Avoid Losing Your Wealth When You Should Learn To Be Better At It

I always get my attention captured by people who say things like earn “30% return on investment (ROI) per year!” that do sound plausible.  Especially after listening to how they calculate and get such returns, the allure of such ‘easy’ or ‘simple’ strategies to accumulate wealth is hard to withstand. Alarm bells should start ringing now to avoid losing your wealth!

The ‘simplicity’ of these strategies after you sat through or heard their pitch, are also part of what will make me want to act. Until I find myself trapped in an unpredictable sentiment-driven market situation. This is what being Better Safe than Sorry is all about in my earlier article!

Fill your own pockets, not others’

I have gone through similar but different situations over the last 15 years – listening to, ‘learning’ from and following some ‘experts’.  It’s like paying ‘school fees’ learning what not to do, and I hope you will learn from my 3 key mutually reinforcing lessons below to avoid losing your wealth in future.

1. Build up your knowledge by reading and learning more about growing savings or wealth, and investing. The more you know, the easier it will be for you to see through what others are ‘selling’ you;
2. Learn how and what to calculate for any investing or savings instrument/vehicle you are going to be putting your hard-earned money into. This is very important as you might hear or learn calculation methods that do not give you the full picture. E.g. simple calculations of only profits but without the full costs unique to you. They do not say it, so you must know it!;
3. Develop patience and read all the fine print that you might encounter through your journey. There were occasions simply by reading the fine print saved my family from putting our money into something that were different from what the ‘salesperson’ told us. It is just like signing off an employment contract – know the terms and conditions that benefits and also binds you.

Let me share some of my own stories that led to these lessons, which I hope will help you avoid losing your wealth.

Grow your knowledge to better grow your money

I started my journey in growing my wealth and investing 15 years ago through investment-linked insurance policies and unit trusts. Not knowing much about what they are, except for what the ‘salesperson’ tells and assures me, and simply follow their ‘advice’. “Surely they know their products better than me!” I am sure many of us had similar experience at some point in your journey. We forget what their objective is: sell you their products.

One year on, it was nice to see my decisions grew my money slowly by around 5-10% until the 2008 Financial Crisis hit home. Within a week, what grew 5-10% over a year instead dropped to -30% in value. Panicking and trying to protect my money, I made the most ‘natural’ decision to me then – sell them and keep my cash.

That was the price I paid for not reading and learning more about the products I put my money into. Together with a few other similar situations, gave me the school (of life and investing) lessons I needed.

First I read books and blogs that gave me more knowledge on savings and investing topics that interested me. E.g. living a frugal life, Financially Independent Retire Early (FIRE) movement, passive investing in mutual funds and Exchange Traded Funds (ETF), the concept of cashflow in assets vs liabilities, and many others.

As many of these books and concepts are mainly US-based experiences and examples, I also looked for Asian or Singaporean examples. E.g. how we can better use CPF or Singapore Government bonds and treasury notes. I will share some of what I found most useful as a resource in a future article.

Second I began in small ways and amounts to test which methods work best for my family (including my kids!) in achieving our financial goals:

• High interest savings account e.g. OCBC 360, UOB ONE or DBS Multiplier,
• DIY investing platforms e.g. Saxos, Interactive Brokers, and
• Robo-advisors e.g. AutoWealth, Stashaway, Syfe.

Key insights from my learning

On top of leading to my ABCs of growing wealth and savings, some key lessons I learnt are outlined below for your benefit!

• Learn to manage your emotions, and it will help to review your investments only every 3-6 months or more. Rightly so because growing your savings and wealth takes time, and seeing your money value go up and (especially) down might make you make wrong decisions. Avoid what I did when I sold my investments and actualised my paper losses!
• Investment expenses can make or break your wealth growth, and learning this had strongly influenced my savings and investment choices since. The basic concept is this (using the example of an unit trust): if your unit trust (UT) investment and platform charges you a total of 2% expense annually (based on your investment amount), that means that the UT will need to grow by 7% per annum (p.a.) in order for you to earn 5% p.a.. If your UT makes an average growth of 4-5% p.a., you might be better off putting that money into your CPF instead since 2.5-4% growth is guaranteed! Let’s not even talk about underperforming UTs, or when the market is just bad.
• Buy the market instead of picking stock is especially true for me. I know I am not smarter than most investors out there, and that the market is sentiment-driven and not rational. I will rather take the average gains of how the overall market performs. Instead of hoping for a stock to outperform but may still make losses because of sentiment or other uncontrollable reasons.

