A Good Man Leaves an Inheritance to His Children's Children

As good parents we ought to try our very best to leave inheritance not just to our children but to our children's children. But, for that to materialised in the future, the first step I guess is to educate ourselves to become financially savvy as early as possible. One thing I learned so far is that time is really valuable if not the key for it to become reality. The early we are financially educated and is acting upon it the longer the time frame our savings will work for itself. Perhaps, you don't have an idea or confused of what I'm saying right now but, once you understand how compounding money works you'll appreciate more what is TIME in relation to savings. Have you known someone who just spend 1 year worth of their salary for one grand extravagant feast? Yet, not bothered about the expenses incurred because as he or she say, that 1 year worth of salary can still be earned next year. Well, I guess it's okay if:

(1) We have accumulated enough savings already, and that 1 year is just a pinch of our savings 

(2) We are young and our parents are rich and money is not really an issue 

(3) Our time in this world is counted, I mean what for is the used of savings if by few years we are gone anyway unless of course we're saving for someone else 

(4) Though not rich, but still young and still have few years to waste for foolishness. 

But, if we are just trying to make an impression and is not one of the mentioned above, who are we fooling? I guess ourselves. Being financially educated, we're supposed to realised that at least small portion of that 1 year worth of extravagant feast could have started growing or already have grown by now. 

What's my point? If we have learned to become financially savvy after throwing the feast at a very late stage of our life, we'll have no enough time frame for our savings to grow, this time around, time is against us no matter how we try. So, we end up depending on our luck (lotto and other alike) or we depends on our children's and perhaps their children's too. 

How does this relate to the subject? If we intend as parents to leave inheritance to our children's children, we better be financially educated and ACT upon it while time is still in favour of us. Otherwise, no matter how we try later on, like what I said, we'll either depend on luck (lotto) or perhaps the government (pension) or on our children itself or ALL. 

Read How to Manage Cashflow: Click here
Read The Importance of Emergency Fund: Click here

How to Minimise the Risk in Stock Market Investing

Equity investing is one of the potentially rewarding investment and at the same time a high risk type of investment. But, is there a way to lessen the risk? 

Well, I think there is, it is called "Money Cost Averaging". It is an investing strategy where you invest fixed amount of sum at a regular interval over a long period of time. The amount of money invested at each interval remains the same over time, but the number of shares purchased varies based on the market value of the shares at the time of a purchase. When the markets are up, you buy fewer shares due to the higher cost per share. When the markets are down, the situation is reversed and you purchase a greater number of shares. It's a strategic way to invest because you buy more shares when the cost is low, so you get an average cost per share over time, meaning you don't have to invest the time and effort to monitor market movements and strategically time your investments. Having said that, this strategy then works well with mutual fund investing. This is because in mutual fund the fixed sum is simply divided with the cost per share to get the number of share bought, whilst when you are directly investing in equity, there is a minimum lot to buy depending on the cost per share. Of course, you can choose to buy or sell through odd lot but, you might find it difficult to buy or sell as few only trade in it. Using this strategy in direct equity investing will result to often have remainder on the fixed amount invested. Thus, the core concept of the strategy to which it will invest with a fixed amount at a regular interval is hardly meet. Keep in mind though that, unless the mutual fund NAVPS you invested in is increasing fast enough to compensate the investment fees involve, it might take a while before you appreciate the result. 

Below is the illustration of how money cost averaging supposed to works to lessen the risk given the 3 scenario in equity market. (Click to Enlarge)

Click the Image to Enlarge

Click the Image to Enlarge

First, when the market or the NAVPS is suppose to be in bullish trend. With this scenario, you probably wish you have invested huge amount early on so as to gain more but, keep in mind that equity market is not always in bullish trend. The gain may be reduce but then so as the risk in this scenario.

Second, when the market is suppose to be moving sideway. As seen in the illustration, even though it's moving sideway, still the result yield to be favourable.

Third, when the market is suppose to be in bearish sentiment with up trend bias. As you can see, with this scenario the result still yield to be positive.

In all the scenario, the result may seem like always favourable but this strategy requires discipline to stick to it over a long period of time. It may seem easy but when emotional thinking kicks in like say for instance when you speculate that the market is going to be bullish, you are probably tempted to invest more than the planned fixed amount to be invested at a regular basis, and when at bearish trend, fear will probably kicks in and will reduce or not fund the investment yet. So, to avoid this, keep in mind the core idea of this strategy and, most importantly study the fund you are planning to invest in, understand its feature and know the fees involve. The illustration shows only the sales load but there is another visible fee which is the exit fee, that's if you plan to withdraw your investment within the allotted holding period. 

Investing in Mutual fund in Philippines comes with a cost, Click: (Understanding Mutual Fund Fees), know how much will it affect your gain because, I'm sure for the first few months you will not appreciate your investment result as it will be dragged down by the visible fees involve, unless of course the fund you invested in grow fast enough to compensate the investment fees. You'll realise this if you monitor your investment closely factoring the fees involve and inflation. This probably is another reason why it is most advisable to invest long term in mutual fund following this strategy diligently.

Quotes by Warren Buffett On:

Earning: “Never depend on single income. Make investment to create a second source.”

Success: “You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”

Spending: “If you buy things you do not need, soon you will have to sell things you need.”

Saving: “Do not save what is left after spending, but spend what is left after saving.”

Risk: “Never test the depth of river with both the feet.”Investment: “Do not put all your eggs in one basket.”

Expectation: “Honesty is very expensive gift. Do not expect it from cheap people.”

Humanity: “If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 percent.”