A COMMERCIAL airliner, a skyscraper and a sports car all come about through careful planning, constructing and manufacturing. So too should your wealth pile!
Most people who succeed as investors do so because they are patient and wired correctly. Conversely, those who tend to fail as investors are the naive, impatient and those who turn their back on sound investment strategies.
For an investment strategy to work well, it should be built from the ground up using viable, wealth building processes. I’ll illustrate that with a basic investment principle, a powerful investment strategy and an automated emotionless process.
The principle: Buy low, sell high.
The strategy: Dollar-cost averaging (DCA).
The process: A standing instruction from your bank account into your diversified wealth building portfolio.
The goal of today’s column is for it to be a catalyst for you to put in place long-term wealth accumulation processes that enrich your family over the next several decades. You won’t want to keep reading if that’s not a coveted outcome. But if you crave to build personal and family wealth slowly, surely and steadily, stick with me till the end of this column.
SLOW AND STEADY
Elaborating on the principle: Whether you’re an investor or a businessperson, the way to generate profits is to buy low and sell high. That principle applies as much to real estate, stocks and unit trust funds, as it does to eggs, durian and aircraft carriers!
Explaining the strategy: For DCA to work, five criteria must be met.
First, the investment asset you choose must be of high quality. Don’t buy trash (unless your business is recycling!).
Second, the asset’s price should rise and fall and rise... over time.
Third, after those two criteria are fulfilled, this next criterion is very easy to meet: Invest equal amounts of money each time.
Fourth, invest at equal intervals, say once a month or once a quarterly.
Fifth, invest regardless of market conditions — good, bad or indifferent.
Implementing the process: This requires instructing your bank to deduct equal amounts of money (say RM100, RM500 or RM2,000, or whatever works for you) and to channel that amount each month, for instance, into your portfolio comprising, let’s say, domestic and international funds or any other high quality investment assets you’re hinging your long-term wealth building initiatives on.
Everything I have described here is rather basic. Yet I am astounded at how few people take the time and trouble to identify and then adequately research a viable wealth building principle, determine the appropriate strategy to harvest gains from that powerful principle, and implement a process to effectively and methodically automate the sequence of needed actions in a disciplined, emotionless manner.
Identifying and then honing your personal investment process sets you apart from the vast majority of people who dream a lot and talk a lot, yet achieve very little.
In veteran American financial planner Harold Evensky’s book Wealth Management, he writes about his financial planning firm’s approach to explaining the Investment Process to a new client in a manner that mirrors the teacher-student or mentor-apprentice relationship:
“We begin with a description of... ‘Investor Objectives and Constraints’. This is an opportunity to discuss the need to define each of the client’s objectives with time and dollar specificity and to rank them in order of priority. We explain to our student-client that constraints can include any restrictions on the investment process that the client may desire.”
LONGEVITY RISK
In my small Malaysia-based financial planning practice, which focuses on retirement funding solutions for English speaking business owners and professionals, I often educate new clients who typically come to me in their 40s, who may wish to retire between the ages of 55 and 65, but who then also tell me in all earnestness: “Just plan up to 70 (or 75 or 80 or 85).”
Whenever that happens, I pause and look them in the eye before posing this question: “What if you keep on living beyond that age?” I’ve grown proficient in reading body language!
A major part of the engagement and educational process of my clients involves teaching them about longevity risk. Here is a typical information I share with them.
The fastest growing segment of humanity worldwide is the centenarian age cohort, those over 100 years. According to the British-based research site the centenarian.co.uk There are now about 450,000 centenarians alive in the first half of the year. By 2050, that number is expected to exceed six million!
Your personal circumstances, concerns and convictions ensure one size does NOT fit all! So each of us should craft — or have crafted for us — a unique investment process that suits us perfectly. Toward that end, I suggest you reread this column with a pen and notebook at hand. Take down the most relevant points (for you) that I’ve outlined here for further study, thought and hopefully, action.
After all that preliminary preparation, you should craft your personalised investment process, either with your financial planner or investment adviser, or on your own, by first identifying the bedrock of your process, which is the investment principle you believe in the most; second, formulating a sensible, practical strategy to leverage off your present resources; and third, implementing a customised process to boost your future wealth.
I wish you every success!
© 2017 Rajen Devadason
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