Many Singaporeans know the importance of growing their wealth, but do not know where to start. In the second of a three-part series on Personal Investing, we discuss the concept of Investment Time Horizon. These tips are taken from the ‘Introduction to Personal Investing’ handbook produced by the Investment Management Association of Singapore (IMAS) under the MoneySENSE national financial education programme.

Time is Money…

It is important to think about your Investment Time Horizon when you invest. This is the number of years that you have available to invest to achieve your financial goals. For example, if you are a 35-year old planning to retire at 60 years of age with a goal of saving for your retirement, your investment time horizon is (60 - 35 =) 25 years.

Your investment time horizon and the level of risk you can take go hand in hand. The more time you have, the more flexibility you have. Your time horizon would influence how much your savings can grow, what assets you can invest in and how much risks you can take. If you need your money in a short time, you cannot take chances with your capital. You should invest in assets that do not put your capital at risk during this period. If your time horizon is longer, you can consider investing in more risky assets that offer potentially higher returns such as stocks. This is because you have time to recover from the periodic losses sustained by investing in the stock market and to benefit from any possible long-term upward trend.

The longer your time horizon, the more compounding works in your favour. A $10,000 investment giving a return of 5% per year compounded after 10 years grows to about $16,300; to $26,500 after 20 years; and $43,200 after 30 years. Here’s a little tip to help you calculate how long it will take to double your money:

You should also consider Dollar Cost Averaging to reduce the overall risk of your portfolio over the long term. The idea is to invest a fixed sum of money at a regular interval, regardless of whether the market is rising or falling.  If you concentrate your investing only at certain times, you may be unlucky and buy when prices are at or near the peak. If you invest regularly, you may be able to ‘average out’ the effects of any highs or lows in prices.

Common Mistakes Made by Retail Investors

1. Not investing according to your time horizon.
Although some investors claim to be investing for the long-term, they cannot resist dabbling with short-term, high-risk ventures when they feel that the market is moving in their favour.  This may expose them to higher risks than what they are prepared for.

2. Not actively managing a long-term portfolio.
Although a longer investment time horizon protects you from short-term price movements, it does not mean you should ignore your portfolio. You should still have the discipline of checking on how your investment is doing from time to time.

3. Not being aware of the different investment instruments available.
Different investment instruments provide different returns for investors with different investment time horizon. For example, fixed deposits may offer steadier returns over the short term of say, one to two years, whereas stocks offer higher returns over a longer time horizon of say, 20 years.

4. Not matching your investment objective with changes in life stages.
Many investors continue to invest aggressively, even into their old age, as they forget to match their investment objectives with changes in their life stages. For example, if you are getting married or starting a family, you may need to adjust your investment strategies to provide for longer-term needs such as saving towards your child’s education or your family’s medical needs.

What You Should Consider When Investing

1. What investments should I consider?  Do your homework and look at various options: e.g. fixed deposits, bonds, stocks or unit trusts.

2. How long do I have to invest?  Decide on the right asset mix that will suit your investment time horizon.

3. How actively should I manage my portfolio? It’s your money tree. While you may not need to tend to it every day, do not neglect it - make sure you set aside sufficient time to monitor your investments regularly.

4. When should I have an investment plan?  How often should I review it?  Milestones in your life such as getting married and starting a family are a good time to review your financial needs.

5. How liquid should my portfolio be?  While the idea is to invest for the long term, it is good to know how easily you can cash out your investments.

Be aware that depending on the risk of the investments you have chosen, you could lose part or all of the money you invest. As such, be sure that you are investing only with money that you CAN afford to lose.

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Many Singaporeans know the importance of growing their wealth, but do not know where to start. In the first of a 3-part series on Personal Investing, we highlight some of the common mistakes that retail investors make when investing, and provide tips to help you understand your investment objectives.  These tips are taken from the ‘Introduction to Personal Investing’ handbook produced by the Investment Management Association of Singapore (IMAS) under the MoneySENSE national financial education programme.

Common Mistakes Made by Retail Investors

1.  Blindly betting on ‘Hot Favorites’
Do not invest in ‘hot picks’ or ‘trendy stocks’ which you know nothing about just because others are buying them. Always read up on any investment that you are interested in, and ensure that it meets your overall investment objective.

2.  Not diversifying
If you invest all your money in a single asset, you may lose all your money if that investment fails. Spread your money among a number of different investments, to ensure that you are not exposed to a single source of risk.

3.  Falling prey to aggressive sales tactics / sweet-talk
All financial advisers are required to disclose to you any commission that they will receive, and do a proper financial needs analysis before recommending an investment product that suits your risk profile and investment objectives. Do not get carried away by a good sales pitch or promise of high returns. Read the fine print and ask as many questions as you need.

4.  Haphazard investing
While all investors share the same ultimate objective of seeking a good return on their investments, it makes sense to first have an overall game plan set up before you start investing, so that you can check that your portfolio is balanced and that you are meeting your investment objectives.

