Category: Investments

Hi, I am new to stock investing. Should I invest for capital gains or dividend yields?

There is no right or wrong answer to this question. It is possible to build yourself a sizable portfolio regardless of your own preference between the two. With that said, however, after communicating with our pool of readers at Bursaking.com.my and KCLau.com, I think, it is better for you to focus on investing for dividend yields if you are a complete beginner.

Here’s why:

1. Dividends are More Predictable

Dividend income is more predictable than estimating capital gains. After all, dividends are cash whereas capital gains are merely paper gains and are subject to changes on a daily basis. Your investment returns would not be “yo-yoed” based on the ups and downs of the stock market.

Instead, you’ll enjoy the certainty of income flowing into your bank account on a periodic basis if you choose to invest for dividends.

2. Dividends Pay Your Fixed Bills

This leads to Reason #2. Regular dividends pay your fixed bills which include your rent, mortgage, car loan, utility bills, Astro, insurance and grocery. Even if you had the above covered, it is nice to have a nice “makan” out, movies, dating, wall climbing, or a ‘Cuti-Cuti Malaysia’ trip paid for with dividends.

3. Dividends Build Your Confidence

Often, investors see their first dividend income flowing into their bank accounts within three to six months after making their stock purchases. Subsequently, based on the stock purchased, they would receive dividends either on a quarterly, semi-annually or annual basis.

Imagine, being a new investor and starting to earn cash returns every three months from your portfolio, you would probably feel good regardless how the price of your stock is moving. Even if the stock falls in price, you would continue to receive cash returns from it. At least, the stock will be “good for something”, and it will incentivise you to keep it over the long-run.

4. Dividend Investing is Less Risky

Here is a definition of a good stock investment. It is one where the stock has excellent fundamental qualities, and its price is attractively undervalued. In other words, the stock must be good and cheap. Often, stocks which are consistent in their dividend payouts possess great fundamental qualities.

These include having a resilient business model, excellent management team, a healthy balance sheet and a proven track record of growing profits consistently. As such, you would minimise your risk or chances of making poor investment decisions if you just stick to stocks that have the qualities above.

5. Dividends Build Your Portfolio

Earlier, we had mentioned that you could use dividends to pay for your expenses. But, what if you are currently making tons of money and do not need to rely on dividends to fund your current lifestyle? Is dividend investing still suitable for you?

The answer is Yes. This is because you could reinvest your dividend income into another dividend stock or stocks that you prefer, thus, allowing you to further expand your portfolio in the future.

Over time, you may not need to save money to invest, but use your dividends to fund your future investment. It works like a cycle where you use profits to generate more profits.

6. Why Not Capital Gains?

Does it mean that investing for capital gains is not good? Nope. Investing for capital gains is good if you are a more sophisticated investor. Being a skilled investor, your chances of achieving capital gains will be higher than one who is unskilled.

In most cases, people who are into capital gains without any sort of skills are often gamblers and speculators in the stock market. They are often thrill-seekers who see the stock market as a legalised casino.

They are not necessarily profit-driven, and this differs from the mindset of stock investors who are very profit-driven.

7. Dividend Investing is Investing with Clarity

How do you tell the difference between an investor and a speculator? It is quite easy. First, if a person tells us that he is investing for capital gains, we ask him: “How much capital gains are you expecting?” If his reply is: “I don’t know” and often, that is quite a standard reply, I would classify him as a speculator.

This is because true investors have already calculated their expected returns before buying into a stock or any investment. For example, if you ask a dividend guy what he is investing for, his reply would usually be: “I’m expecting to make at least 5% ─ 6% from this stock investment.”

Definitely, he is investing with clarity and with purpose, and not so much into luck, rumours, tips, or comments.

8. Dividend Investing is Simple

Dividend investing helps new investors to make stock investment decisions easier, faster and better. These decisions are mostly based on facts and figures, logic, and common sense. Thus, if you know how to do some simple maths, you can become successful in dividend investing.

Here’s a quick way to determine whether a stock is undervalued or overpriced. First, the reason why people invest in stocks is to earn more than banks’ Fixed Deposits of around 3%. Hence, any stock with dividend yields below 3% is overpriced.

