistent income with lower drawdowns when market conditions turn more volatile. 

    For tactical exposure which constitutes a smaller portion of the total portfolio, millennials can also seek exposure in more thematic and structural growth funds like China consumption or disruptive technology for example. 

    By Bernie Yeo

    Please click here to read the full article in the digital edition of Smart Investor (April 2020 issue).