Blog – Page 4 – Greg Fok Advisory

Business owners consideration for transfer of assets

June 24, 2022June 24, 2022
by Gregory Fok

When a business owner is young, he uses his blood and sweat in exchange for an income he works hard for.

Once he has built it to a reasonable size, he needs to have the following considerations.

1. Who is going to take over the business and the liabilities when the key person is taken out?

A friend of mine had a strong business and successful one for many years and were thriving. One day, during dinner, the partner choked and died suddenly on the spot. Since the partner was the one with all the connections and loans, when the partner passed, the liabilities were called on by the banks almost immediately. Customers trusted that particular partner but when my friend tried to salvage the business, the customers changed suppliers. Cashflow was very tight and eventually the funds dried up promptly. The business had to be closed and there were even outstanding payments that needs to be settled.

2. Who is going to take care of the family expenses?

As a business owner, your purpose of the business is really to take care of your family. However, when there are outstanding payments to be settled and frozen liquidity, the business dries up all the funds and usually the family might not be left with much.

For example, if your family needs $10,000 a month for expenses and you would like to provide them for a period of 20years, the total provision for the family will work out to be about $2.4mil.

3. Funding

Funding of the above scenarios can come from a variety of ways.

a) One is to keep and hold cash and wait for the sudden need to use the fund. However, it is the most ineffective use of funds.

b) The second is to use discounted dollars from your revenue of the business (This is exactly what Walt Disney did to access funds when no banker was willing to lend).

For example, if your revenue drops by 2-3%, will your business by badly affected? If your revenue grows by 2-3% more, will you call for a big celebration?

But what if we reposition that 2-3% wisely, that can protect the 100% of your revenue. Wouldn’t that make sense? And on top of that, after many years of funding, there can be another mountain of asset that you have created for yourself that is totally available for use for the future. Wouldn’t you like to be smart, just like Walt Disney did?

4. Legal aspect

Now that you have settled the above financial portion of your life, have you written your will and trust to solidify the decision of who will be the next person to take over which asset from you? Every asset class has pros and cons in distributing.

For example, illiquid assets like property and businesses should try to give to more than one party to avoid confusion and conflict.

What we can do for you is to combine the power of the finances and the legal aspects of planning your business so that it can continue to thrive for a very long time!

Financial Planning

Structured deposits – is it really safe?

June 21, 2022June 21, 2022
by Gregory Fok

Who would like to cap all the upside returns and take on all the downside risks and pay a fee in between?

Most investors prefer to do the opposite, which is to minimize your downside risks and increase your upside returns but if you do not read in between the lines of the structure, you might be in for a rude shock!

But if you have seen how a structured deposit is actually designed, it is meant to work unfavourably for an investor and all benefits reward the financial institution or bank.

I was speaking to a specialist doctor end of last year and he shared very optimistically of how his banker had been making good money for him in these “safe instruments” with lucrative returns.

I tried to find out more and he shared that he was using structured deposits and that the risks were minimal and the returns were fairly decent. I highlighted the risks and rewards but it fell on deaf ears. With a “safe instrument” of a structured deposit that can give a range of 2-4%pa in less than a year, who would think that there is a better strategy.

When I was having a conversation with this same specialist again this year in recent times, he shared of how the markets have turned. His $1mil worth of structured note was breached and he had to hold onto the underlying share of the company.

The last valuation he saw was roughly about $250k and it was all on a very concentrated allocation onto one company which detracted away from being able to sleep well with no peace of mind. His biggest worry was now whether to continue to hold on, hoping for the single company to recover or to diversify his portfolio to reduce his risk further in case the company went into further decline.

This would have been the plight of many investors, I could imagine, especially with the sudden change of events over the last 6 months.

If you know of someone who would favour peace of mind and be able to sleep well at night, and want some help with their finances, I am sure we can have an initial chat with no obligations.

https://www.straitstimes.com/business/invest/structured-deposits-riskier-than-fixed-ones-but-have-better-yield

Inspiration

Worried About Stocks? Why Long-Term Investing Is Crucial

May 30, 2022May 30, 2022
by Gregory Fok

By David Booth, Executive Chairman and Founder, Dimensional Fund Advisors

We are living in a time of extreme uncertainty and the anxiety that comes along with it. Against the backdrop of war, humanitarian crisis, and economic hardship, it’s natural to wonder what effect these world events will have on our long-term investment performance.

