SN Finance Blog Introduction

On this blog, you can find some useful financial and investing related information and tips : )

Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice.

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Hello, thanks for coming by! 

I'm SN, a Singaporean passionate about finance and investing.

I strongly believe that with sound financial and investing knowledge, achieving financial independence and ultimately financial freedom is attainable. One of the greatest blessings in life is to be able to live well and invest well.

This blog is where I'll share my musings of finance, investing and life. I hope you'll enjoy reading as much as I enjoy writing them. Wishing you all the best in your journey towards greater financial freedom and success!

"Live well, invest well"

— SN

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Over the years, I've learnt 5 principles to sound investing and financial management:

1) Save

2) Research

3) Diversify

4) Growth

5) Reinvest

I'll briefly cover these 5 aspects below, and will subsequently publish more articles in the future covering each more in-depthly.

1. Save

The first and most important step to investing and financial management is to save. If you do not have enough savings to cover your immediate needs (e.g., 12 months expenditure), it is important to first build up sufficient cash reserves.

Depending on our needs and circumstances, having savings to cover at least 12 months of savings will give us a greater peace of mind especially admist the economic uncertainty.

If you forsee that you'll require a large amount of cash for the downpayment of a big ticket item such as a car or house in the near future (e.g., less than 3 years), you should factor in the cash you need, in addition to having savings to cover at least 12 months of expenditure.

To ensure you maximise the returns from your savings, placing a portion of your savings in bank fixed deposits or Singapore Savings Bonds (SSB), which will allow you to earn between 3% to 4% of interest per annum. 

Many banks offer attractive interest rates on savings, such as UOB One Account, OCBC 360 Account or DBS Multiplier Account. By crediting your salary or spending on the banks' credit cards, you can easily earn higher interest on your savings. 

The base interest rate paid by most banks in Singapore is 0.05%. In a high interest rate environment, many banks offer attractive interest rates ranging from 2% to 5% on deposits. Instead of leaving your savings to earn 0.05% in a regular savings account, making use of these promotional interest rates will help you maximise the return from your savings in the short term.

Once you have accumulated enough savings to cover at least 12 months of expenditure, consider investing the surplus cash in equities, as many good quality stocks will generate much higher returns than the interest from fixed deposits or savings accounts.

2. Research

Before investing, it is crucial to research on the companies you plan to invest in. Without sound financial knowledge, many individuals tend to rely on insurance policies, unit trusts or structured deposits by banks as investments. While they may provide guaranteed returns, the returns are generally much lower compared to investing directly in the STI or S&P 500. Also, the service and management fees may eat into your gains.

In addition, although they may seem "less risky" compared to investing directly in the stock market, many of these investments usually require a minimum "lock-in" period. This means if you want to withdraw your funds before the minimum "lock-in" period, you may incur a penalty or lose a small portion of your principal.

Therefore, in terms of liquidity, investments such as unit trusts or structured deposits are not as liquid as investing directly in the stock market. 

If you want guaranteed returns, investing in SSB is definitely a better option than unit trusts or structured deposits, as the funds invested in SSB can be redeemed and received back within a month. However, there is a $200k limit per person for SSB, so if you have more than $200k to invest, you will still need to look for other investments.

But in general, doing research will enable you to acquire the necessary financial knowledge and sound financial intuition that will enable you to avoid making unsound financial decisions, and in the process make wiser and more effective financial decisions.

3. Diversify 

If you are risk-averse, investing in Singapore stocks is generally less risky compared to US or HK stocks. However, the lower risk comes at the opportunity cost of lower returns. A key principle to always keep in mind is that lower risk always leads to lower returns, and vice versa. In exchange for lower returns, the STI offers the stability of the SGD as well as a less volatile market, but in the long term, the S&P 500 has consistently outperformed the STI.

In general, the US market provides much more growth opportunities compared to the SG market. In contrast, unlike the US market, the SG market provides many good quality dividend stocks, such as the three big banks, some blue-chip stocks, and REITs.

Also, unlike SG where dividends received are tax-exempt, the dividends from US stocks are taxable. The fluctuating US dollar may also cause the dividends you receive to fluctuate over time. As such, SG stocks are generally a more reliable source of dividends for passive income.

In short,

The US market is a good place to look for quality growth stocks.

The SG market is a good place to look for quality dividend stocks.

