Posted on August 1, 2009 - by PanzerGrenadier

How movable is your net-worth?

Photo by Shahram Sharif

The more I experiment and try out different ways to achieve financial freedom, the more I learn about real concepts of financial management of my own money.

Moving from One Asset Class to Another

As you live within your means, you start to have savings. Most personal finance
books advise you to keep some buffer or emergency funds enough for 3 to 6 months of expenses or income. The additional savings you should invest in fixed deposits, mutual funds, stocks and shares
or other asset classes that fit your risk-reward profile.

Different asset classes have different liquidity. Liquidity refers to how easy it is to sell your assets and convert it to cash. Sounds simple but can be fraught with challenges as I found out now that I’m selling most of my equity portfolio into the currently rising market to move into property investment.

Why am I moving most of my net-worth out of equities at this point in time?

Reasons for Going Out of Equities

I have been selling some of my share holdings when they are at reasonably high prices relative to the troughs experienced during the crash in August to November 2008 time when subprime and the global financial crisis reared its ugly head.

I’m moving from a ratio of 80% equities : 20% cash to progressively almost 0% equities : 100% cash mainly because I’m now scouting for completed properties for investment. The downpayment for an investment property sucks up a lot of cash :-)

1) Property market

I am relatively bullish about the property market in the long term, i.e. to invest for the next 15-20 years and even beyond. Singapore is still a place that has limited land and space for living and giving our Government’s continued approach of “grow GDP at all costs” plus lax foreign immigration policy, I see the drivers for residential property demand to be intact.

Property valuations rise and fall and sometimes also sharply depending on sentiment and overall economic outlook. But at the end of the day, with a long enough investment horizon and with sufficient holding power, it is a decent hedge against inflation and provides slightly more predictable cash flows if you are not into flipping for quick capital gains.

As I intend to rent out the investment property so that the rental income covers interest and part of the principal of the bank loan to finance the investment, the rental market has to be there for it to work.

Despite the current recessionary conditions, not all is gloom and doom, there are sectors that are doing all right and there is still rental demand for affordable private housing. The rental income from this will help offset the investment in property in that it is self-financing to a certain extent. Read more…

Related posts:

1. Yield Watch:A Substantial fall in SPH. Worth the pick up?
2. Volatility and uncertainty continue but this is expected to last for another 4-6 weeks……the VIX index starts to rise again (worth keeping an eye on)
3. Starting an Investment Plan? (2)