However, if the dividend yield of a stock is 5% and above, investors may look into it as it is considered to be undervalued at its current price. Thus, dividend investing is a simple system which promotes one to “Buy Low, Hold for Dividends, and Sell High”.

Formula:

Dividend Yield = (Dividends per Share / Current Stock Price) x 100%

9. Dividend Investing is Investing for Capital Gains

What? Am I serious? Yes. Investing for dividends is investing for capital gains. Why? Because stocks with consistent dividend payouts are in demand by a larger pool of investors. They include EPF, KWSP, Tabung Haji, insurers and mutual funds, particularly income funds.

These institutions have billions and are still receiving billions for investment purposes. In this time when the markets are uncertain and volatile, these large institutional investors may be adopting a defensive stance to their portfolio as they are expected to perform and deliver returns to their stakeholders.

It may explain why dividend stocks tend to achieve sustainable capital appreciation over the long-term.

About the author

This article is co-written by KCLau and Ian Tai.

KCLau is a financial educator. He had published 6 books and co-created a dozen online financial courses. You can download his popular Money Tips e-book packed with 44 money hacks absolutely free, here: http://kclau.com/lp

Ian Tai is the founder of Bursaking.com.my, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia.

Based on the 12-months Google Trends searches, recession is a very hot topic in the market. The search peaked in mid-June 2022, but has been showing some decline lately.

This could be the result of the recent market shift where the equities market have shown signs of recovery just several days before the end of June, whereas the commodities market showing broader declines. The decline in commodities market potentially signaling the inflation’s peak, and that is a good sign for the equities market.

But one needs to also understand that the diminishing demand for commodities also tell us the economic activities is slowing down as well.

1. US Equity Drawdowns And Recoveries

The S&P 500 index has entered bearish territory but has surfaced from that territory on 24th June 2022. Referring to the above chart, the declines or the drawdowns of the US equity is not as bad as it was in the 1957-1959 and not as devastating as it was during the start of the pandemic in 2020. The recovery made during the post-pandemic years was swift and strong, recording a 142% gain. It shows how resilient the US equity market back then when faced with crisis and uncertainty.

But the question is, will it be the same this time when there’s higher inflation, supply chain crisis and geopolitical tensions? To have a simple answer to those questions, we can refer to the Average VIX index – an index that tell us on the market’s fears.

2. Fear Index (VIX)

Referring to the Average VIX chart above, we can see how the fear index is closing in to the recent market drawdowns that knocks down many businesses & industries globally. Year 2022 (YTD) is the fifth year where the average VIX reading was among the highest since 1990. And during this time the equity market showed potential signs of recovery from market bottom with the lowest VIX reading compared with the other highest VIX reading in history.

Will this be the sign of hope most of us look for? The unit trusts market have been hit hard recently, with almost no hope for decent returns to fight against inflation.

3. Presidential Election Cycle

We need to take several other factors into consideration in order to clear from the market fog or market noise. First we need to understand what market cycle we are currently in. Most will point out that we are in the VUCA (Volatility, Uncertainty, Complexity, Ambiguity) market. But if we look more closely by studying the market cycles, we are currently in the “Mid-Term Presidential” which affects the US markets and the global markets in general.

Based on the historical market cycle patterns, the Mid-Term Presidential cycle is very volatile, with indecisive market movements. We have experienced this indecisive market direction since the start of the year. The market direction could give us some hope of positive gain but it quickly fades away. June normally is the weaker month for the equities market and may spill over to other equities markets outside the US.

Market recovery could potentially happen towards the end of the Mid-Term Presidential cycles and continue its ascend move during the Pre-Election Presidential cycles as depicted from the chart above.

Past studies since 1990 also shows that Bursa Malaysia’s market direction has a positive correlation with the market movement in the US. Therefore, we can also use Dow Jones market movement as the benchmark on Bursa’s potential market direction.

4. Equity Fund Flows

The second factor that we need to observe is the equity fund flows during market corrections. An interesting data provided by EPFR, Haver and Deutsche Bank Asset Allocation depicts that the fund flow into the equity market has been positive and robust this year.

