The Best Personal Finance Summaries – 18 February 2019
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Money in Daily Life
Below we have explained what exactly debt consolidation is, and guidelines to see if it is the right fit for you in your financial journey.
The Debt Epidemic
In life, you might use debts for various purposes, be it going to college or buying a house. While having 1 or 2 debts are still manageable, debts can quickly build up, and suddenly you start owing a lot of money. In this scenario, debt consolidation is a good strategy. It allows the combination of all loans into one single interest rate.
Understanding How Debt Consolidation Works
Debt consolidation typically allows you to combine your unsecured debt and pay it off in one bill. Usually, you will have a lower interest rate but a more extended repayment period. In simple terms, a lender pays off all your current debts and gives you a new loan. It is a good debt management program – only if you see your financial situation improving in the future.
Pros and Cons of Debt Consolidation
Debt consolidation isn’t a win-win situation. The contract that a lender gives you if you’re accepted can differ from person to person. Below are the pros and cons:
| Pros | Cons |
|---|---|
| Smaller interest rate. | Longer loan period. |
| Not too overwhelming – one lender only. | Spending more money on interest rates. |
| Avoid major credit score damage. | Initial interest rate can fluctuate. |
| One payment each month. | Might worsen your credit score. |
Is Debt Consolidation a Good Idea For You?
It is a better idea to consolidate your debt rather than being late on a payment. If you have good credit, you could qualify to consolidate your debt. If not, chances are, you might be declined from the process. Debt consolidation is only useful if your financial situation is improving in the future.
Debt Consolidation vs Debt Settlement
Debt settlement is the renegotiation of your debt payment. For instance, you might offer to pay a lump sum of $5000 for a $10000 debt. While it can be an ideal situation to reduce the amount you owe, debt settlement usually requires a lot of fees to negotiate with the counterparty, takes up to 2-3 years, and can end with the creditor declining to settle. However, both can be used in conjunction with one another to help you get out of debt as soon as possible.
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Grow Your Wealth
5 Questions People Ask on Investing
As a licensed financial planner, I have been asked several investment questions over the years. What are the 5 most common yet often challenging questions on investment?
In a recent informative post on MyPF, Stephen Yong, one of the authors as well as a licensed financial planner, has shared his insights on the 5 most common questions people ask on investing.
Common Question 1: Should I invest now or try to time the market due to X reason (i.e. Novel Coronavirus)?
Compared to timing and predicting the market, a well-planned personal investment plan is more important. Remember, a proper asset allocation is meant to be held throughout different economic conditions. Thus, you start by preparing your emergency savings; then simply invest the rest into the market.
Common Question 2: Should I invest a lump sum or stagger my investment?
In a short timeframe, investing a lump sum could earn you a 2 to 3% return. However, the thing is – in a longer period, it does not matter. Check out the table compiling FBMKLCI data from July 2007 to June 2017 below for comparisons,
| Investing Period | Returns (%) |
|---|---|
| Stay invested | 79.8 |
| Missed best 10 days | 68.6 |
| Missed best 20 days | 50.4 |
| Missed best 30 days | 34.9 |
Common Question 3: Should I sell off my under-performing investment now or wait for it to recover?
The short answer is – yes. However, it is crucial to know whether it is the single asset – or the whole asset class is underperforming. Make use of technical and/or fundamental analysis to justify your decisions. Rebalance your portfolio after your evaluation.
Common Question 4: Should I invest in X investment?
Asset allocation is responsible for 80% (or higher) of your total returns. Always consider how an investment can fit into your overall investment plan. Also, do your due diligence to know inside out of the said investment.
Common Question 5: Should I diversify into X investment?
Diversification is part of your asset allocation. Asset allocation is dividing up your investments among different asset classes (e.g. equities, bonds, property, commodities), and this is decided beforehand based on life goals and priorities. At various stages of life, diversification needs to be done purposefully and regularly for overall improved returns at reduced volatility and risk to suit the risk profiles accordingly.
The Young Person’s Guide to Investing
Narrowing down all the options and figuring out where to turn can be paralyzing. We’ve got you covered.
Before investing
First, prepare for a potential financial emergency and create a debt repayment plan. Essentially, build yourself a financial cushion to tone down the financial strains. Experts suggest keeping at least 3 to 6 months of living expenses in a liquid-able bank account with the best interest rates. For your debt repayment plan, tackle the debts with the highest interest rate.
How much to save and invest, and where?
Even if you are still young, it is vital to set up a long-term goal – for example, retirement. If you aim to secure a safe one, you should save at least 12 to 15% of your salary. Maximise and optimise your tax-free 401(k) or 403(b) plans so that your employers will provide a matching contribution for your savings.
There are many other employers-provided plans – not all are great, but not all are too bad as well. The bottom line is, you should avoid any high-cost plans. For younger people, Roth IRA is preferred over the traditional IRA because deposited money has been taxed. Also, Roth IRA allows withdrawal to be made without penalty.