Nobody can do your own math better than you

My top experience here came from learning how property investment works. In land-scarce Singapore, it has been a reliable way to grow wealth for many Singaporean families. The allure of a six-digit gain in profit can be too much to ignore and is real if you know what to do.

That got me curious and joined seminars to learn more about it. My only regret from these is, if only I knew these in my early 20s (though not quite what I learnt directly from these seminars)!

The great thing about these seminars is they show and teach you how to calculate your profits and gains, and in that process what some key costs are part of that calculation. The figures that come out from those calculations can be eye-popping and hype you up to act!

The problem is they do not show nor tell you all the costs that you need to consider that reduces your gains significantly. While some of these costs might be unique to your own circumstances, but they should at least mention them!

If you are considering to sell your property to gain from its increased value, do remember to read up on all the costs and expenses in order to calculate your true gain or profit. Typical costs and expenses such as legal fees, commissions, applicable taxes, and CPF repayment (if you are Singaporean) including accrued interests.

Important considerations before putting your money down

Before you buy a property, do calculate and consider your ability to pay the mortgage loan for at least 5 to 8 years to hold your property through any possible downturn in the property market. Some key considerations that determines your holding power:

• [Singaporean] MSR/TDSR max loan amount based on the prevailing MAS defined stress-test interest rate (especially important in a volatile interest rate market),
• [Foreigner] calculate your max applicable loan amount against 1.5-2 times the prevailing interest rates offered by your banks. Use this as a stress test for whether you can continue paying your loans if interest continues to go up.
• cash-on-hand to pay for down payments,
• [Singaporean] CPF OA balances for upfront payments,
• [Singaporean] monthly OA contribution measured against the monthly repayment amount based on the stress-test interest rate, and
• [Singaporean] if the monthly loan repayment is negative after deducting your monthly OA contribution, ensure you have enough remaining OA balances to last you for 5-8 years.

If none of these work out for you, do not get hyped up and buy a property you might not afford. You could lose your hard-earned money if you are forced to sell it off within the next few years. Avoid losing your wealth!

What sounds too good to be true needs to be validated

The reason why I shared the last para is because of my own experience as part of learning about property investment. I mentioned I got hyped after learning about property investment gains, and began exploring selling my property and upgrading to a more valuable property. After meeting up with an advisor and going through my finances with her, I was told I can afford a 1.4 million dollar property!

My first reaction was “Sure anot?!?!” – my family of humble means and savings can upgrade to such an extent! The more I think about it, the weirder it feels so I did my own calculations as well.

It’s true that I can afford a 1.4 million dollar property! But only if I:

• put in all my cash savings and CPF balances (the proverbial putting all your eggs into 1 basket),
• take up a loan that I will probably not be able to continue repaying after a year or so.

If I did not rethink this and went ahead on year ago just based on the advisor’s nonsensical logic, I will have been caught out in the current time of rising interest rates. It gives me the shudders to think about my family having to fret about a roof over our heads.

1 key insight for every young Singaporean couple

If there is a key lesson I will like to tell the 20s Singaporean me, it is: just go buy a new HDB that the government subsidises in a nice accessible neighbourhood. While it might be my first home, do not renovate it for the purpose of staying for next 10-20 years.

Renovate with practical considerations, keep the space clean and furnish with movable furniture instead of built-in. Stay for 5-8 years and consider to sell and upgrade if the market is good.

This boring accessible method is still the most viable way to grow your savings and wealth in Singapore. Go research and read up on this if you do not believe it. 🙂

An unexpected intermission

I certainly did not expect writing up the first 2 of my 3 key lessons learnt to be Better Safe than Sorry with my money will take up such a long post! However, I do think sharing my own experiences has value for anyone out there who are going through a similar journey. Hence, I decided to split this article into 2 instead. Keep a lookout for part 2 of this article within the week!

MrAmass