I believe achieving a balance between growth and income generating assets is important at ensuring that our portfolio is able to withstand the uncertainties of the economy and the volatilities of the stock market. One of the simplest and most straightforward ways to achieve diversification is to simply buy the MSCI World Index.

Apart from diversifying across different countries for equities, it's important to diversify across different asset classes. Allocating your portfolio to just equities may not be wise because in the event of a market downturn, correction or crash, you would lack the funds to invest in the market at heavily discounted prices. Thus, apart from keeping a sufficient cash buffer and emergency savings (as mentioned in Point 1, Savings), it's important to have a sufficiently large war chest and diversify across asset classes like bonds. Such diversification across different asset classes will enable you to remain rational and emotionally temperate, especially during market crashes and times of panic.

4. Growth

As with anything in life, growth is a crucial part of our journey. Life is not about the destination but the journey. And in the process of the journey, we learn and grow holistically as individuals. Applying this to managing our finances, it's important that we adopt a growth mindset towards how we manage our portfolio. While it's crucial we aim to grow our portfolio and finances as much as possible, it's important to not compromise our own health in the process. Achieving a balance in everything is key.

Actively monitoring a portfolio requires active and consistent management that is often time-consuming and can take a toil on our health. Therefore, it's important to set realistic and achievable targets and growth rates for our portfolio — only then can we experience sustainable growth in both ourselves and our finances. If we set our expectations too high (e.g., aim to outperform the Nasdaq 100), it is likely that we will overwork ourselves and likely not achieve our goal. Or even if we do achieve our goal, it would be at the expense of our own health, well-being and life. It's not a matter of whether we can reach our goal, but a matter of how we reach there and the state we reach in.

If we are channelling too much time and energy towards managing our finances and portfolio at the expense of our health, well-being and family, then it's crucial for us to reconsider our priorities to ensure that the growth we are doing experiencing and targeting isn't unsustainable or detrimental for us, our family or our finances in the long term. Setting too high expectations may cause us to prioritise short term gains over long term growth which could entail stomaching a higher level of risk than what we are used to or comfortable with. 

While taking on risk is good, if it's overdone, things can quickly spiral out of control and turn ugly, regardless of whether it's in our management of finances, work, health, life, commitments or relationships. We should strive for a balance in everything we do, and set a list of achievable and realistic goals to ensure we can grow holistically as an individual in all aspects of life, not just in the area of our finances or investing.

5. Reinvest

Like life, we should commit to and reinvest in areas paying us dividends or in areas where we are rewarded. In our investing and the management of our finances, we should always remember the importance of commitment and reinvesting. When we have found a method or investing philosophy which works well for us and shows tangible and consistent results, we should make the effort to remain committed to that method or philosophy by reinvesting our time, money and effort into it. When we allocate resources to areas in life which benefit or reward us, life becomes more fulfilling.

Similar to investing, once we have found a suitable investing strategy or method which works well for us, it's best to stick with it, master it and make the best of it. Instead of focusing on the areas which don't matter, we should focus on the things which do matter. There are many things in life to worry and bother about, but if we can find the right things, people and opportunities to channel our time, energy, resources, dedication, creativity, expertise and hard work into, it won't be long before we will experience success in that area. Reinvesting in what matters is a crucial part of succeeding in both life and investing.

When we specialise and focus on what we are good at and master it, we are able to have a competitive advantage over the majority, allowing us to achieve above average outcomes that will reward us richly over time. Reinvesting depends on the principle of compounding, which not only works wonders in investing but anything in life as well. When we are good at something, each percentage growth in our accumulation of that skill, knowledge or expertise over time will get increasingly larger and more significant. Specialising in areas that we are passionate about by ensuring we reinvest into it will enable us to succeed in that area and achieve above and beyond what many people can.

Compounding is often thought of as the eighth wonder of the world. And the way to harness it is through reinvesting and patience.

"Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it." 

— Albert Einstein

"The stock market is a device for transferring money from the impatient to the patient."

— Warren Buffett

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Disclaimer:

The content and information provided on this blog is solely for educational and informational purposes, and should not be construed as financial advice. The accuracy or completeness of the content and information provided in the blog cannot be guaranteed. Before making any investment decisions, it is important for readers to research and carry out independent verification of the information provided, or consult with a qualified financial professional. No warranty and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of actions taken based on the ideas or information found in this blog.

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