Short Term Strategy Details

Although with 35% of my money in short-term - not the highest portion of my 3 prongs - I am choosing to spend the most time with it because of two things.

ONE: It generates the best returns for my money.
TWO: It equips me with investments knowledge and skills which I believe will help me out in future should I pursue a career in Banking & Finance.
ONE STONE, TWO BIRDS =)

Short-term wise, I choose to to make money through the stock market. The STI (Straits Times Index), i.e. the Singapore Stock Index has been surging like a bull on drugs these 12 months, so much so that it has gained over 1000 points from under 2500 mid last year till over 3600 now!!

Straits Times Index (Mid-2006 to Mid-2007)

My goodness, the recent IPOs have made a buckload of investors multi-millionaires overnight. Before you jump right in and start smacking stocks left, right and centre, let me pour a bit of cold water. Remember 1999? The dot-com boom? Yeah, felt good didn't it? Year 2000? The dot-com bust? Felt like crap didn't it? Now's the boom, so everybody feels good. When is the bust gonna come? Tomorrow? Next week? Next month? Next year? I am aware that this euphoria will not last, so I'm not jumping head-in to the stock market, but slowly picking strong stocks to buy into rather than chasing the flavors of the day.

Jacking stocks wantonly will never be a credible short term plan, because just as intensely stock prices rise, they can drop just as easily. Just look at the top gainers and losers at the end of each day. Even in this stock market, some stocks can lose over 40% of their value in a single day! At this stage, most of us beginners will NOT be able to handle the fluctuations, and I find it no point to put my money in based on luck. Might as well bet on soccer... (well, I do, but $10 here and there only for fun hehe..)

Currently I am building up my fledging portfolio with the limited money pool I have, but it has been growing pretty well over the past few weeks. I buy my stocks based on fundamental analysis - i.e. judging the financial fundamentals of the companies - and try to balance between high-risk shares and moderate-risks shares. I also find dividend-paying stocks pretty attractive, and am currently holding a couple of them. =) Overall I am confident of getting a 15% return by end-August, especially since one of my dividends will pay me a few hundred quid. So this would mean I only have to pump up another 10% for the rest of the period from September till June next year to hit my 25% target. If I exceed it, all the better! =P

Currently I am also researching the warrant market for any good buys, but I don't plan to make any moves yet because I am still learning more about warrants. Till I comprehend them fully, I shall stick to shares for now.

My Aggregate Financial Strategy

Apologies for the long delay between posts. Been busy the past week with work as well as other commitments. =) Now I'm back and ready to kick off the blog proper again.

Now for my aggregate financial strategy. What I lay out here is my generic financial strategy using an amount of seed money. I shall start with $30k from July 1st and follow to the plan. Previously I had tried out various strats and played around with the numbers till I came out with an end result I desired that looked attainable for the average joe. =)

Here it is: Darren's Aggregate Financial Strat: 35-40-25
Seed Money: $30,000
Short Term: 35% = $10,500
Mid Term: 40% = $12,000
Long Term: 25% = $7,500
TARGET: $50,000 from this $30,000 in 5 years' time, i.e. 2011.
Gain year-on-year average: between 13%-16%
Gain overall: 70% appreciation in 5 years.

Illustration: Wonder how a 35-40-25 strat would work for $30,000 after 7 years? Check it out below. =)




Reason for 35-40-25 strat:

I put a rather heavy emphasis of 35% on short-term investments, because firstly the stock market is hot now (just be careful not to overplay and do margin trading etc, IT CAN KILL YOUR MONEY!!) and I'm trying to garner some good gains. It's been kind to me thus far, making about a couple grand for a bit of work these few months on the side while I was studying.

Then a bulk (40%) of my pool goes into mid-term investments which are relatively safer and provide decent solid returns. Through this I can get 30+% appreciation over 5 years so that by the time I graduate, I'd have a decent pool of money that has accumulated well over the few years while I studied in Uni.

