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Grow your wealth and beat inflation

Sunday, January 24, 2010

In some interviews earlier in the year, Marc Faber said that the meteoric rise in global stock markets in 2009 was a once in a lifetime opportunity to make a lot of money and that 2010 should be a year of capital preservation (ie. not to lose money). Marc also said that, on average, it is still possible to get about 10% gain from the stockmarket this year.

People who know me would know that I have a lot of respect for Marc and I take his advice to heart. However, I believe that if we use fundamental analysis and choose to invest in companies with strong fundamentals that are still below their intrinsic value, coupled with technical analysis to determine fair entry and exit points, we could make more than 10% capital gain this year.
Stockmarket analysts.

Does this mean that we have to take on risk? Of course, there are risks involved. There is no free lunch in this world. Risk has to be managed, not feared. Easier said than done? After all, it's only human to feel fear.
Risks and rewards: TA and FA

Then, let this be an inspiration: "The rich would act in spite of fear. The poor would let fear stop them." I read this in a book while browsing in a bookshop recently. I cannot remember the title now. If we are petrified by fear, we would never do anything in times of adversity.  At the height of the bear market when the VIX was making new highs, when everyone was fearful of buying more shares, that would have been the best time to gradually accumulate shares of good companies.
Bungee jumping, anyone?

Convinced?  So, what do we do?  There are many suggestions by financial analysts on what to do with your money depending on your risk appetite and how to get better returns than fixed deposits in the banks. Frankly, to get better returns than fixed deposits is quite easy. A one year fixed deposit now pays as much as 0.8% per annum, the last time I check. There are also suggestions to leave our money in money market funds which pay 1.3% per annum, thereabouts. Lower risk than equities and higher returns than fixed deposits, though not guaranteed.

For me, the more important thing is how to get better returns that will protect us from the wealth erosion effect of inflation! A rather benign inflation rate could be about 3% per annum. So, if we leave our money in the bank, more than the contingency cash required for six months of expenses in case our regular source of income is terminated, we are doing ourselves a grave injustice with an interest of only 0.125% per annum in the banks. If we leave our money in a fixed deposit or a money market fund, our wealth is still shrinking as the returns lag inflation.
Be a pragmatist and prosper in 2010.

I wrote about capital gains and high yields in various articles in this blog.  I have shared my thoughts on inflation and investments in gold and real estate too.  On a daily basis, barring the days I'm away from home, I've shared my analyses on price movements of certain counters.  These analyses would hopefully contribute to capital gains.  It seems that I'm neglecting high yields.  After all, the theme of my blog is: "Have a more secure financial future in an uncertain world by creating a stream of reliable passive income with high yields." 
High yield portfolio.
Real estate as hedge against inflation.
Gold as an insurance against inflation.

I guess why I'm not writing as much about high yields is because they don't really have to be actively managed as much.  I am receiving dividends from a portfolio of high yields at this time on a quarterly, half-yearly and yearly basis, depending on the stock.  This is something which people who are relatively risk averse, who want to grow their wealth, fearing the effects of inflation could consider.

My portfolio of high yields at this moment include:
SPH
ST Engineering
Cambridge Industrial Trust
CitySpring
First REIT
FSL Trust
K-REIT
LMIR
AIMS AMP Cap Ind REIT
MIIF
Suntec REIT
HWT
Frasers Commercial Trust
Saizen REIT

These high yields are not all created equal and some were bought at prices I would rather forget.  Many, however, I am happy to say, I have purchased at much lower prices in the last twelve months.  The constant passive income they have provided me with makes me happier.

The profits I made from trading in the stockmarket, I make it a point to apportion some of it towards accumulating high yields.  The high yields I have been accumulating in the last few months were SPH, AIMS AMP Cap Ind REIT and Saizen REIT.  I have written extensively about these high yields.  So, I shan't say more here.
Passive income with high yields - Saizen REIT.
AIMS AMP Cap Ind REIT.
 
We have a responsibility to ourselves and the people we care for to have a secure financial future.  This is something we have to consciously work towards.  It is the responsible thing to do.  The journey is likely to be filled with obstacles but treat each one as a learning experience and grow with each step.  A good dose of luck doesn't hurt as well.  Good luck to us all.

4 comments:

Anonymous said...

AK71,

I have seen many penny stock that shot up from 10 cents to a dollars or more when the stock market was red hot. ie COSCO to $8 plus, CHina Hongx to 1.45 etc

Any chances for Healthways to go that direction by 2011?

Kingston

AK71 said...

Honestly, I have no idea. If you believe that Healthway Medical will reach the current lofty valuation of Q&M Dental, then, it should be closer to 34c. If you believe that it should be on par with RMG in terms of current valuation, then, it should be closer to 18.5c. How things will develop in future has nothing to do with my believes, however.

Lau said...

Hi AK71,

Been following yr blog for some time now. What you write is really interesting.

Would u like to exchange blog links?

AK71 said...

Hi Lau,

Sure, I would like that very much. I've added you to my blog roll. Check it out. :-)


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