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03-10-2010, 10:11 AM
Good advice indeed! 
Oct 3, 2010
small change
Getting the 5Cs within reach
The key is to plan finances well, understand investor behaviour and choose an adviser you trust
By Brian Tan
The secret to achieving the five Cs - cash, credit cards, condo, car and country club membership - lies in good financial planning, understanding investor behaviour and choosing an adviser. I will discuss here the Cs of the three topics.
The five Cs of financial planning
Cash flow
Tracking your cash flow is important because it will determine whether you dig yourself into debt, or save enough for your retirement or children's education. Use software tools like a budget planner. You may be surprised where your money is going.
Compounding
If your cash flow is right, you should have some cash going into investments every month. The compounding growth of these investments might astound you. Saving $10 a day and investing it at 8 per cent over 40 years will give you more than $1 million. Although you will also have to account for inflation, having $1 million sure beats inflation more than having $0.
Certainty and clarity
Having a tangible action plan allows you to achieve clarity of thought about the future, and put into action what you need to do. If your goal is to retire a millionaire, for example, having the certainty of an outcome provided by financial planning allows you to justify why that $10 is better off saved and invested, instead of spent.
Compartmentalise
When you 'bucket' or compartmentalise money into various accounts or investment portfolios, each with a specific goal, you are clearer as to what you should be doing. Contrast this with lumping everything into a general investment pot, where goals are vague and money is taken out haphazardly. Each of your goals has a different time horizon and flexibility, in terms of how certain an outcome you require.
Compartmentalising also allows you to have a defined exit plan. If your portfolio has hit your targeted goal, be prudent and exit into cash. You have got enough money to fulfil that goal. Why risk an investment dipping in value by leaving it invested, even after you have achieved the target you wanted?
Complete
Cover all bases. It would be unfortunate to have all your plans upset by a medical emergency. Ensure that your financial planning is tied together with sufficient and complete insurance coverage.
The Cs of investor behaviour
I referred to compounding at 8 per cent a year earlier. In the investing world, there is always a trade-off between risk and return, but investors can adopt certain behaviours to increase their chances of success.
Comfortable
The point of investing is to help you grow your wealth to achieve a better quality of life. As such, the process should be comfortable. Maximise your investment growth within your comfort zone. Investing outside that defeats the purpose of a better quality of life, if you cannot eat or sleep because the markets are volatile.
Control
Take charge of your investments. The returns you require and how much you need to invest should be a function of your circumstances, and not because someone says a product is good or has a quota to achieve. If you feel under pressure to do something, walk away. It is better to do nothing, or miss an opportunity, than to make a mistake that makes you lose money.
Copy
Why reinvent the wheel when forming your investing framework? Borrow investing behavioural patterns or philosophical guidelines from the investment greats. Don't just read what they say, but read into what they are saying.
The Cs of choosing an adviser
There is no 'one size fits all' financial solution. Each person or family's situation is unique, and your solution should be tailored to you. Consider the following when looking for an adviser you can trust:
Critical questioning
Ask as much as you need to. You are in control over your financial life, and whom you would like to work with on it. Choose a company carefully. What is its history? What is an adviser measured on? How are the advisers remunerated?
Competence
The best intentions are void if the adviser does not know what he is doing. Make sure he knows his work. Ask how many clients he has and how much time he spends with each. This also means measuring his value objectively. Don't just measure costs, measure value. Quality is often not the cheapest option.
Caring
A good adviser cares. Is he trying to understand you, or just pushing something that he wants to sell? Look out for constructive feedback from the adviser even when you have not decided to hand the job to him.
A good adviser should discuss with the client every aspect to reach an agreement on what can and cannot be done. There should not be any hidden costs or empty promises from either party.
However, in order for the adviser to be committed to you, as a client you too must be committed to your adviser. This means providing details or information that is required for him to be able to help you.
Both adviser and client should treat each other with courtesy and respect. This is a sure way to build mutual confidence in a long-term relationship.
The writer is a financial adviser and vice-president with ipac financial planning Singapore.
