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Inflation: What to do?

Monday, July 29, 2013

Know anyone who stayed 100% in cash?

"For the individual, staying in cash has proven to be painful even if he is spared market volatility. Thanks to inflation, $1 million in 2008 would have shrunk to $854,000 in 2013." Patrick Brenner, Schroder.

Staying 100% in cash today is still a bad idea. Inflation is not going to let up and this is something I blog about quite a bit. See: Inflation is not going away.


If you are a squirrel and save a lot, good for you but don't stop there. See: Double whammy.

So, what do we have to do to protect our wealth from being eroded by inflation? Quite simply, invest for returns higher than the inflation rate.

Don't dump money into bonds. See: Beating the Street with value deals.

Don't dump money into fancy (and misleading) products. See: Inflation adjusted retirement income plan.

Saving money is crucial, of course, but a necessary second step is investing and these might provide food for thought:

1. Grow your wealth and beat inflation.
2. Motivations and methods in investing.
3. Warren Buffett, the greatest money maker.

24 comments:

coconut said...

AK, i for one is holding 100% cash or cash equalbium, i need all the cash i can get hold of.

and i don't think every body should invest unless one is interested in the subject, saving will do, don't let inflation get too much of you, i rather someone lose in inflation than not knowing what they are investing and lost a big junk out of their money.

my frank opinion.

AK71 said...

Hi coconut,

Well, if we need all the cash we can get hold of, we certainly should not be investing. However, if it is more of a want than a need, then, we could do a rethink.

People who are not savvy in the ways of investing or who are not interested in the subject could stay away. In this case, their wealth will suffer from arsenic poisoning. A slow death.

This is probably preferable to cyanide poisoning where death comes swiftly. LOL.

Personally, I don't like to suffer from any poisoning. So, I think everyone should build resistance to poisons. ;)

coconut said...

AK you are quite different, not many can do what you did especially when market is in a turmoil. thats when you see most of the investor get burn really hard.

day in and day out one does not feel much and they usually think they are safe and their perception change pretty fast you know.

ok enough of throwing cold water haha.

sillyinvestor said...

Actually i kinda of agree with coconut, investing is hard work with quite some research to do and required some patience, courage and self-discipline. Also, I believe all who invest in equity pay some school fees (I mean realised loss, not just paper loss)at some point of time, those who perservane and learn from their mistakes get better and better, and will reach the inflection point whereby it is also not too much work anymore, e.g. very fast in pulling off data from reports, know actually what metrics to look at.

Using the analogy of resistance to poison, you need to get poisoned to be resistance to poisons, you need to invest, learn the hard and soft aspects to investing, get the roller coaster ride of emotions, loss some money, win some money, then finally "see through red dusks" (看破红尘), and be resistance to poison. There will be some in the haste to attain nirvana (immune to poison 百毒不侵),took too much poison (risks, treat as casino, trade instead of investing )and become badly poisoned that they are permanently handicapped.

haha, just spouting some nonsense here. take care all

AK71 said...

"So, imagine if I did not put my money to work by investing in First REIT or some other investments which generate income, that money would probably have sat in my bank account collecting 0.125% per annum in interest in the last few years. Utterly miserable and the interest payments would probably not even be enough to pay for transportation by bus and the MRT for a year!" From:
Personal revelation.

Singapore Man of Leisure said...

AK,

You hit the nail on the head with:

"People who are not savvy in the ways of investing or who are not interested in the subject could stay away."

Although I much prefer the stronger "should" instead of "could".

Getting out of cash into something you don't understand is never a good adventure - I'm with coconut on this ;)

Some people make money in properties; some don't.

Some people make money in REITS; some don't.

Yup, it boils down to "savvy".

AK71 said...

Hi coconut,

Well, SMOL said before that AK71 is a stubborn guy. I just refuse to accept defeat.

When someone throws cold water at me, I guess it means I get a free shower. ;p

AK71 said...

Hi silly investor,

Investing is not just about the quantitative aspects which in some ways are easier to learn.

The qualitative aspects are somewhat more subjective and, therefore, harder to learn. It is more experiential.

You are right about paying school fees to Mr. Market, of course. Personally, I paid plenty and I blogged about it too. Actually, I am still paying and still learning but the fees are smaller these days.

Love the way you expanded on my analogy on poisons. LOL. :D

Kim said...

Hi AK
Is it true that only those who know how to read financial report or balance sheet of company then can invest in the market ?
How about those who do not know ? Can they just invest in some strong blue chip to collect dividends as passive income ?

AK71 said...

Hi SMOL,

I chose "could" for a reason and I am sure you know what that reason is. ;p

I don't think we are all born savvy doing the kind of stuff we do for a living. We have to learn the skills we have.

AK71 said...

Hi Kim,

That is certainly not true. Anyone can invest in the stock market. ;p

However, to have better results, knowledge of accounting is very helpful. ;)

We must not take for granted that blue chips will never become blue black.

SG Young Investment said...