Why you should use index funds
Avoid any slick penny stocks or cryptocurrencies. Instead, stick to the boring mutual funds that invest in different kinds of stocks and cushion the market’s swings using safe bond funds. There are numerous options for mutual funds, but the best is – index fund. Index fund mirrors significant sections of the stock market – which means their expense ratio is meagre and cheap compared to other mutual funds and exchange-traded funds (ETF). For instance, the expense ratio for an index fund is 0.48%; while for the actively-managed fund, the rate can be as high as 1%!
Picking the right mix of investments
Apart from how much you pay for investments, the next most important decision is your asset allocation. Younger people can generally afford to take more risks and invest more heavily in stocks — which have the potential to generate more growth over time. Even if the market tanks, their portfolio has time to recover.
If you need help choosing the right mix of stock-bond, you could consider a target-date fund. The fund will optimise the investment strategies – from aggressive to conservative, as you move slowly towards your retirement year.
Saving for goals besides retirement
To optimise your investments for goals apart from retirement, you could consider putting your savings into a high-yield savings account. While the returns might be a little bit low, you risk little to nothing.
Where should I go to get started?
Once you have done setting up your employer-sponsored retirement plan, you could get started at any brokerages which offer you access to index funds. Also, consider a so-called Robo adviser who can help you to invest and monitor your investments with minimal fees. Nonetheless, if you are still stuck in your debt, think about hiring a human professional, albeit it is pricier compared to Robo adviser.
11 Ways To Sell Unwanted Items for Extra Cash
I’ve used a lot of strategies for selling items over the years. Here are 11 that have successfully worked for me, along with details on what items tend to work best for that particular method of selling.
According to Trent Hamm from The Simple Dollar, the 11 ways to get rid of unwanted items for extra cash are summarised below:
| Ways | Description |
|---|---|
| Hold your own garage/yard sale. | While it might seem troublesome, it is simple. Schedule it on the weekend and secure a venue. A yard sale can allow you to sell off stuff quickly – especially for items that were low in individual values. |
| Take items to a neighbour/friend’s garage/yard sale. | Similar to above. If you don’t have enough items to sell, consider hosting a shared yard sale. |
| List items on your social media feed. | Make use of your social media profile. Compile all selling items with prices clearly labelled in one post. |
| Post flyers on community bulletin boards. | Flyers can reach people who don’t spend a whole lot of time online. Post them in popular community spots! |
| List items in local community buy/sell/trade groups. | There are plenty of informal trade groups on social media (Facebook). Use the forum to reach and communicate with potential buyers. |
| List items for local sale on Facebook Marketplace or Craigslist. | This is like listing in trade groups but on a bigger scale. By posting on these platforms, you could reach a wider geographic and demographic range. |
| List items for sale by mail on eBay. | Items such as collectables are highly sought after here. However, you must document everything you do as per requested by the platform and beware of any potential scams. |
| Take quality items to a consignment shop or other local second-hand stores. | Consider using consignment stores to sell the high-value item. |
| For specific types of items, look for online and offline stores that cater to those items. | Due to the fees involved, collectables which have low value are not worth selling on eBay. Instead, look for niche marketplaces to sell those items. |
| Sell them for scrap or to a junkyard. | Consider selling items as scrap metal if they generate little interest or are difficult to sell. |
| Donate the items and get a tax deduction. | If you have items with broad appeal but can hardly sell easily, consider donating them to Goodwill or other charity. In return, you can get a receipt detailing the approximate value of your donations which can be used as a tax deduction. |
Building a Million Ringgit Portfolio
How to build and track a seven-figure investment portfolio. How to get started, diversify, rebalance, and manage your expectations.
Why Invest?
In short, investing can allow you to live comfortably, retire well and achieve financial independence. Financial independence is when all your ‘needs’ and ‘wants’ and covered by your investment/passive income.
A measurable goal is that your investment/passive income is at least twice (200%) of your expenses. You are entirely free you to choose not to work if you so desire, to fire your boss, or to have your business run without you being involved daily.
Investment Methodology
Having a personal investment plan is at the core of investing. Investing needs to be a well thought out process and planned. The most important determinant of investment performance (up to 80%+ of returns) comes from deciding on asset allocation – the metric for how much of one’s investments go into various asset categories to get the best balance between profits and reduced overall portfolio volatility.
Investment Returns
Your investment returns are directly linked to your overall asset allocation. Different asset classes – with various associated risks can generate different expectations of investment returns. One needs to gauge and rebalance the asset allocation based on the performance of the portfolio.
Next Steps
You should always seek ways to optimise your entire investment portfolio. For instance, rebalancing should be done at least once a year to reflect any intended changes.
How to Get Started?
In a nutshell, to get involved in investing, one should:
- Before Starting: Set up your emergency savings and sort your cash flow nicely. Set out your budget’s allocations for investments.
- Know Yourself: List down your assets and liabilities. Understand your goals and strategies based on your risk profile.
- Know Your Investment Choices: Do your due diligence to know more about investing in general. Explore those you are interested in investing in.
- Invest Regularly. Automate your regular monthly investing following your ideal asset allocation.
- Monitor and Rebalance: Depending on the economic condition, you should rebalance your portfolio slightly.
Conclusion
Throughout the post, the author shared his opinions and thoughts on his investments as well. Do check out the original post to know more about it!
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