We might be asking what may be the positive reasons behind that move? It could be from contrarian beliefs. Normally the contrarian will move in the opposite direction of the market direction or beliefs. AAII (The American Association of Individual Investors) is the best source for the contrarian market studies and beliefs.

5. No More Bears?

Based on the recent data and chart of AAII provided by Bloomberg, the bearish sentiment reading has hit an all-time high since the 2008 Global Financial Crisis (GFC). Normally with the bearish sentiment reading hitting this high of a level, it will tend to bounce back down and signal a market bottom. Or in layman’s terms, the start of market recovery.

6. Solid Corporate Earnings

Next we can refer to corporate earnings, which could be the third data to support potential market recovery from recession. Data from JP Morgan below shows just how resilient the corporate earnings during major market correction. All major equity indices from Europe, Japan and the US show positive corporate earnings despite experiencing heavy market drawdowns.

7. China’s Comeback

The Chinese market on the other hand is also showing recovery after facing lockdown in all major
cities. It has disrupted the global supply chains to date, but with the new economic stimulus
package unveiled recently by President Xi Jinping could potentially boost supply chain recovery
and help in the global economic growth over the years.

A chart provided by Bespoke provided a key fact that the market recovery has happened in China
through the KWEB (KraneShares China Internet ETF). KWEB has outperformed the SPY (S&P
500 ETF) by a considerable margin (-11.9% vs. -20.8%). Since late May, KWEB has gained
29.7% compared to a decline of 4.5% for SPY.

Will recession just briefly come to us in 2022? Is it time to start shopping in the equity markets?

With all the facts from the previous data and charts, we can approach the equity markets carefully without rushing to buy any stocks that’s making any bounce from the bottom. Listen to the music that the market is playing. We will start to add more stocks buying when the markets continue to make new highs or progressively moving higher from the market drawdowns.

8. Attractive Share Price

A quick look into the 5 largest stocks in the S&P 500 as depicted by the chart above, none have any forward P/Es above where they were in 2020. However, to date all of them still have a positive EPS for next year, again showing resilient in negative market environments.

Some of them have even shown a decent bounce from their 2020 lows, particularly Amazon and Meta Platforms (FB) depicted by the chart below. All other stocks are able to sustain above the lows at the start of 2021.

About the Author:

Mukhriz Mangsor, ACSI, CFTe, MSTA, FPPP has nearly two decades of experience in financial investment and trading. His clients include financial education, financial institution and prop trading firms in Brunei, Canada, Malaysia, Singapore and the US. He is currently Head of Global Market Strategist at Quantdynamic Research Company and can be contacted at mukhriz@quantdynamic.com.

When we talk about investment, there are a few important concepts I wish to share:

According to a research on investment history return,  Asset Allocation contributes to the majority of historical returns. It means your investment should be in a portfolio which matches with your risk profile (conservative or high risk and so on) which should be properly diversified into different investment tools (such as Stock, Bond, ETF, REITS and so on), Region (Asia, Global, Europe) and Industry (Technology, Material and others) to ensure they perform better in all situations.

Diversification is always encouraged as we all know the risk of putting all your investments (eggs) in one basket.

The Risk Profile Portfolio Table is customised based on risk profile. However, this portfolio needs to be monitored from time to time and rebalanced every half year to make sure the percentage of each investment is still intact. (Sell some that have performed well and rebalance each investment percentage in the portfolio).

If your risk profile has changed, this will involve a major restructuring of your portfolio but do not be afraid to change it.

I used to invest in fund or stock that I liked and treated as an “individual”, but this did not give me a full picture of how my overall investment would look like, how much it is diversified and what the overall yearly return would be.

There was a time where my stock investments were too diversified into so many counters and made the tracking a tedious job to do and I missed the opportunity to lock down the profit when it rose.

The standard suggestion is to have about 10 to 20 stocks or five to seven funds in one portfolio but it also depends on the size of your portfolio.

