Cschua Wrote:This is my first post after reading ValueBuddies over the past 2weeks. Need your advice on the below
1) I'm 38yrs this year, married with 2 kids (9 and 7)
2) Already brought insurances for all 4 of us
3) Also had set aside 12months emergency funds
Current portfolio...
- I only started stock investment in Feb 2012, and had been reading forums/books and attending seminars for the past 1 year
WARNING: LONG POST
First of all, you should identify your investment goals. Are they:
1. To fund the children's university education;
2. To provide for retirement expenses for you and your wife;
3. To leave a legacy for the children to inherit;
4. Something else; or
5. Some/all of the above?
Your answers will determine the time horizon for your investing and the amount of loss you can stomach. And remember that most people have LESS risk tolerance than they think. Everyone says they can take some loss, but they will only know their true risk appetite in a bear market.
Also, you need to consider your earning power relative to your net worth.
If your earning power is high relative to your net worth, you can quickly bounce back from losses. If not, you may not be able to tolerate losses.
Also, if you are willing to risk losses (and permanent downgrades in standard of living) in exchange for the possibility of vastly increased net worth, you can take more risk.
If you have not considered any of the above, you should probably put your money in the bank until you have figured out WHAT you want your investing to achieve. Talk to a financial planner if you haven't already done so. Consider using a fee-based planner so that they don't have any incentive to sell you products.
Just pay for advice, it's a one-time cost and will at least help you think about your financial goals. A commission-based planner will only make money by selling you stuff, so whatever they come up with will involve them selling you stuff, when sometimes the correct thing for you to do may be to NOT buy anything at all.
As for your investment questions:
One year of experience is too short to safely invest a meaningful portion of your net worth on your own. Starting in Feb 2012 means you have only experienced a bull market, which makes things all the more dangerous because you have not yet suffered through a bear market.
$50k of exposure is probably too much unless you are willing to suffer significant losses while you improve your knowledge. $50k in a major ETF (STI, HKSE, S&P etc) would probably be a more sensible place if you insist on having stock market exposure while you learn.
Your best investment right now is knowledge. If you have not already done so, buy and read
The Intelligent Investor, a book endorsed by no less than Warren Buffett. I have this book (hardover 1970 edition) and it has paid for itself many times over. I daresay that for a reader who is willing and able to apply its principles, it is worth
far more than its weight in gold. Even if it sold for $1,000 I would call it a bargain, but you can buy it in the bookstore for less than $100. Or borrow it from the library for free. But if you are serious about investing you should buy a copy, because you'll read it again and again as the years go by.
If you can combine time, knowledge and experience, you can find investments that have superior risk/reward ratios i.e. "low risk, moderate return" or "moderate risk, high return". Without all three, however, the "low risk, low return" maxim applies i.e. if you do not want to take too much risk, you must also accept a low return.
Until you can easily read and understand financial statements, and can arrive at a reasonable idea of what an investment (whether stock, bond, property etc) is worth, the best place for your money is probably the bank. You have some experience investing in property. Aim to at least reach the same level of comfort with stocks before you take meaningful exposure on your own.
As for bond funds my $0.02 is: Just say NO. The reason is that bond funds do not EVER hold bonds to maturity. In order to maintain an average duration, they continually buy and sell bonds. This means that when interest rates go down, the bond funds will get capital gains as they sell their bonds. Conversely when interest rates go up the bond funds will incur capital losses when they sell their bonds.
Interest rates are very low now. If interest rates go up during the period you own the bond fund, you are very likely to suffer losses. The longer you hold the bond fund, the more likely that rates will rise during this period. You can't sell AFTER rates go up because the bonds will already have lost their value, you have to sell BEFORE. But do you have a crystal ball? I don't.
In contrast, when you own a bond directly, even when interest rates rise and the bond declines in market value, you can choose to hold the bond to maturity and get repaid in full. So if you want some income and nominal protection of capital (which means guaranteed losses after inflation), yes you can buy bonds directly. But do not EVER buy bond funds unless you are prepared to take interest rate risk (risk of capital losses), or you are specifically buying a junk bond fund, in which case the returns will be highly correlated to the stock market i.e. you are buying for capital gains and not income/safety at all.
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circumstances and needs will differ from person to person.