While these challenges certainly warrant our attention and deep concern, they don’t have to be a reason to panic about markets when you’re focused on long-term investing.

Imagine it’s 25 years ago, 1997:

J.K. Rowling just published the first Harry Potter book.
General Motors is releasing the EV1, an electric car with a range of 60 miles.
The internet is in its infancy, Y2K looms, and everyone is worried about the Russian financial crisis.

A stranger offers to tell you what’s going to happen over the course of the next 25 years. Here’s the big question: Would you invest in the stock market knowing the following events were going to happen? And could you stay invested?

Asian contagion
Russian default
Tech collapse
9/11
Stocks’ “lost decade”
Great Recession
Global pandemic
Second Russian default

With everything I just mentioned, what would you have done? Gotten into the market? Gotten out? Increased your equity holdings? Decreased them?

Well, let’s look at what happened.

From January of 1997 to December of 2021, the US stock market returned, on average, 9.8% a year.¹

A dollar invested at the beginning of the period would be worth about $10.25 at the end of the period.²

These returns are very much in line with what returns have been over the history of the stock market. How can that be? The market is doing its job. It’s science. Investing in markets is uncertain. The role of markets is to price in that uncertainty.

Investing in markets is uncertain. The role of markets is to price in that uncertainty. There were a lot of negative surprises over the past 25 years, but there were a lot of positive ones as well. The net result was a stock market return that seems very reasonable, even generous. It’s a tribute to human ingenuity that when negative forces pop up, people and companies respond and mobilize to get things back on track.

Human ingenuity created incredible innovations over the past 25 years. Plenty of things went wrong, but plenty of things went right. There’s always opportunity out there. Think about how different life is from the way it was in 1999: the way we work, the way we communicate, the way we live. For example, the gross domestic product of the US in 1997 was $8.6 trillion and grew to $23 trillion in 2021. (Read more about the merits of investing in innovation.)

I am an eternal optimist, because I believe in people. I have an unshakable faith in human beings’ ability to deal with tough times. In 1997, few would have forecast a nearly 10% average return for the stock market. But that remarkable return was available to anyone who could open an investment account, buy a broad-market portfolio, and let the market do its job.

Investing in the stock market is always uncertain. Uncertainty never goes away. If it did, there wouldn’t be a stock market. It’s because of uncertainty that we have a positive premium when investing in stocks vs. relatively riskless assets. In my opinion, reaping the benefits of the stock market requires being a long-term investor.

By investing in a market portfolio, you’re not trying to figure out which stocks are going to thrive, and which aren’t going to be able to recover. You’re betting on human ingenuity to solve problems.

The pandemic was a big blow to the economy. But people, companies and markets adapt. That’s my worldview. Whatever the next blow we face, I have faith that we will meet the challenge in ways we can’t forecast.

I would never try to predict what might happen in the next 25 years. But I do believe the best investment strategy going forward is to keep in mind the lesson learned from that stranger back in 1997: Don’t panic. Invest for the long term.

FOOTNOTES

¹In US dollars. S&P 500 Index annual returns 1997–2021. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
²Data presented for the growth of $1 are hypothetical and assume reinvestment of income and no transaction costs or taxes. This value is for educational purposes only and is not indicative of any investment.

Financial Planning

How low can the markets go?

May 17, 2022May 17, 2022
by Gregory Fok

With the background of the markets where uncertainty is starting to increase, there are many questions at the back of people’s mind. One of the biggest question is “How low can it go”?

Just about close to the end of last year, I had a friend who believed so much in the Faang (Facebook, Apple, Amazon, Netflix, Google) stocks and had been stocking up a huge concentration into those few companies, because of the historical large returns in the recent times. And many investors continued to expect that to continue for those few companies, which based on evidence over decades shows not be true. Reality struck when the similar stocks are down roughly about 37% from the beginning of this year.

