If you are someone in the investing or finance profession, do you get this a lot? Or, even if you *seem* to be someone who have more success or experience in investing money, the first question people are eager to ask is this – “What do you recommend to invest now?”. Actually, people are generally not that ignorant to not know what investment options are there in the market. The most common being – stocks, properties, gold, silver and unit trusts. Is there anything more exotic? Swiftlet farmings?
It’s not the WHAT, but the HOW MUCH, because asking WHAT you are throwing an open-ended question, and naturally people like to listen to success stories on how someone had been there, done that. Asking HOW MUCH does is a closed end question, and you don’t get details about how they get there. The fact is – stripped bare of everything, most people are really just obsessed about the monetary returns of their investments.
There are 4 considerations that slips people’s mind in the pursue of higher investment returns. These are the 4 questions which are going to mean a world of difference when determining the types of products that are really suitable for you. And with the vast number of investment options available in the market today, these are the questions one should really ponder over. No shortcuts – these can only be answered honestly by yourself. Only by knowing the answers to these, one will have a clearer picture of what are the help or advice needed to proceed.
- How much do you really need?
- When will you need it?
- How much have you set aside or are committed to set aside?
- What returns are you going to get, conservatively?
For instance, if we want to accumulate RM 50,000 in total for wedding expenses in 5 years time. With RM 10,000 and ability to commit RM 500/month to our wedding fund. With zero experience in investing, we decide to only “invest” our current savings and monthly savings into fixed deposit – generating 3% per annum. Doing the math, after 5 years, with interest compounded, all this would add up to RM 43,000. We are RM 7000 short.
Our instinct tells us to resort to higher than 3 percent returns to achieve our RM 50k target. But more often than not, we get entangled in an investment that we simply do not have the stomach for. Forex trading is one of it. But let us revisit the 4 questions above. Financial management is about balancing these 4 fundamentals. While getting higher returns, like from 3 percent to 6 percent, is one legitimate way to get there, it is NOT the only way!
What are the 3 options we often overlooked? Below:
- Opt for a restaurant wedding dinner instead of a hotel one.
- Defer the wedding date to one additional year
- Increase monthly savings to RM 650
These aren’t the easy option compared to considering investing in something which gives higher returns. Some couple would shun the idea of having their wedding dinner in a restaurant – hotel wedding dinner is more grand and classy for sure. And 1 year is a long wait, and it is usually easier to spend RM 150 more a month than to actually save the same amount. But think about it. Invest in something that you don’t fully comprehend, and you could be well losing your initial investment capital in an instant – paying for a very expensive lessons in economics.
Use similar approach on other financial goals, whether it is children education, retirement, paying off mortgage/credit card debts or retiring ahead of schedule. It is probably not surprising that we may not meet all our dreams. Again, it is about trade-offs, determining what is more important to us, what we cannot live without and what you can live less with.
Therefore, before you even ask your banker of financial advisor the tired question – “How much returns can I get?”, consider investing more time in remembering the 4 questions.
Inspiration and modifcationfor this article – Personal Money Dec 2012 issue – Simply CJ by Ong Shi Jie