Retirement – Page 2 – Greg Fok Advisory

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

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.

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.

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.

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.

Embracing volatility in investing

January 18, 2022January 18, 2022
by Gregory Fok

Given the recent years, it has been a volatile ride throughout the period from 2017 all the way till now in 2022. With the fresh start to 2022 with a volatile period, this is a stark reminder again that markets will go through volatility from time to time and it is part of any normal market cycle. Trying to predict markets in the short term will yield little fruition and even add on frustration. Focus instead, on our longer term goals and objectives, without trying to time the markets. Continuously add on to your investments over time and diversify globally to reduce our risks towards idiosyncratic risks which can never be predicted.

If a person had stayed invested and kept the course over the past 5 years, we can see that the markets only continue to grow and increase over time just by sheer patience. Speak with us and we can show you what the markets have resulted in a double digit growth over the past 5 years. Understanding how capital markets work helps us in our decision making for the longer term. We all know widely diversified portfolios will grow over time, as evidence based over almost a hundred years.

Going back in history

So we need to remember that over the past hundred years, our world has gone through depressions, world wars, financial and economic crisis, oil embargo and many unprecedented crisis. In some instances, the phrase, “This time, it is different.” comes up. The latest being the health crisis which almost caused the whole world to pause their lives. However, we have always emerged with a stronger returns of the equity markets due to innovation, stronger global demand and an ability for the human race to adapt and change for the better in all senses.

So let us remember why we are investing, sit tight, understand how capital markets work and embrace volatility to get to your goals in a smart way through proper diversification and asset allocation.

If there is someone whom you think will appreciate getting them to their goals in a way that reduces risks and increases wealth, without the need to speculate, we will be happy to have an initial chat with them.

Why does it pay to have a good financial…

December 11, 2021December 11, 2021
by Gregory Fok

John had just started his investment journey money with a robo-advisor at the end of 2019 before the covid-19 crisis occurred after seeing that the markets had grown well through in 2019. What was unexpected was that no one saw the health crisis coming along the way. What happened within the next year was an extreme roller coaster ride.

In the depths of the health crisis in March 2020, fear gripped him. The whole world was in uncertainty and turmoil and many of his friends had shared that the crisis would turn out to be even worse. He was shocked that the markets had dropped quite significantly (almost 30%) so he sold all the investments out.

After realizing the loss of 30%, the markets recovered very promptly, again unexpectedly. He knew that he needed to invest the money as the interest rates in the banks was miserable. He thought he would try again to try to invest, with another attempt. So in the last quarter of 2021, he decided to go back to invest into the markets just before the US elections. His investments actually did pretty well and grew about 10% during that period when he invested. Fear gripped him again at the end of 2020 as his investments had grown well and he read in the papers that markets are at ATH (all time high). And having experienced that dramatic loss early in the year, he decided to sell out and wait for the markets to correct again.

What was again unknown to him is that the markets continued to rally almost another 20% from the beginning of the year.

Instead, if a person had stayed invested throughout the entire time frame from the end of 2019 to Dec 2021, the investments would have grown by almost 40+% throughout the same period.

What are the lessons learnt for Deep Education?

It is very hard to time the market

Even if a person may get it right once or twice, he has to get it right multiple times with many entries and exits. In the short term, it is almost like gambling because it is very hard to know what the markets will turn out to be in the short term. However, we do know from evidence that markets had grown on a upward trendline since 1920s and will continue that path in the long term as long as there is innovation and constant desire for human consumption for a better life. However, there is going to be expected volatility in the short term.

Appreciating and embracing volatility

If a person expects that investments are going to be straight line upwards, he will be in for a rude shock. Whilst it is true that investments markets go up over the long term, it is going to be peppered with unexpected twists of ups and downs. So just like sitting a roller coaster, it is best to stay seated throughout the entire ride and not try to jump off along the way which is the most dangerous. Wait till the end point when it comes to a stop and you will be in safe hands.