Its up to individual if they want to learn how to invest. I do agree that its hard work especially at the start. It gets easier as time goes by but that's if you manage to survive till then.

If don't invest, then don't complain that got not enough money to retire. Many people realise it when they are old and by that time its too late. I hope my words are not too harsh? :)

Sanye ◎ 三页 said...

"Don't dump money into fancy (and misleading) products"

Oops! I just booked my C-Class. :P

coconut said...

investing (i guess) and very much so in trading, once you get the way, or better term your own way of getting it right, its becomes very simple and less effort. it should be.

the problem with beginner is they can't get it right right away and much money had been lost before he can really make it through, you need interest and passion to get you through this very tough time many would have given up due to large losses.

so unless one is really interested in the subject, no point wasting time and our hard earn money.

coconut said...

oh and nobody say you are defeated haha, in fact thats good for you cos its easy for you and difficult for the rest of us.

i would say likewise for trading and i know too damn well that trading is as hard as hell. i advise no one to trade unless "die die you must trade".

AK71 said...

Hi SG Young Investment,

Very often, the truth hurts. :(

AK71 said...

Hi Sanye,

That is my dream car. Really, it is. Sigh. These days, I just cannot get myself to pay so much for a car anymore.

AK71 said...

Hi coconut,

Never say die. Try and try again.

Well, if we have alternatives which are more forgiving, why bother with investing or trading? ;p

Kyran Tan said...

Hi AK, i suppose one must be comfortable on where he/she wants to put $ in. Some people are just less risk averse and they will take comfort in ensuring they don't lose their $ in any way. Yes $ will erode in time due to inflation, but to them , it's still better than the possibility of losing $ overnight due to an intentional decision that turns awry. I have paid my 'school fees' before in stocks. I have not recoup my losses to date, so I hope I am in a position to provide an objective perspective here :)

AK71 said...

Hi Kyran,

I know people who are very risk averse. However, they don't realise how risky it is to stay in cash, strange as it may sound. Well, you know the reason why.

A friend was told by a colleague, "I don't know about inflation. I know $100,000 in my bank account will still be $100,000 next year. It will not disappear." How can we argue with logic like this? Best to leave these people alone, maybe.

I have paid big school fees to Mr. Market before. 6 figures sum. The pain was excruciating. I felt like dying. Seriously.

Well, what do we do to recover? There are many ways and my way is not the only way. :)

How did AK71 overcome his losses and grow his portfolio?

Kyran Tan said...

Hi AK, yes I would like to believe that I have the financial acumen to understand the pros and cons of keeping cash in full. Unfortunately, I don't have a perfect answer to this dilemma, so it's probably better to mind my own business. Selfish as it may sound, but at least I won't be blamed for recommending anything that could turn awry! Haha;p

Jokes aside, I secretly hope the 2008 event isn't going to be a 'once in my lifetime' event, as I hope to bury the 'ghosts from the past'. And personally, I believe recession actually makes life easier for most middle class on the contrary as good times also has a correlation to escalation in cost of living. Less expensive housing, less expensive transport are always a bonus if u manage to keep your job intact. These are heavy burdens that more than offset that paycut or no bonus situation during recession. At least I think of it this way or am I overly optimistic?

AK71 said...

Hi Kyran,

I like to believe that I know what I am doing too. However, I know that I don't know everything and that my methods probably have flaws. That is where the war chest comes in. :)

As for the supposed benefits of a recession, I have my doubts. I don't wish for one as I believe the hardship a recession would cause far outweigh any benefits, if any.

Kent Ng said...

Hi AK,

I am totally agree with the content of your writing (100% cash), and I always inculcate the power of compounding one’s “spare” saving via investing in shares than rotten in the Banks. But in most occasions, when I touch on the topic to my dearest friends or relatives whom don’t understand, it will end up with tuck-of-war between us, in words.

I went through the first Gulf War and Asian Financial Crises to see gains, as well as suffer losses in my stock investment. But it was the CLOB saga that had turned my cash flow up side down, and was standing at the cross road wondering whether to continue my journey/believe in Investment??

I am glad that I’d made the correct decision to stay on course. Since then it had always being a hard fight between wants and needs in order to reconstruct my financial. I am seeing my asset (stock portfolio) compounds yearly via continuously invest (saving) and reinvest (dividends) into stocks. And through readings to understand Mr Market behaviour (some believe it work in cycles) & manage my greed better, I was saved in the 2008/2009 crises, despite that I have had a small exposure in mini-bound.

And thanks to blogger like you and others (eg SMOL, DW, CW8888), which I am finding helpful source of guidance to create passive income, greed control & potential gems.
So please keep going.

Kent

AK71 said...

Hi Kent,

Thank you so much for sharing your story with us here and congratulations on the success you have had.

One reason for becoming more serious in my blogging efforts is to spread the message that financial freedom is not a dream. Common people can achieve financial freedom too.

If you think sharing this blog post with your friends and family will help, please do.

If my blog is able to help anyone discover financial freedom in any way, I am happy. :)

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