Start Early to Use the Power of Compounding

The most valuable asset you have when you invest, is time. Every six years you wait to get started roughly doubles the required monthly savings necessary to reach the same level of net worth (let’s say 1 million of net worth).

Procrastination is a very painful and expensive mistake when it comes to investment or any other financial goal. So, you should get started it right away.

Referring to the book, The Millionaire Next Door, millionaires believe that one should start working early (after graduation) in order to utilize the power of compounding as soon as possible on the money earned.

This changed my mindset because I thought “the longer time you spend on studying (until Masters or Ph.D.), the shorter the working life”. My friend who is the same age as me graduated five years earlier than me and he has a better net worth position than me when we compared notes in 2015.

Referring the picture on Getting a Headstart, if we have a constant monthly saving of 10,000 and 12% of the rate of return yearly, by starting to invest five years earlier, you can double your total investment value after 60 years, compared to those who started late.

Compounding is about the total value of the investment (capital plus interest) appreciating over the years. Do not wait to start only when you have a big amount to invest, a small amount can make big difference through the power of time.

For example, a RM10 fancy coffee you buy each day for 30 years, if saved at 10% annual interest compounds to an astonishing RM600,000 at the end of the period.

Dollar Cost Averaging

If given a choice to invest monthly or yearly, choose the monthly option to take the advantage of Dollar Cost Average which can bring down the cost and get a better return.

Do bear in mind that the ground rule of this concept is to make sure you have done your due diligence(qualitative and quantitative) on this investment (stock or unit trust fund) and monitor the performance of the investment yearly. Do not hesitate to switch to other investments if the fundamentals such as performance, management team and so on, of this investment has changed.

About the author

This article is written by Yong Chu Eu. He is the Founder, Principal, MFPC Shariah RFP, CPD/CPE, HRDF Certified Corporate Trainer of Money & Life, Financial Book Author, Licensed Financial Planner, E2E Financial Literacy Principal Coach & Local Media Guest.

Most of us like to play games in our spare time. But did you know that there are also those who earn a living just by playing games? With the rise of digital games, we now have Play-to-Earn games that rewards its users well enough for those who stay invested in it.

Smart Investor spoke to Mr. Lucaz Lee, Founder and CEO, Affyn to gain more insights on this interesting new concept. Affyn is a newly launched play-to-earn metaverse, that aims to bring people and communities together and allow them to play a mobile geolocation-based game (similar to that of Pokemon Go), and earn Fyn tokens to be used for transactions at the same time.

Let’s find out more from him on this interesting topic.

How Did You Started With Crypto Investment?

I first heard of Bitcoin in 2016, which was worth around USD400. Many people in my immediate circle warned me not to get involved, claiming that it was a sham with no foundation. In my experience, I have learnt to recognise that the best kind of opportunities are those that most people do not understand, are uncertain about and are sceptical of; yet, it is obviously working and growing at a progressive rate. 

Unlike today, buying cryptocurrency was a highly complex process back then. My friend and I would spend the whole day figuring out how to buy it. Even though it was complicated and we didn’t understand it, we decided to go for it anyway. Nonetheless, we took the leap of faith first and learned about it later.

How Does Play-to-Earn Works?

The gaming industry has thrived for years, with gaming companies reaping the benefits. While a large amount of money has been flowing into the industry, the players have largely been left out. I believe that the concept of Play-to-Earn will be able to rebalance things so that players can earn while playing games. 

Play-to-Earn is a concept where players can earn financial rewards such as cryptocurrencies or NFTs, which can be traded or sold to other players in their games. Most Play-to-Earn games are still largely unsustainable because this is a relatively new concept that many Web 3.0 companies are still figuring out. However, I believe that Play-to-Earn games will eventually transform the gaming industry.

What Do We Need To Get Started?

Typically, an initial capital layout is required in most Play-to-Earn games. To get started, players must learn how to buy crypto and then use the token to buy the NFT. The barrier of entry is too complex for Play-to-Earn games to breakthrough into mainstream adoption.

I think the future of Play-to-Earn is Free-to-Play games where players can download an app, sign up for an account as easily as signing up for a Tik Tok account, play for free, and earn without realising that the whole app is powered by blockchain or crypto.

