11.8.10

Investing is like buying clothes?

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Haha.. i just came across an article on the 'Invest' section of the Straits Times written by the all-famous senior correspondent - Lorna Tan where she compare Investing to buying clothes. I think this article will be quite interesting for girls in particular.


Now, let's check it out and see what it is all about...


When we buy clothes, they focus on buying clothes and accessories that match our lifestyle, age group and activities they engage in. 


An investment portfolio is not much different. We rely on lifestyle (risk appetite), age group (our time horizon) and activities they engage in (financial goals)


The rationale or idea behind this concept is that everyone should always take a look at what they are comfortable with given their current situation and future goals. 


Let's look at an scenario. It probably isn't wise to ask an elderly to dump all his cash into stocks and hope for the best. It has breached all the 3 principles of *buying clothes!


1) Lifestyle - an elderly risk appetite is the least minimal. Pardon me for saying... but they have only couple of years lifespan left and should take on as less risks as possible. Therefore, they should look for low-risk stuff such as bonds and term deposits.


2) Age group - An elderly has to invest things which reward them with the shortest time horizon as well for obvious reasons. Equities are risker assets but they generally give a positive returns if held long enough. However, this is not a good decision for the elderly. A good alternative may be short-term deposits or even forex trading! 


***(you may say forex trading is risky, but i feel that elderly can minimize the risks as they usually have more time and $$ (than working adults) to learn forex techniques from many workshop and read about the global news that affect the currencies. Thus,  in a way, they can take advantage of their free time and earn extra income from short-term trading or forex!


3) Activities - An elderly financial goals normally is not about capital gains or long-term appreciation of stocks because they might not live to see the day it happens. A more practical approach is the income approach. I have advised my father to load up on REITs during the U.S. housing crisis and it has paid off pretty well now. His dividend yield amounts up to 20% because he has bought the stocks at historic lows. If he can, so can any elderly!


Last but not least,
One can look at your personal age as a rule to allocation of your investments. Use 100 minus your age and invest the 'remainder' to equities.


E.g. if you are 45, invest 55% in equities or forex trading (it's my style =D) and the balance 45% in less risky investments like cash, bonds or income trusts!


When you have a well-planned investment portfolio, you can sleep soundly through any economic cycle. Well... that's all folks! Happy investing!

1 comment:

  1. I would like to recommend that you go with the most recommended Forex broker: eToro.

    ReplyDelete