Oct 3, 2010
small change
Getting the 5Cs within reach
The key is to plan finances well, understand investor behaviour and choose an adviser you trust
By Brian Tan
The secret to achieving the five Cs - cash, credit cards, condo, car and country club membership - lies in good financial planning, understanding investor behaviour and choosing an adviser. I will discuss here the Cs of the three topics.
The five Cs of financial planning
Cash flow
Tracking your cash flow is important because it will determine whether you dig yourself into debt, or save enough for your retirement or children's education. Use software tools like a budget planner. You may be surprised where your money is going.
Compounding
If your cash flow is right, you should have some cash going into investments every month. The compounding growth of these investments might astound you. Saving $10 a day and investing it at 8 per cent over 40 years will give you more than $1 million. Although you will also have to account for inflation, having $1 million sure beats inflation more than having $0.
Certainty and clarity
Having a tangible action plan allows you to achieve clarity of thought about the future, and put into action what you need to do. If your goal is to retire a millionaire, for example, having the certainty of an outcome provided by financial planning allows you to justify why that $10 is better off saved and invested, instead of spent.
Compartmentalise
When you 'bucket' or compartmentalise money into various accounts or investment portfolios, each with a specific goal, you are clearer as to what you should be doing. Contrast this with lumping everything into a general investment pot, where goals are vague and money is taken out haphazardly. Each of your goals has a different time horizon and flexibility, in terms of how certain an outcome you require.
Compartmentalising also allows you to have a defined exit plan. If your portfolio has hit your targeted goal, be prudent and exit into cash. You have got enough money to fulfil that goal. Why risk an investment dipping in value by leaving it invested, even after you have achieved the target you wanted?
Complete
Cover all bases. It would be unfortunate to have all your plans upset by a medical emergency. Ensure that your financial planning is tied together with sufficient and complete insurance coverage.
The Cs of investor behaviour
I referred to compounding at 8 per cent a year earlier. In the investing world, there is always a trade-off between risk and return, but investors can adopt certain behaviours to increase their chances of success.
Comfortable
The point of investing is to help you grow your wealth to achieve a better quality of life. As such, the process should be comfortable. Maximise your investment growth within your comfort zone. Investing outside that defeats the purpose of a better quality of life, if you cannot eat or sleep because the markets are volatile.
Control
Take charge of your investments. The returns you require and how much you need to invest should be a function of your circumstances, and not because someone says a product is good or has a quota to achieve. If you feel under pressure to do something, walk away. It is better to do nothing, or miss an opportunity, than to make a mistake that makes you lose money.
Copy
Why reinvent the wheel when forming your investing framework? Borrow investing behavioural patterns or philosophical guidelines from the investment greats. Don't just read what they say, but read into what they are saying.
The Cs of choosing an adviser
There is no 'one size fits all' financial solution. Each person or family's situation is unique, and your solution should be tailored to you. Consider the following when looking for an adviser you can trust:
Critical questioning
Ask as much as you need to. You are in control over your financial life, and whom you would like to work with on it. Choose a company carefully. What is its history? What is an adviser measured on? How are the advisers remunerated?
Competence
The best intentions are void if the adviser does not know what he is doing. Make sure he knows his work. Ask how many clients he has and how much time he spends with each. This also means measuring his value objectively. Don't just measure costs, measure value. Quality is often not the cheapest option.
Caring
A good adviser cares. Is he trying to understand you, or just pushing something that he wants to sell? Look out for constructive feedback from the adviser even when you have not decided to hand the job to him.
A good adviser should discuss with the client every aspect to reach an agreement on what can and cannot be done. There should not be any hidden costs or empty promises from either party.
However, in order for the adviser to be committed to you, as a client you too must be committed to your adviser. This means providing details or information that is required for him to be able to help you.
Both adviser and client should treat each other with courtesy and respect. This is a sure way to build mutual confidence in a long-term relationship.
The writer is a financial adviser and vice-president with ipac financial planning Singapore.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/