Can A Player Really Make Money And Turn It Into A Full-Time Job?

Just like in any other industry, what you put into it is what you get out of it. You get part-time results if you put in the part-time effort. There are definitely opportunities for players to make gaming a full-time income, depending on how much effort and time they are willing to put into it.

With The Recent Crash Of The Crypto Market, Is Play-to-Earn Affected?

As someone who has been through the bull market of 2017 and the crash and bear market of 2018, I can say that no cryptocurrency is immune to a crash. The Play-to-Earn ecosystem will undoubtedly be impacted. When there is a crash or a bear market, it usually means that speculative money is leaving the ecosystem. Products with utility will thrive because, while speculative money is leaving, money will flow into games with utility and demand. 

Play-to-Earn games have the potential to thrive in bear markets because people are looking for financial vehicles to generate income when the economy is bad. Despite the fact that it has yet to be proven, I believe Play-to-Earn games can thrive during bear markets.

What Are Your Plans For The Future?

We intend to become the largest and most successful platform that creates fascinating experiences for our users through gaming and lifestyle, where they can earn virtual rewards and spend them in the real world within our lifestyle ecosystem. It’s also free to play.

As a dividend investor who derives dividend income regularly from a portfolio of dividend paying stocks, I believe all of us can move towards financial freedom investing in the same. However, many fail to build additional income or grow wealth sustainably over the long-term despite having a sincere desire to move ahead financially.

So, where do we fall short?

In this article, I will list four major mistakes that most people make when attempting to make money from the stock market.

1. Investing without a Plan

First, investing starts with one having an investment plan.

Basically, it has four key elements:

1. Your Current Financial Status
2. Your Future Financial Goals
3. Duration
4. Choices of Investment Vehicles and Strategies

An investment plan is likened to one planning a trip. It starts with where you are now, where you want to be, when you intend to reach your destination, and how you intend to get there safely. The subject of investing is confusing but usually this is due to one trying to invest without having a plan beforehand. It is like driving around in circles when investing their money.

This leads to:

2. Investing Becomes a Game of Chance

Today, we have 900+ stocks listed on Bursa Malaysia. Which stocks should you invest in?

Logically, the answer depends on your investment plan as it helps you select stocks that would propel you towards financial success. However, many do not bother to sit down and have their plans crafted as the process seems boring. Thus, how would most people pick their stocks?

1. Feel, Guts, and Emotions?
2. Colleagues, Friends, or Relatives?
3. Stock Tips, Rumours, and Commentaries?

As such, many treat stocks like lottery tickets. They may buy stocks out of hope after having heard of some “exciting news” about them. Many expect the prices of these stocks would go up forever. It is a fallacy as they would soon met with disappointment when their stocks fall in prices. This leads us to:

3. Buy High, Sell Low

Ideally, success in investing revolves around four words: “Buy Low, Sell High”.

However, it is easier said than done. As mentioned, many buy stocks after gaining knowledge of exciting news about them. What is this news usually about? In most cases, they are about stocks that have experienced the highest appreciation in a short span of time. Instead of “Buying Low”, many resort to “Buying High” as they want to join the bandwagon.

Usually, a savvy investor would stay away from such stocks or would have sold their shares at high prices (“Sell High”).

This is a reality of the stock market. Stock prices go up and come down. It is the norm and hence, a savvy investor would have prepared for what to do if his or her investment fell in price. But since most people do not have a plan, they panic when prices drop and “Sell Low” out of fear even though they “Bought High”.  

At these times, an investor with know-how would enter the market to accumulate more of these stocks as their prices would be trading at a discount (“Buy Low’).

This brings us to the next question: What gives these investors the guts and confidence to invest in stocks when their stock prices drop?

4. Not Treating Stocks as Businesses

Investing is more intelligent when it is businesslike.

Warren Buffett, the living legend and an example of how one who can amass billions by investing, advised not to speculate the markets.