Structure your investments according to your goals and time horizon

However, it is noted that some goals may be realized in the shorter time frame and if that is the case, we help you to design your asset allocation according to your personalized objectives. Volatility can be reduced significantly by reducing the equity exposure and inserting a higher allocation to bonds to dampen the swings. The shorter the time frame available, the lower the risk appetite should be taken.

Journey with an experienced advisor

Despite having known all the above steps, when the markets go crazy, which it will from time to time, people will continue to make emotional decisions as we are swayed by human behaviour. What you want is not the highest returns but you want to be able to achieve your goals safely with a strategy based on evidence and with someone who is experienced enough to hold your hands through. And in some unique cases, a person may not even need to invest or he has to find a way to spend more money, give more money to his charity or family members while he is still around.

Let us have an initial conversation to see if there is a right fit to get you to build CORE portfolios of 7 figures and above without the need to speculate and to use an evidence-based approach.

Most people invest the wrong way

October 18, 2021October 18, 2021
by Gregory Fok

Many studies have shown that most investors on their own typically lose more than half of the actual market returns over the long term. These studies can be found from the Dalbar studies. From the same research body, you can also identify that the average equity investors widen that gap during and after any particular crisis. The reason is that there would have been movements to shift the investments in and out of markets, caused by emotional behaviour of fear and greed. In some cases, over the short term, some investors actually outperform the market due to luck, not skill. However, once you see that over a much longer period, the studies would once again show that the average investors underperforms poorly.

So how do we overcome this problem?

One of the things you can do is to start getting yourself educated and create confidence and conviction over the findings. This can take a fair amount of time to understand and explore, but through working with a trusted and experienced advisor who has gone through multiple crisis in their careers, that can be of great help.

The other thing you can do, is to know why you want to invest. What is your objective and your end goal. I am not talking about the numbers but the why behind the numbers. What drives you? What gets you to financial freedom and why is that so important to you? A financial coach is not just one to get you to your goals, but who understands the background reason to why that is so important to you. When you have that better understanding for yourself, through discovery with an experienced financial coach, you will have a better handle of how you want to manage your financial plan.

Being smart

Once you find out your why and have your retirement plan, it is all about implementing and sticking to the designed asset allocation strategy together. Your total portfolio will give you an overall total return rather than trying to do a little bit here and there in a way to diversify your portfolio. We create a CORE strategy together with you. So there will be a way to reduce anxiety, preserve wealth and grow it at a meaningful pace so that you will be comfortable with it. In the midst of the process, the education and conviction process is also important to continuously add value to you to give you confidence about planning ahead.

If you would like to explore finding a way to invest in a way with a total portfolio that is reliable, sustainable, provide you peace of mind with reduced anxiety of speculation, I will be happy for an initial meeting with no obligations on either parties.

How do I ensure a comfortable lifestyle?

September 21, 2021September 21, 2021
by Gregory Fok

Many people dream of travelling, exploring and touring the world, hanging out with friends for coffee, lunches and high tea when they eventually stop working… They also may want to be able to continue to drive a car, shop and dine wherever and whenever they would like to.. Basically, a person’s lifestyle should not end when a person stops working and retires. In fact, studies have shown that they may actually spend more than when they were working because they did not have the time to do all that.

This sounds like a dream life, and the reality is that it costs some money. And inflation and longevity is not going to make it any easier for you.

Just to give you an example, if you are now 35 years old and would like to have a lifestyle of $4000 a month in today’s context, with a projected inflation rate of 2.5%. This same lifestyle would be $8390 a month by the time you turn 65 years old! And if you do happen to live for another 20 years, that figure that you would need by the age of 65 will probably be at least in the region of a couple of million dollars because the cost of living will still continue to escalate past the age of 65. That is just unimaginable for many people! Of course, I am over-simplifying the calculations because I have not added your other assets you have built over the years, but that figure will not be too far away from the truth.

So the question is how are you going to get to that couple of million by the age of 65?