5.  Not being aware of fees and charges
Remember that you will incur certain fees and charges on your investment. Check what these are, so that you are clear how much is your return after deducting these costs.

Understanding Your Investment Objectives:

Be clear about WHY you are investing, and what you hope to achieve with your investment.  Some common investment objectives are:

- Capital Preservation
This means that you are investing with the aim of preserving your capital, i.e. you do not want to lose the original sum of money you had invested.  The type of investments available would generally be less risky assets with lower returns.  It is common for investors approaching retirement age to adopt this as their investment objective, as they have less time to recover from market downturns.

- Capital Growth
This means that you are investing with the aim of growing your capital, i.e. you aim to increase the market value of your original investment amount.  As you are seeking higher returns for your investments, the risks that you take on are also higher.

- Income
This aims to provide you with a regular source of income.  If you are looking at income as your investment objective, you will consider investments that give you a regular source of income, e.g. cash deposits or bonds with higher interest payouts, or shares that give steady dividends.

- Liquidity
This allows you to convert your investments into cash quickly.  If you are looking at investments that provide you with liquidity, you will consider whether there is a ready market that is willing to buy your investments, and whether there are any costs to redeeming your investments ahead of maturity.

While your investments may be able to meet a few objectives at the same time, be clear which is your most important investment objective, as that will guide you in the type of investments and the investment strategy that you should take. For example, if capital preservation is your main objective, you cannot afford to take too many chances. As such, investing the bulk of your savings in shares will not be suitable for you.

Be mindful as well, that at different life stages, you may have different priorities and may thus have different investment objectives. Review your investment objectives regularly to ensure that your portfolio matches them.

Questions To Ask Yourself Before You Invest:

1. What are my investment objectives and investment time horizon?

2. How much of my spare cash / CPF funds do I have available for investment?
[As a rule of thumb, you should ensure that at any point in time, you have set aside cash savings equivalent to three to six months' of your monthly income to provide for an emergency, before you invest.]

3. Am I able to service my mortgage or other financial commitments (e.g. insurance payments / saving for my child’s education) should my investments fail?

4. How does the investment’s historical rate of return compare against what I am currently earning in my savings account / fixed deposit / CPF Ordinary or Special Accounts?
[You should be mindful that the historical performance of an investment does not guarantee its future performance.]

5. How much risk or volatility can I bear?

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The last downturn of the global stock market saw millions of ‘every day’ investors having their fingers badly burned. Overnight life savings were eaten away, retirement funds went into decline and the economic forecast for all of us who had any money invested in stocks and shares was gloomy to say the very least.

As a direct result investors in their thousands turned their backs on the rollercoaster stock markets and sought alternative asset classes in which to invest their hard earned money. This has led to a global boom in real estate markets and property prices, and it has spawned a generation of budding real estate investors.

For those of you wondering whether it’s too late to venture into real estate investing or considering how best to make the most significant returns from property investment, here are 5 hot tips for successful real estate investment to set you on the path to potential profits!

1) Consider Investment Property Abroad

There are many relatively untapped property markets in countries around the world that offer the real estate investor greater return on investment in the form of rental yields or short to medium term capital growth.

While major markets in the USA, UK, Australia and Europe are slowing down, there are emerging property markets globally that are hungry for investment and are proving to be highly profitable.

For example, in 2007 a number of countries are already aligned for accession into the European Union and as a result property markets in these countries are likely to benefit from greater numbers of visitors, more trade, increased investment into infrastructure and more stable economies. The likes of Hungary, Slovakia, Bulgaria, Croatia, Turkey and even Northern Cyprus are just a few examples of overseas destinations with emerging real estate markets that may be worthy of your consideration.

2) Make Sure Your Plans Are Profitable

This sounds ridiculously simple right? Well, you’d be surprised how few people actually make sure their plans are actually sustainable and as profitable as they hope.

Examine any real estate market that you’re about to enter by firstly comparing property values across the city, state or region and making sure you know what your money will buy you. Then ensure that the rental yield you intend to obtain from your property is actually realistic or that the asking price you intend to set once you’ve renovated the property will be offered.

3) Never Assume Anything

This goes from assuming a house is structurally sound to accepting that tax laws won’t change ? from believing your tenants when they tell you that they are house proud and honest to accepting the first builder’s quotation!

Do your due diligence on every single aspect of the process from ensuring the asking price for a property is fair to checking your tax returns before your accountant submits them for you. This is your investment, your future, your potential profit and therefore it is ultimately your responsibility.

4) Employ An Expert When In Doubt

Few people are a master of all trades therefore be prepared to acknowledge areas where you are far from being an expert and at least consider courting a second opinion. Again, this goes from checking out the structural soundness of a property to understanding the legal ramifications of letting out your property. If in doubt always double check ? and if this means you have to call in an expert, make sure you call in an expert!

5) Set A Realistic Budget And Stick To It

Whether you’re purchasing property to let out or buying real estate to renovate you need to sit down and add up every single area of projected expenditure to enable you to set a realistic budget with which to work.