So, what is the meaning of being “businesslike”? It is one who views stocks as businesses which own assets and generate profits and cash flows from their customers. Thus, an investor would first study, in great length, a stock’s business models, financials, and its future plans for growth. If the stock is fundamentally solid, he proceeds by assessing its stock price and would only commit his capital into it if its prices are relatively cheap. This explains why savvy investors, like Warren Buffett, can be confident on their stock purchases in a bad market.

Regrettably, many do not view shares as certificates of ownership of a business and thus, buy stocks with little knowledge on what businesses they are into and how much money they are making. It is a mistake and the biggest downfall is one who bought into stocks where their businesses are unprofitable.

Think about it. Are they able to grow shareholders’ wealth sustainably over the long term? In short, it does not take a genius or a crystal ball to build a stable and a regular source of income from stock investing. It takes a plan, logic, willingness to learn and a business mindset to profit consistently from the stock market.

This article was written by Ian Tai. Ian can be reach via email iantai888@gmail.com.

 

We can all concur that the past few years has definitely thrown everyone a curveball when it comes to our finances. In fact, challenging would be quite an understatement and most of us would have experienced more downs than ups in light of the disarrayed state of the world economies.

Yet, even with the darkest clouds some silver linings did emerge and we have seen some sectors thrive amidst the gloom. So rather than despite the turmoil but because of it, some phoenixes managed to rise from the dust to favour the bold with good fortune.

If you had invested after the market correction, there’s a good likelihood that your investments performed fairly well. This is especially so for those who made the “right” calls, for example, investing in glove or technology companies’ stocks or in the gold sector.

For those lucky investors, there is certainly cause to rejoice given the current economic outlook, but how sure are you that you can strike another impressive home run any time soon? 

Some investors may be content to treat their winnings as a one-hit wonder, and now turn their attention to enjoying the fruit of their investments in tangible forms such as upgrading their property or vehicles or just putting it aside for rainy days.  

Nevertheless, positive returns on investments should not be regarded as the end-all but rather as a springboard towards other financial goals. For this to be achieved, some insight into your investment position is required and this can be ascertained with a few questions:

• Now that you’ve made some returns on your investments, what should the next step be? Should you simply take the profit or should you make changes to your investments? How can you repeat your investment performance in the coming year(s)?
• If you have made money on your investments, did your net worth grow significantly? Are you happy with the quantum or do you feel it can be further improved?
• Have you tracked your overall investment performance from Day 1? Do you know the annualised returns of your investments? Are you satisfied with the returns?

Unlike striking a lottery strike where you place your bets and keep your fingers crossed for your next windfall, investing is a process whereby consistent results can and should be obtained over the long term.

You probably will not get an exact repeat of your latest investment performance but having some control over your future returns sure beats leaving it to fate and chance. To this end, I would like to offer a different approach to have more consistent and repeatable results over time:

1. Invest Based On Your Risk Tolerance And Investment Objective

We’ve often heard this time and again but what does risk profile actually mean? Risk profile refers to how comfortable you are as an investor when the value of investments goes up and down over time. Do these movements cause you to lose sleep at night? If yes – then you need to dial it down and choose an investment with a slightly lower volatility.  Having said this, your ability to take risk (i.e. risk capacity) is also a function of the investment objective.

If your investment objective is to save for retirement which is over 10 years away, then you are likely to have a higher capacity to take on more risk on this investment compared to other investments earmarked for shorter term goals. Similarly, if your aim is to grow your small investment capital significantly to meet your financial objective over a shorter period (e.g. between 5-10 years) – then you will need to consider a higher target return on investment. It is likely that a fixed deposit-only profile might not be realistic for you to meet your goals.

2. Invest With Your Ideal Strategic Asset Allocation In Mind

While stock investments might be suitable for you, it will not be a good idea to put all your investable assets in the stock market alone. Similarly, while you might be a die-hard property investor, placing a very high percentage (e.g. above 50%) of your investable assets in property assets might cause liquidity issues should you need to dispose these in a short period.