If you are investing into a single company like Zoom or Netflix or even worse, into cryptocurrency like Luna, it would have fallen by about 70%-99% and in some instances, it would have wiped out the entire value. This could be an instance of catching a falling knife where the company you keep buying into eventually disappears, as it can and will happen from time to time. Some companies can suddenly go into a situation when competition is stiff or the industry becomes obsolete and changes can happen fast.

Smart learning lessons

On the other hand, if you had invested into evidence-based strategies widely diversified on a global scale across profitable companies, total of 14,000 all across the world, you would still experience the fall (due to emotions of the investors), but the fallout would be much less significant due to diversification. In fact, the drop is only about one fifth of the drop as compared to the Faang stocks, which means it is still holding up very well, due to the right strategies in place.

If you were to be smart about it, based on historical investments over the past multi decades of history, with some allocations to bonds to it, the worst case scenario of the lowest would have been about 30-40% drop, depending on your allocation to bonds.

When diversified, the drop is temporary

The drops are in fact temporary on a globally diversified portfolio scale as there will still be companies that did not make it eventually, but there will always be new companies to add to the pool that are more profitable and reasonably valued. And with 14,000 companies on hand, there is no fear of companies going from profitable to bankrupt, except maybe on a small number of them. Depending on the personal objective of the goal and the kind of drop you can accept, we can fit the right allocation for you so that you can sleep well at night and expect the temporary drops.

When the recovery comes

After the period of temporary drops occur and investors have realized that the sell off is too absurd, investors will come back in again and that is when the recovery of the market occurs. And this can happen very quickly and sharply, sometimes within days. Returns catch up and will quickly match closely to the long term average market returns again. This is also based on evidence studied over a very long period of time that goes back to almost a hundred years of data.

Missing the best days

Missing the best 10 days of the best recovery days can significantly impact the overall returns of the markets by almost half the returns over a period of time. So it is best to stay invested for the longer term, turn off the noise on the news and happily go on a shopping spree and buy on a discount when markets are temporary lower for what is needed for the future.

What you can do

If you would like to find out more about the details above and are looking to journey with a financial advisor to take the financial stress away from you through education, we can always have an initial chat to see if there is a fit.

Inspiration

1+1 = 3 (Only we can do that!)

April 21, 2022April 21, 2022
by Gregory Fok

We all know the formula of “1+1 = 2”. And that is correct mathematically.

But in financial planning, we can have “1+1 = 3”! How is that even possible?

To begin with, in financial planning, there are many strategies we can adopt to be creative in the way we reallocate assets to be smart about it and give yourself and your family a peace of mind to be able to sleep well at night. The above is just one of the many ways we can do it for the families we work with.

It starts with a conversation of what is most important to you, because getting to know you and your dreams and goals are most important to us, to be able to find a solution for you. All families are different and these concepts do not apply to everybody. It only applies for the right types of persons at the right time, with the right priorities.

Intention and goal

We were having a conversation with a family recently and their children have just started working and most of their large financial obligations are over. They started to ask, what can they do better with the wealth that they have accumulated over the years. They know in their mind, that they want to live well in retirement. At the same time, they want to be able to leave a legacy for their children as a token for them to be remembered by.

Current resources

They had a specific bank account of $1mil in cash that was earmarked for their children to be left behind as an inheritance. This was also a backup resource in case they ran out of money many many years down the road. So they do not plan to touch this money as they want it to be protected.

Smart strategies

If that was their intention, I told them that they could reposition half of it out so that when they are not around, there will be a guaranteed $1mil given to the children, on the very next day. With the other half of it, they could either spend more for themselves during their retirement or they could invest it and grow it even further if they do not intend to use it anyway. And if they reach a very very ripe old age and they are still around and might have run out money, they can utilize these money repositioned which would have grown much more than the bank account as well.

And that is how we can have “1+1 = 3”!

The catch

Like I mentioned before, this idea is not for everyone. These smart strategies are generally designed by the wealthy, for the wealthy and for the families to continue to be wealthy. And a person must be generally in good health for this to work.

Enhanced strategy

Rather than just giving this out to the children as a lump sum, you can have this to be a “Family Bank” for the on going needs of the children and even grandchildren when help might be needed. And once again, these assets can continue to have the chance to grow well progressively through proper financial planning. In such scenarios, it could be “1+1=4”!

