Investing a windfall

Was browsing the Bogleheads forum today and had a look at a thread "Investing a windfall". I clicked on the link because I felt that it was useful to know what to do in the case of year end bonuses or performance bonuses. Investing a windfall The thread starter was already a seasoned investor and she dollar averages her monthly salary into a 60/40 portfolio. However, this time, she received … [Read more...]

Do you rebalance?

Many advocate keeping a portfolio of bonds and stocks, and rebalancing them regularly. While reading the Four Pillars of Investing, I discovered a very good example of diversification and rebalancing. I will replicate it here. Playing the long game (Chapter 14) In order to understand rebalancing, let’s consider a model consisting of two risky assets; call them A and B. In a given year, each … [Read more...]

The Gordon dividend growth model

Gordon dividend growth model part 1 The dividend growth model is one of the earliest, if not the earliest, ways of valuing a stock. I might do a post on the derivation of this formula, but I shall skip that for now. This is the formula: Market price (P) = d / (r - g) D is the current dividends or last dividends declared by the company. It is in dollar terms. R is the expected return … [Read more...]

Everyone investor should read this

Although this post is fully prose, please read it before you start investing. After reading it, you will be smarter than 95% of all investors. However, it is also my (albeit selfish) hope that after reading this, you should have no more need to want to read stock analysis and wanting to pick stocks. Let's start. Liabilities and equities When we invest, we are either investing into debt or … [Read more...]

How long do I need before I retire? Not very long actually

Let's have a thought experiment. How much do you think you need for retirement a month? $1,000 is a reasonable number if you live frugally. Assuming a withdrawal rate of 4% (more on this later), you would need $300,00 for retirement. Working: $1,000 a month gives $12,000 a year, which means $300,000 in retirement sum because 4% x $300,000 = $12,000. How long do you need to save up to … [Read more...]

Forget dollar cost averaging. This is value averaging

Chanced upon this term called value averaging while reading The Four Pillars of Investing by William Bernstein. The man credited with value averaging Michael Edleson, introduced in his book with the same name. Dollar cost averaging helps you buy more when price is low, and less when the price is high. Value cost averaging claims to be able to do it even better. Suppose I have $1,200 to invest … [Read more...]

Why does bond price and interest rate move in opposite directions?

Many people usually have this question but somehow, the many resources online can't answer it well. I shall try my best to explain it in this post. Time Value of Money The first thing to understand, is this concept called the Time Value of Money. In other words, $1 today is worth more than $1 in the future. Or, $1 in the future is worth less than $1 now. So, how much is $1 now worth in … [Read more...]

30 stocks is NOT all you need for diversification

According to statistics, by holding a higher number of stocks, the portfolio variance will be lower. Thus, the risk of the entire portfolio is brought down. Researchers have said that 30 stocks, or even 18 stocks, is all you need to get the effect of diversification. In 1970, Lawrence Fisher and James H. Lorie did a study "Some Studies of Variability of Returns on Investments In Common Stocks", … [Read more...]

Spending the monthly allowance wisely: a guide for the National Serviceman

Following the revision in NSF allowance in December last year, a recruit's allowance is now $560 instead of $480 previously. Instead of simply wasting your money over the weekends, you could put your money to better use and start your investing journey. I have previously blogged about how should anyhow invest. You can read the blog post: here. In short, it is more about determining your asset … [Read more...]

How should you invest?

I had previously written a post on it, but I realised that the post was tailored to only young executives with an aggressive risk appetite. You can check the post out: here. On the other hand, this post will be more neutral and tailored to the retail investor of various risk profiles. Determining your risk profile Before you start to invest, you must first make sure of two things. One, that … [Read more...]

Starting Out: Financial Planning Triangle

Financial-Planning-Triangle.png

The Financial Planning Triangle As I was learning about Financial Planning from my job as a insurance agent, I saw this triangle which I found it to be very useful for anyone who is trying to plan for their finances on their own. The base represents the most important of all, and you move on to the next part only after you have completed the one below it. Hospitalisation and … [Read more...]