Ideally you should have a right combination of low, moderate and high-risk assets that match your risk profile to be able to generate the ideal target weighted average growth rate required to help you achieve your financial goals. As a simple guide, a moderate risk investor should target to have a 10-20% allocation into low risk assets, 70-80% in moderate risk assets and the remaining 10-20% in high risk assets. Based on this breakdown, the target expected return on the portfolio is somewhere between 6-10% p.a. in the long run.

3. Keep A Keen Eye On Your Investments

Now that you have your overarching strategic asset allocation in place, it’s time to determine the target portfolio allocation of the actual investment to help you to keep tabs on its performance more effectively. Let’s take the example of a moderate risk profile investor who invests in a balanced portfolio comprising of 50% stocks and bonds. Should the stock market experience a bullish trend thereafter, the allocation in stocks would rise to say 80%, causing him to be deemed as an aggressive risk profile investor instead.

Keeping an eye on the investments would prompt him to rebalance to the ideal 50:50 target allocation, thereby triggering the investor to apply the “buy low, sell high” philosophy by selling down on the stocks and reinvesting back into bonds. Similarly, you need to ensure your investments remain fit for purpose – retain the good performers and switch out from the non-performers. Is there a profit taking opportunity? If yes – consider locking in the profit while retaining the underlying investment if the prospects remain good.

4. Track The Performance Of Your Investments & Net Worth

If your investments are in profit – good for you. However, knowing this is not enough. You need to determine the annualised returns of your investments so that you know if this is in line with the expected returns of this asset class or otherwise. Similarly, if you have had a good run in investing this year and made a lot of profits – great. But has this translated to a meaningful growth in your net worth?

If you’re not sure, then it’s time to start tracking your net worth on an annualised basis and more importantly look for ways to grow your overall net worth instead of just focusing on the performance of individual investments. When you diligently track your investment performance and net worth, you will be in a much better position to take the necessary steps to enhance it over time.

5. Rinse And Repeat

While the steps above are not rocket science, it does require a consistent application over a long period of time if your aim is to grow your net worth optimally to achieve your financial goals. 

 As the saying goes, make hay while the sun still shines. Your recent investment returns may be the envy of your peers, but winning streaks are often flashes in the pan and not sustainable in the long run without adopting a systematic approach.

Nobody can predict how the economy is going to fare in the coming year given the volatility of the pandemic situation the world over. Rather than just sitting back and waiting to jump on the next hot investment idea with your fingers crossed, it’s time to reposition yourself to do well irrespective of the short-term market conditions.  

View your recent returns as one step further to increasing your net worth in its entirety and apply the above five step process to enjoy the prospect of growing your net worth consistently for many years to come.

About the Author:

Felix Neoh CFP ^{CERT TM} is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth

To many, investing is a complicated subject and one that is overwhelming when you are new to it. It is confusing because:

• There are different types of investment products in the market. They include stocks, bonds, real estates, commodities, businesses and so on.
• There are different segments for each type of investment product. If we take stocks as an example, we have growth stocks, dividend stocks, value stocks, blue chips, small caps and so on.
• There are different methods of investing for each type of investment product. For stocks, you may choose to buy and hold, do short-term trading, invest via unit trust or EPF, short-selling and so on.
• Above all, many people “believe” they are investing when they are actually not. These people include traders, gamblers and even speculators and they make “investing” an even more complicated subject, especially if they profess to be successful “investors”.

What ‘Investing’ is Really All About

The subject of investing is made more confusing when people are not aware of the differences between:

• An Investment Plan,
• An Investment Procedure, and
• An Investment Product
  

Many today are still trying to get into investment products (stocks, real estates, unit trusts), or investment procedures (buy and hold over the long-term, short-term trading, dollar cost averaging) without having an investment plan. They also unconsciously follow the following order when buying their “investments”:

• Select Investment Products
• Explore / Test Out Investment Procedures or Strategies
• Have an Investment Plan, if ever, when needed
  
  

This investment approach is likened to building a house without first having a blueprint. This is not investing. Clearly, it is not a sustainable method for creating wealth.

What then is Investing?