The final 25% goes to long-term investments which in essence are there to beat the miserable savings account bank interest rates, as well as to trump inflation. Therefore, this 25% would yield decent returns over the years and provide a "rainy-day" pool of money for me to fall back on should the need, touch wood, arise. Either way, in short, it means I got safe money that is still growing healthily rather than sitting like a dead duck in a bank savings account.

Conclusion

Well, the numbers look good, but ultimately the onus is on you to make it work. It's easy to crunch numbers and look at them and feel good. But hitting those numbers will take a fair bit of research and work, but the dividends of good ol' hard work pay handsomely. =)

PLUS: remember, you should still be saving some money every month and adding it to your money pool. Imagine how large a pool you can accumulate over 4 years in Uni if you save $100 every month and apply the 35-40-25 strat to it. Getting from say, $30,000 to $70,000 over 5 years is a realistic, attainable goal. =) You should tweak your strat to suit your lifestyle and goals and I wish you all the best in your money-growing endeavors!

Cheers!

Spalsh

Aggregate Financial Planning

Well, we shall begin the journey of financial planning. First off, we need a master plan - a main strategy to see out how we want to perform financially now and in future. I’d call this a 3-prong strategy. It’s nice and dandy to go about saying stuff, making claims and all, but until we get a strategy down pat, we’re never going to get any substantial results.

The 3-prong strategy uses a time-based concept as its backbone. It’s an aggregate strategy, and is the most basic skeleton strategy for anyone to use. You hear stuff about technical analysis, portfolio building etc right? This 3-prong strategy isn’t anything about it. In fact its more of a layman’s strategy, and its main purpose is to give you some form of structure to building money. The 3 prongs are:

1) Long-term money building
2) Medium-term money building
3) Short-term money building

There you go! =) Simple as that. Many people miss out on this though, because they either prefer to go safe all the way and think long term, how they want to earn money fast and focus short term. By using all 3 prongs, we are able to provide balance to our money building which will yield steady results.

How it works is like this -->

We need to plan our time horizons. How we define long term, medium term and short term. Then we need to know how much of our money to put into the individual prongs. By “money” I mean our entire fortune. Haha yeah well, still in college, I’d reckon that most of us only possess a tiny kitty of a fortune, but dawg, we gonna grow that kitty into something solid eh =)

1) Long-term money building
Risk = Low
Returns = Decent
Target (Appreciation per year) = 4%

Long term would be somewhere farther in future, and is more for the proverbial “rainy day”. Thus you’ll want to keep this prong safe from risks while getting a decent return, while at the same time, making sure inflation is not eating away at this prong. In Singapore, for the year 2006, we had a very comfortable inflation rate of 1.0%. That’s a wonderful number, so for now inflation is not a big worry. However, for our long-term prong, we must err on the side of caution. Hence I always assume inflation to be 3% at least, and thus my long-term prong must beat the 4% level for returns in order for it to be meaningful.

2) Medium-term money building
Risk = Medium
Returns = Good
Target = 7% - 8%

Medium term would be somewhere in the foreseeable future, a period of a couple of years, give or take. This prong can be a little bit more adventurous, as you want a good return on your money to make it have some substantial impact in your life in a few years’ time, right? This is the backbone of your personal money pool, and a 7% rate of return would be a comfortable number to most of us. We shan’t take big risks on this though, as we have to protect our money in this prong as well and limit risk.

3) Short-term money building
Risk = High
Returns = High
Target = Up to you. For me, I'm aiming for a 25% return.

Well, this is the most exciting prong you have. Making big decisions, playing your timing right, making losses, making gains. All part of the high-risk game. Returns are potentially good, but we have to be realistic and understand potential for losses are high too. It’s up to you to set your target levels. The higher your target level the more the risks you need to take. I’ll go for at least 25%, for the fun and for the returns. =)

I think everyone would have a strategy for himself or herself, depending on her risk appetite and how serious he or she is in building up money. There’s no hard and fast rule to strategizing and as long as you take a look at it and feel happy about it, then it’s good. If not, then alter your strategy accordingly.

My next post will outline my strategy for you guys to take a reference =) stay tuned!

Cheers!

Spalsh