Make sure you add in everything from having searches and surveys conducted, legal fees, accountancy fees, insurance costs, likely interest payments on any finance required, taxation, connection of utilities, marketing for tenants or buyers, real estate agency fees, and of course don’t forget to add on the cost of the property and the price of any renovation and refurnishing and decorating work required.

Spend time considering every single area where a cost will be incurred and detail every likely payment that will have to be made and you will arm yourself with a bullet proof budget and do all you can to ensure you encounter no nasty surprises along the way.

By:Rhiannon Williamson

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Below are 12 good driving tips for saving fuel. Read them carefully, and you will probably save a pile on your next petrol bill.

1. Pump up your tyres
Keeping your tyres inflated is one of the easiest and essential way to reduce petrol usage. Saving petrol = saving money. Thus, your should try to improve your fuel economy.

If a range is recommended by the manufacturer, the higher pressure should be used to maximize fuel efficiency. Deflated tyres run hot and jeopardize safety. It will cause the tyres to wear out prematurely, affect the vehicles adversely. It also decrease the fuel economy by increasing the rolling resistance.

Tyres lose about one psi pressure per month due to air loss caused by the tyre hitting holes, bumps and kerbs. There is thus a need to check tyres at least once a month. A tyre deflated by two psi will result in a one per cent increase in fuel consumption.

2. Drive at a moderate speed
Avoid speeding on open roads. Driving at the acceptable speed limit is safer and increases the fuel economy. As for highway driving, over 50% of the power produced by the engine is used to overcome aerodynamic drag. For this reason, fuel consumption increases rapidly at speeds above 90km/h. On an average, a car uses about 15% more fuel at 100km/h, and 25% more fuel at 110km/h as compared to when it is cruising at 90km/h.

However, this should not lead one to conclude that the lower the speed, the better the fuel economy. The fuel consumption of an average car increases sharply at any speed below 50km/h.

3. Clean the air filter regularly
Clogged air filters increase fuel consumption by restricting airflow to the engine. It should be cleaned/replaced when necessary. Clogged air filters can increase fuel consumption by up to 10 per cent.

4. Use thinner tyres
Tyres with thick width will improve the handling of your car. On the flip side, it will also increase your car’s fuel consumption. Thicker tyres mean more rolling resistance, and naturally higher fuel consumption.

5. Start up the car properly
Cars these days do not require you to prime the engine by pumping the accelerator pedal repeatedly before starting. Such an action wastes fuel, so avoid doing it. When starting the engine, idle it for no more than 30 seconds to warm it up. An engine will warm up faster on the road. However, avoid sudden acceleration before the engine has warmed up sufficiently.

6. Drive in high gear (Overdrive)
The engine runs most efficiently between around 1,500 and 2,500 rpm. To maintain low engine revolutions, you should increase through the gears as soon as possible and before the revolution reach 2500 rpm.

For automatic transmission cars, you should always switch on your overdrive to help save fuel. Overdrive will allow your engine to change gears at lower revolutions. It also puts your transmission into an “economy” mode. It engages the final “overdrive” gear when cruising to keep the rpms extra low, thereby increasing fuel economy.

7. Travel light
Avoid carrying any unnecessary weight in your car. On the average, every 50kg added load in your car will increase fuel consumption by two per cent.

8. Anticipate traffic ahead
A driver can reduce fuel consumption by up to 10 per cent if he does not brake or accelerate unnecessarily. Anticipate traffic conditions ahead, adjust your speed accordingly and avoid tailgating. Accelerations and decelerations waste fuel. Braking and abrupt stops can be minimized by not following too closely and slowing down gradually when approaching a red light.

It takes up to six times as much fuel to move a car from a dead stop than it does for one moving at just a few km/h.

9. Avoid strong acceleration
The fuel consumption remains at a minimum when driving steadily at a moderate speed of about 90km/h. Bear in mind that every time the accelerator is depressed, the engine goes into a “fuel-enrichment” mode which wastes fuel.

The vehicle should always be gradually and smoothly accelerated. Using cruise control on highways can help maintain a constant speed and reduce fuel consumption.Minimize fuel wastage when idling by stopping the engine whenever your car is stationary or held up for an extended period of time.

Idling for more than a minute consumes much more fuel than restarting an engine. By having the engine switched off, you will save more fuel than that you lose from the burst of fuel involved in restarting the engine. The net increased wear and tear from this practice is negligible.

10. Minimise aerodynamic drag
Additional parts on the exterior of a vehicle such as roof racks and spoilers, or having the window open, increases aerodynamic drag.

11. Don’t let your engine idle
Minimize fuel wastage when idling by stopping the engine whenever your car is stationary or held up for an extended period of time

12. Use the air-con sparingly
Air conditioners can use about 10 per cent more fuel when operating. However, if you are driving at more than 80 km/h, using the air condition is better for fuel economy than an open window.

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