Investing is a Plan, not a Procedure or a Product. Hence, a savvy investor would instead follow this path:

1. Have an Investment Plan.
2. Explore and Learn Investment Procedures or Strategies.
3. Select Investment Products.

As you can see, this is the exact opposite route taken by those who know how to build sustainable wealth over the long-term. I will touch briefly on the three points above:

Step #1: What is an Investment Plan?

An investment plan is like having a travel plan as illustrated below:

Say, I have to travel from Subang Jaya to Petaling Jaya in 20 minutes using X vehicle.

The plan will have four elements to take into consideration:

1. Where You Are Now – Subang Jaya
2. Where You Want to Be – Petaling Jaya
3. Duration (Travel Time) – 20 Minutes
4. How to Get There Safely – by X Vehicle

Likewise, investing starts with an assessment of your life. This includes your age, marital status, earning capabilities, financial condition, set of skills, tolerances of risk, expected returns, and a vision of your future self. Often, it takes quite a fair bit of soul searching to find your unique answers to the questions stated above. So, please take your time to do so. Don’t rush into it.

The first line of your investment plan should look something like this:

(A) I want to increase my monthly income from RM5,000 to RM10,000 in three years by using X strategies.
(B) I want to earn a passive income of RM1,000 a month in two years by using Y strategies.
(C) I want to grow my net worth from RM500,000 to RM1,000,000 in five or 10 years by using Z strategies.

What then are your X, Y, or Z strategies? Let us move onto Step #2:

Step #2: What is an Investment Procedure?

Let’s use the same travel plan from above:

I will be travelling from Subang Jaya to Petaling Jaya in 20 minutes by using X vehicle. Your X vehicle could be any of the following:

– A Car
– A Bus, or
– by LRT

If you know how to drive, then, you would choose a car. If not, you may hop onto a bus/LRT/Grabcar/Taxi to get to your destination.

So, the mode of transport is the procedure that will take you to where you intend to go. Likewise, the skills of investing are procedures that will act as the modes of transport to bring you to your financial destiny. The more skills you have today, the more vehicles you get to choose from to get to where you intend to be.

In travelling, some procedures include:
– Walking or Running,
– Riding a Bicycle,
– Driving a Car, or
– Flying a Plane

In investing, the procedures include:
– Working (get a job or starting a business)
– Saving (building cash reserves)
– Trading (Simple Moving Average (SMA), Exponential Moving Average (EMA), Bollinger Bands, etc)
– Investing (Growth, Value, Dividend, etc)

Step #3: What is an Investment Product?

An investment product is likened to an X vehicle: a Car, a Bus, LRT and so on. One vehicle is not necessarily better than the other. It all depends on suitability.

A car is not necessarily better than a plane. Likewise, investing in real estate is not necessarily better than investing in stocks, bonds, unit trusts, gold, EPF and so on.

Two guys may invest in stocks but their choice is for their own reasons. For example:

• Mr C aims to build a stock portfolio that earns RM1,000 a month in dividend income. He intends to buy and keep dividend stocks as long as their dividend yields are 5% and above. Thus, Mr C may consider an investment into a REIT that pays 6% dividend yields as the REIT fulfils his investment criteria.
• Mr D aims to build a stock portfolio that appreciates in value for the long-term. He intends to buy and keep stocks that have grown profits consistently and are expandable over the long term. Thus, Mr D may consider an investment in growth stocks as they fulfil the needs of his objectives much better.

In short, here are the key takeaways:

• Investing is a Plan, not a Procedure or a Product.
• A Plan helps to determine Your Procedures and Products.
• One Product is not necessarily better than another Product.
• Take time to do Soul-Searching.
• Your Plan will Advance according to your Skills (Procedures).

About the author

This article is co-written by KC Lau and Ian Tai.

Ian Tai is a Dividend Investor. Financial Content Machine. Producer of 200+ Articles, Weekly Host and Presenter at KCLau.com. Co-Founded DividendVault.com, an online educational membership site that empowers retail investors to build a stock portfolio that pays rising dividends in Malaysia and Singapore.

KCLau is a financial educator, having published seven books including the current bestseller Money Smart, and co-created a dozen online financial courses. He gives away his popular Money Tips e-book volumes free at his website: https://KCLau.com