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Day 6 - How This Investing Method Help Me Sleep Like A Baby Despite The Covid Market Crash

Updated: Apr 15, 2020

Yesterday I shared about my "best" investment.


(If you have not read it, you can read it here.)


When I first started investing, I had no clue where to start, what to look out for and which strategy works best for me. So I attended many investing seminars, read many books and tried many methods.


After several failed attempts, burned myself and almost lose my friends' trust during the 2008 crisis (because I told them to invest with me in the market back then without knowing what I had signed them up for), I found this new approach I'm using now the easiest, laziest and does not require much time, knowledge or effort to understand it.


Sounds too good to be true?


Read on and decide for yourself.


Firstly, we need to identify a vehicle to invest in.


Vehicles, like stocks or bonds, require some level of knowledge and understanding to profit from them.


Of course, there are times when we hear people who managed to make a windfall even if they didn't have much knowledge. They probably bought it based on tips they heard from friends or brokers and managed to get lucky.


However, if you take a look at their track record, chances are, their profits are inconsistent at best. Most are likely to lose money and they swear that the market is rigged and only the big boys can win this game.


Second, most who invested in these assets failed and lost money because they didn't have a game plan.


When you ask them why do you invest in this company or bond, they will share with you some macro reasons but when you probe further, it seems like those are legit enough reasons for them to plough their hard earn money into it.


Here is a typical example I commonly come across.



Source: Whatsapp Chat With A Friend With Permission To Repost

Lastly, a common trend I noticed is that they do not have an asset allocation strategy.


Most of them don't really know how these assets will help in their portfolio, neither do they really take much into consideration their risks appetite, time horizon, and more importantly, their OBJECTIVES in buying the assets.


From the way I see it, it seems like they are motivated by greed to profit from the market within their expected time horizon.


So how can we change our investing philosophy so get a better chance of succeeding at this game?


(Another disclaimer: this strategy is not foolproof but the system has given me lots of confidence in times like this.)

Let's tackle one issue at a time.


1. Vehicle

The vehicle which allows me to invest with minimum energy, time and effort (or even knowledge) is unit trusts or mutual funds (both terms refer to the same thing).


Some may argue that over 90% of the unit trusts out there is underperforming the passive Exchange Traded Funds (ETF).


I totally agree with that.


That is why it's important to have someone who can help you filter out a unit trust that can outperform the index.


Don't take my word for it.



Source: Fund FactSheet Screenshot

Sadly, due to compliance issues, I can't show the name of the fund.


But as you can see under the column of annualized return since inception, the fund has outperformed the benchmark of MSCI AC World Index.


2. Having a Game Plan

The best way to go about this is by understanding what is the purpose of this investment.


Is it a long term investment for that's meant for retirement?


Is it meant as a secondary income stream so, in times like this lock-down, you still have passive income?


Write it down each and every time you invest in something.


I have my own journal on how each investment plays in my portfolio. That's one of the biggest reasons that I'm so comfortable despite the crash. Because I know that this too, shall pass.


Why am I so confident in that? I mentioned this in my other article, A Tale of Two Market Participants:


Just like after every winter, spring will come. After every major crash, a rebound will happen.

Once you note down the reasons you are buying, it gives you clarity and helps you to identify the time to sell.


3. Asset Allocation

To be honest, this aspect is something that I'm still work in progress.


However, what I have seen over the years is that we need to have a well-balanced portfolio of bonds, stocks, unit trusts (if you believe in them), endowments (yes you read them right) and property.


And not forgetting, insurance.


How should a person allocate the resources to the respective asset classes then?


Sad to say, there is no one-size-fits-all method.


It is highly dependent on your current financial situation, family needs, future retirement goals, risk appetite, time horizon etc.


I suggest you speak with a qualified financial planner so he/ she can better assist you with this.


Of course, if you wish to engage me to help you, you can click on the chatbox below and leave behind your contact details. Or if you are on mobile, you should be able to see a Whatsapp icon and leave me a private message.


And there is one more bonus that I would like to share that helps me keep my emotions in check...



Source: From a slide I did for a webinar on 9 April

This method is called Dollar Cost Averaging.


A couple of assumptions though:

  • Can only be used on companies with strong fundamentals

  • Unit trusts with good track record and management team

  • Investors with long time horizon (at least 3 years or longer, IMHO)


TL;DR

In order to be successful in investing, we need to...


(1) have a good understanding of the vehicle we are investing in

(2) have a game plan rather than investing blindly

(3) vary our asset allocation according to our risk profile, time horizon, family needs etc


If you find this article useful, be sure to leave a comment, subscribe to the blog and share it with your friends on whichever platform you are reading this from. I would greatly appreciate it!


P.S: If you are keen to know what fund I had featured earlier, drop me Whatsapp text. I'll pm you the fund factsheet.




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