We use CORE^TM strategies that build large amounts of wealth in a way that is evidence-based, reliable, sustainable and gets you to the goals in the highest possibility of getting you there. All these are done without need for speculation and gives you an ability to grow wealth with reduced anxiety through an appreciation of risk and volatility. But it takes 2 hands to clap along this journey.

Just to give you another example, if a person had set aside $100,000 at age of 35, with an addition of $1500 a month till the age of 65, with a projected compounded effect of 6%, it will get the person to a projection of almost $2million by then with the power of compounding effect! Every person’s situation is different and we will help you plan out what is practical and possible, customized to your personal circumstance. Sometimes, it might mean starting smaller and increasing the additions as you progress with time, but we will find ways to structure something to get you there. At least, even if you do not get to the moon, you will be at least amongst the stars.

If you would like to, at least have an initial chat to share with us what your dreams, visions and fears are, we shall see if there is a fit between us. And if there is, we will journey and help you through the trust based relationship to get you there with the highest chance of achieving your dreams!

What is the actual cost to stock picking?

September 2, 2021September 2, 2021
by Gregory Fok

When you read the financial media, there is a always an opinion from an economist to tell us, “This is the right time to sell. This is the right time to buy.” I bought into all that junk more than 10 years ago, thinking I was able to time the market. So almost on a daily basis, whenever somebody forecasted a particular direction, there is a huge temptation to do something to my own portfolio.

And it would have been increased trepidation when it was a stock or industry that I held that was being affected. Yes, I have to admit it was pretty exciting to see that you can make a quick buck over a short period of time, especially when I got it right. However, as the amount of stock portfolio grew, the emotions of fear and greed became more real as more is at stake. Which is why I only invested what I could afford to lose back then. (This is a bad strategy for wealth accumulation because the total asset allocation is usually tilted towards too much of cash or fixed deposits.)

When I was holding on to a stock that had gained 20% in value over a relatively short period, there is a strong temptation to sell out even though I know that the company will continue to grow and the fundamentals are there. Alas, when I decided to sell it, missing my appropriate price for a few days, the stock continued to soar by another 20%! Oh, I missed the boat, I would have thought to myself and would kick myself in the butt for selling it too early.

When markets turned topsy turvy during the financial crisis in 2008, all logic of buying in during the dips went out of the window, even though the company’s fundamentals are still strong. This is especially so when the crisis lasts for a few years. How many investors have the patience and tenacity to hold out the losses for 3-5 years and stick to their guns with all the bad news going on all around them, especially when media says this time is different. If you ever told any family member or friend close to you during that period, they would have all advised you to stay out of the markets in those very uncertain periods, for your benefit of not needing to lose sleep and money.

If a person had invested in during the period from 1990-2020 for a period of 31 years, into a well-diversified portfolio with equities and bonds in it across the world with almost 10,000 companies, you would easily have grown that same portfolio by 700-900% in value, depending on your risk appetite! Now, how many investors would have been patient enough to be able to capture that kind of gain? Hardly, because most investors (my past self included), would have had itchy fingers to try to put fingers into the pie to either sell out too early or attempted to time the market which we all know from history that it is something very difficult to do.

It is not just the financial cost of not seeing the long term gain in the markets, but the mental anguish, anxiety and emotional stress you go through regularly to find out whether the company can actually survive the next storm. Reading the newspapers and watching the TV can in fact create more stress due to that reason because all the financial media is doing is to force us to take some form of action and that split second decision actually creates mental stress on ourselves. And from history, many companies used to survive and thrive for many decades. In today’s context, the life span of listed companies is getting shorter, so do you want to continue to take that risk with your big goals like retirement which can span for 20-30 years?

So is there a different strategy that we can help you take? I have changed my strategy over the course of time and understand that human behaviour is a bigger component of investing successfully. And that has led me to save time, reduce anxiety and led to more financial wealth as well with a worry free retirement.

Would you like to explore an initial conversation together with no pressures to make any decision but to see if there is a fit in journeying together? Send me a message and we can have that initial conversation at my cost.