If you would like to find out more and explore how this can help, we will be happy to have an initial chat to see if there is a fit.

Inspiration

What kind of values do you want to teach…

April 7, 2022April 7, 2022
by Gregory Fok

We were having a conversation with a couple recently and they shared that they are concerned and worried that their children may not be able to manage the wealth that may be going down towards them.

As the first generation who have gotten themselves out of the poverty cycle, this couple had done well in their business and careers they have created. In the early years of growing up, the children were primarily taken care of by grandparents and the parents were hard at work in the business and careers they have set up for themselves.

Now that they are in their late 50s, through the decades of hard work, there is a certainly a sizable amount of wealth, business, property and investments created over time. The couple also knows that what got them to be successful may not necessarily be able to be repeated by their children.

Whatever that the parents had done, the children may not be able to do in the same capacity and the parents are worried for them (just like how all parents are). The couple we have met with would like to transfer the wealth, together with the values that comes alongside with it. This is so that there is some stewardship and responsibility that comes together with the wealth and it will not be frittered away.

What does the world promote?

The world promotes instant gratification. Everything needs to be done and gotten now. There is envy of your neighbour who seems to be doing better than you with the new house and new car. We also want to have that house and car here and now. Due to the envy, there is greed and a constant desire for more and more in whatever that we have. This leads to build-up of lots of emotions which can often lead to anxiety and fear. This usually leads to unfavourable decisions in the heat of the moment and this is something you would like to avoid.

What does engaged faith and values promote?

Faith promotes contentment and being present where we are today, irregardless of our situation. However, it is very hard, because our minds are always in the past or the future. Staying and observing our present to where we are now helps us appreciate our current being. When we can be present, we can then have a plan and move ourselves in the direction we want in a strategic and smart manner. This leads to peace and patience in knowing that it will take some time for us to get from point A to point B. Staying disciplined in our lane to keep us guided is also a virtue and value that faith can promote.

Values based financial planning process

This is where we are different. We listen to what you would hope to see in your children and instill even to the next generations to come. As the saying goes by Spiderman, “With great power, it comes with great responsibility.” Values based financial planning starts with the kind of values you would like to leave behind. Every family has different types of values you would like to practice and transfer to your children, so we want to know where you stand and how you would like that for your family. After we understand your values, we also try to understand how the process of making decision comes in your financial and investment plans. Sometimes, after listening, we notice that it is not aligned with each other. For example, while we want our children to be disciplined in the investment strategies, we continue to make emotional decisions that do not keep us on track to our long term goals. We sometimes go after the highest returns and ignore the risks that can derail our big financial decisions. It usually is not the highest returns that we are after, but to get to our goals with a peace of mind and be able to sleep well at night.

Your financial and investment planning strategies can make a difference not just to your own emotional and personal freedom. It can change lives for your families and the people around you. You have spent a lifetime to build your wealth, wouldn’t it make sense to spend a few moments to protect and preserve it, enhanced with good values.

Financial Planning

How do you manage LARGE amounts of wealth

March 25, 2022March 25, 2022
by Gregory Fok

I was having a conversation with a person recently who had come into a rather significant amount of wealth a few years ago.

I asked him what his experience had been holding on this amount of money which came overnight. He shared that he was worried about how he was going to manage it. If done right, he knew that he would be able to live well, and have enough left over for his children as well. However, if there were mistakes made, he knew that he would be the one known to be responsible for the downfall of the asset.

This was when I realized that holding on to significant wealth can be a pretty stressful exercise by itself. And since he did not know better what to do with it, most of it was left in the bank account and he took out a small portion to be invested into stocks that he was familiar with and unfortunately, Singapore Airlines was one of those bought before the covid 19 crisis. He was stopped in his tracks in decision making, for not wanting to make a BIG mistake but he knew he needed help so he was referred to us.

The first key priority was for preservation of wealth. With great power comes great responsibility so we needed to ensure that this cannot go down to zero. Holding on to single equity stocks will not fit this due to the fact that single companies can potentially get delisted or the business can close suddenly without time to react due to unforeseen circumstances and you can have a large allocation to a single company. One of the ways we do this is to diversify into 14,000 companies all across the world. This minimizes our risks to a bare low point. It is almost impossible for all companies to close all at the same time. In fact, in all periods, crisis or not, there will still be some other companies that can be doing extremely well. One example is the some of the technology companies that thrived during the covid 19 crisis.

