I woke up today and found a message from a colleague that I have not spoken to for some time. The last time I did, we sat down to make sense of the colleague’s CPF portfolio that is neglected for a while, because the policies was purchase to support a relative who have been new to the business.
We discussed some work stuff and I asked whether my colleague have found out more things from the planner we talked about that last time we met. My colleague told me they did settled it and funds have been reinvested and its making a profit this year, and that they will re-evaluate again.
I find this puzzling. I didn’t enquire much but ILPs and unit trust should be viewed more of longer term investments and should not be evaluated on a yearly basis. Due to their volatility nature, they could have up to 4 years of very poor performance, and they might still be the right asset for you.
The evaluation should be on a portfolio basis yearly. That I agree upon.
Sometimes, the narrative of how that was described to me tells a fair bit about their understanding of how wealth building is carried out.
The message that I get is one that turning in something positive is good, negative is bad. Of course that is not wrong, but are they expecting positive to be on a yearly basis?
What happens when next year the entire market is down 30%? Switch to something else? The idea of rebalancing is to sell when things are positive and buy negative stuff, this looks more like a plan to buy high sell low.
We can easily lay the blame here on the planner, but I will be hesitant to put all the blame on the planner.
We seldom actively listen as human beings. It happens at work and the result is miscommunication. The same can be said for a planner advising the colleague. You become Gold 90 FM, only hear the good stuff, or stuff that your brain can comprehend.
Rick Ferri, a proponent of indexing, shared his problems when advising clients in wealth building:
I’ve been writing and presenting on this philosophy for decades and continue to do so with a passion. However, my learning curve about teaching this approach to investing was slower than my knowledge of strategy. At first, I approached the concept from the product perspective – just buy index funds because they’re better for you. I’d then jump right into the mechanics of the strategy: fund recommendations, asset allocation, ways to implement, etc.
This nuts-and-bolts-centric advisement process worked fine as long as the markets cooperated. Problems occurred when the markets went down. I found that some clients jumped ship. This isn’t good for anyone.
I realized that those who capitulated didn’t have a good grasp of the philosophy. They were investing because I told them to do it this way. They were not investing because they understood or believed. This was a problem. After this second epiphany, I’ve spent a great deal more time talking about philosophy and far less time talking about products and portfolio design.
The problem with retail investors is that they are ill-equipped to be a minimal driver of their car. The frustration that I have in this age is that they don’t even want to be educated on their own in this minimal knowledge to question their planners and their investments better.
If I want to summarize the main problem is such:
- Complain that all these wealth building stuff is too much too difficult for them
- Didn’t reflect well how important money is to them (even though they can complain that they are not earning well enough)
- Complain that they have “better priorities” or “more important” things to do (and you realize movies, holiday and researching getting best bang for buck where to buy the gadgets and luxury watches they want)
- Feels that articles longer than 300 words are too long and would not even make an effort to read them
The problems with wealth building most of the time are not to do with the nuts and bolts of investment products, but what makes us really unproductive human beings.
When we don’t even try to build up our philosophy, and ensure that our philosophy in wealth building is fundamentally sound , we start blaming on almost everything else but ourselves.
A 20 year return tabulation of various asset class have shown rather respectable performance. Sure they will have much ups and downs during this period:
- small 1994 crash
- a 1997 Asian financial crisis
- 2000-2003 bear market
- Dot com crash
- housing crash
- 2007-2009 great financial crisis
- PIIG and Euro crisis
The long returns have been good, yet the average investor results struggles, probably they are looking at yearly positives vs negatives instead of an understanding of a fundamentally sound wealth building approach.
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