Focus on what we can control

We will not be able to control markets and the outcome of it but we can control our human behaviour towards the circumstance in front of us. We can also control our asset allocation to the risk appetite that we are comfortable with depending on our time horizon of our goals and milestones that we need the money. We can also control where we position our investments. By tilting towards the evidence-based strategies of having smaller, reasonably priced and higher profit companies, we are able to get a higher outperformance of our investments over time with the opportunity to be able to rebalance it on a regular basis. We also focus on the fact that globally diversified portfolios have given disciplined investors exceptional returns over the almost hundred years of investing. We know that the markets move upwards in a trendline, but we have to expect that there will be unexpected ups and downs in the markets for some of the risk we are taking and it will be within his acceptable temporary risk.

Work with an experienced advisor who understands you and keeps you in check

Staying disciplined in extreme volatile conditions is also a critical component of human behaviour and working with an experienced advisor who has encountered this before to give you specified assurance of your goals and objectives will give you peace of mind.

You can always start by having a conversation to see if there is a fit for who you are looking for and if the financial advisor is a fit together to journey with you. Not all advisors may be right for you and not all clients may right for the advisor. The important thing is that there should be a match.

Financial Planning

Can you invest with peace of mind?

March 9, 2022March 10, 2022
by Gregory Fok

Investing seems scary especially in the current market conditions under the Russian-Ukraine geopolitical issue and when lives are at stake.

Is there such thing as investing with a peace of mind? How is that even possible?

It takes a lot of education to understand how markets work based on evidence and science and how you can use it to your advantage. Part of the reason why you may not be having a peace of mind is that you do not have a clear plan of strategy in mind. You are only investing on news and emotions to achieve high returns, rather than with a clear plan to get you to where you want to get to.

What is your real objective?

Go back to your main plan of what is the real objective you are trying to invest in the first place. If it is to achieve the highest returns, please do not read any further. This will not make sense to you.

If you are like most people, you know that one of the key reasons is to be able to build wealth for the lifetime consumption you are going to have based on your personal individual goals you set for yourself. It could be sending your kids to a tertiary education, or paying for a down-payment for a car in the next 5 years, or your retirement funds over the next 10-15years. Sometimes, it could be to build a legacy for your children and give to the family or charity of choice.

Build a portfolio that can withstand the test of time, regardless of the crisis

Design and build a portfolio based on your desired goals you want to achieve and ensure that it can withstand the test of times when crisis comes. When you have a portfolio that is globally diversified across the world, you minimize the risks of losing all your money, because even when a global crisis occurs, there are still some businesses that can be making profits and growing in the midst of crisis, just like what we saw in the Covid-19 situation in 2020. But if take on over-concentration risks, you might run the risk of creating havoc and emotional stress on ourselves and our portfolio.

Expected the unexpected

There is risks in investing, but there is also a way to take on calculated risks only. Take off the idiosyncratic risks that can occur in any company or country or sector by way of diversification. Once that risk is minimized to the point where it is at the lowest, then expect that some volatility will be the price to pay for an increased premium of returns, depending on your time horizon. That is the way to reduce your risks while capturing the upside by finding evergreen strategies to always outperform the markets through smaller companies, higher profit companies and reasonably priced companies. Rebalancing is key to realize the profits and reposition them to continuously buy into the value, smaller and profitable companies.

Reframe the way you invest

The way most of us invest is driven primarily by emotions and what the industry has caused us to think, which is that we are smarter than the markets, so we will be able to forecast and predict the future. While a person could be lucky once in a while, it is a futile exercise if you stretch that time horizon longer because the reality is that a person is able to do that in a flip of a coin. Instead, we use research materials to understand how markets work and study the history of markets to apply the science to investing to get us the highest chance of achieving our big long term goals in life so that we can sleep in peace through wars, health crisis, economic crisis, technology crisis and the list goes on.

Put in the hard work

Unlike going to the gym where more action leads to better results. In investing, less active action leads to better results with peace of mind. The hard work in investing is patience and discipline. Patience is the ability to sit through periods of volatility when expected returns may be against your favour. The time will pass when the returns will come back to normalization, just like in the history of all crisis for the past 100 years.. Discipline to stay in the strategy and hold it out even when the going gets tough will be another virtue to have. You probably can imagine that there will be another way to make a “Quick buck” through alternative new strategies that will constantly come up. Staying invested using evidence-strategies proven for almost a 100 years keeps us disciplined. We need to stay the course, and not keep changing lanes to avoid an accident in our investment portfolio.

Finally, speak with an experienced investment advisor who looks into what it is you are trying to achieve personally and see if they can help you to reframe the perspectives of financial planning to get you to your big goals in life.

Financial Planning

Forecast of what is coming up in the next…

February 10, 2022February 10, 2022
by Gregory Fok

You would probably have heard online about some “investment gurus” are trying to predict what is coming up – whether it is a financial crisis or end of the world or war or something one way or another.

Whoever tells you that they can tell you that they can forecast what stock to buy at what time period so that you can make the most money in the shortest period of time – pls stay far away from them because no one can predict the future.

Even one of the best investors in the world, Warren Buffet, does not get it right all the time. A person could be “lucky” to make certain decisions that turned out right for them once. That person could even be right 3 times or even 5 times in a row. But to extrapolate that “luck” into the future over decades of investment time horizon is almost impossible!

Imagine going back to the midst of the pandemic, end of 2020 when the health crisis is still unfolding and the light at the end of the tunnel is nowhere to be seen. If anyone were to tell you that the stock market would have given you one the best returns in the history of investing, you would probably think he is crazy. But the markets did gave a return of almost 20% for the whole of 2021!

And if you actually study markets that go back all the way to 1920s before the Great depression, the overall equity markets over the long term had captured an average of 9-10%pa annualized throughout that period. However, it was not a smooth ride, it was an upgoing trendline but punctuated with unexpected ups and downs of the markets on a daily basis depending on what kind of crisis was going on at that particular point of time. Sitting through those extreme downturn periods was no fun either.

So rather than investing with a perspective where you can predict where the market is headed for the short term, set your goals and plan effectively in advance over various time frames on a globally diversified portfolio at a low cost. Work with an experienced advisor to ensure that you have different asset classes for diversification so that you have peace of mind. And sit tight in your seat while you let the investment markets be your best friend with time on your side. In fact, you can actually take opportunities to buy regularly along the way whenever the dips come in from time to time when discounted periods present itself. All this happens while you are tilting your entire portfolio towards areas of higher expected returns without the need to take on additional risks!

This strategy only works when you are able to control your emotions and have deep education and deep conviction about how markets work. Or if you know of someone who would like to journey with a trusted advisor who understands how markets work and want to find a simpler way to get to their life goals, reach out to us and we will be happy to have an initial chat to see if there is a fit to help.

Financial Planning

Why are we different?

January 27, 2022January 27, 2022
by Gregory Fok

I had a fellow financial advisor who was asking me for some advice..

Advisor : Could I please tap on your expertise 😊 I’m meeting a doctor to do retirement planning and old age needs planning. She’s approaching 60, married with no kids, father recently passed on at age 92 (which triggered this meeting). Judging from her address, Nassim Hill, fairly wealthy- that’s all I know yet I’ve never planned for a doctor. Any advice?

Greg : It all starts with the question, what are her wishes she would like to fulfill in her own life and the ones of the family around her? It all starts with the why – listen to her and what she wants.

A few days later…

Advisor : I asked her the prospect the question…..her response was ‘What a profound question! I’ve never thought about that. I’ve just been living!’

Learning points…

1) What are our dreams? Have we gotten off the rat race to pause and reflect about what do we really want in our lives?

2) Rather than go into the meeting armed with products, we go into the meeting to listen to what do clients really want, prepared with a heart, empathy and questions to help them clarify their own goals which they have no time to think about.

3) Our value we bring as advisors is not to focus on products but to bring clarity to help them make better decisions for themselves and their families.

#stewardofwealth

#ihavethebestjobintheworld

#ourvalueasadvisors

#MakingDreamsComeToLife