Monday, 14 October 2013

Implementing Passive Investing for My Fiancee

I am starting on a plan to implement passive investing for my fiancee to put her stash of savings to better use.

It is rather amusing to find out that her perception of investment is to park the money in a bank fixed deposit account to 'earn' the interest. It is even funnier to know that my fiancee do not really mind seeing that stash in bank accumulate to a substantial amount as she values the safety of funds parked with local banks. Not that she doesn't know inflation. She is aware of that. But, she is still fine to let the money sit in the bank happily.

I figured that it is crucial for me to do something and start putting the money to better use, before some financial advisor or personal banking associate come along and convince her to invest these money in unit trust or investment-linked plans. Furthermore, I really cant stand seeing money rotting in bank when I know that it could simply be put to good use and earn much higher returns over long term (ie. more than 20 years).

So, I broached the idea to her and she said ok immediately! She is entrusting her money with my investment knowledge and financial judgement that I will help her earn better returns. Honestly, I am very grateful to her for that.

Well, its not me that she needs to have absolute faith in. It is the long term upward trend of the Singapore market that she should believe in. There is no shortage of resources on the web showing that STI has grown at a rate of approximately 8%, including dividends for the past 20 years. BigFatPurse and Singapore Index Investing has done a good job back-testing these data.

One can participate in the long term growth of Singapore simply by buying STI ETF and hold on to them passively, re-investing the dividends along the way. For someone who thinks that fixed deposit is an investment, STI ETF will be a viable option to grow her wealth hassle free at quite a good rate.

Hence, I will be implementing the passive investing strategy of purchasing STI ETF consistently over the next 20 years at least for my fiancee.

Of course, things are not as straightforward as a monthly investment plan (MIP) that employs DCA method. If it was my fiancee managing the investment decisions all by herself, I will just advise her to sign up for a MIP. But since I am making the decisions for her, I would like to add several twists aligned to my own investment approach to this strategy that should bring about greater returns over the long term:

  • Use 50% of the sum to purchase during market corrections of let's say 15~20%
  • Use all the remaining investment fund to purchase during market crash of at least 25%
  • If the above conditions are not met, to make at least one batch of purchase worth 50% of investment fund by the end of year

I believe the action plan outlined above allows me to maintain discipline to only invest when there is relative value in the market that comes in forms of market correction. I can always take comfort in knowing that I will never buy during bubbly market. At the same time ensuring at least 1 purchase in each year helps to increase portfolio's earning capacity by not keeping too much cash. The process is still mechanical and not too much trouble to implement.

As the available sum is still small now, adding bond component into the portfolio for rebalancing will only be considered in future when the portfolio has grown to a meaningful amount. She will be saving a fixed amount monthly for this investment account.

She has opened her brokerage and CDP account. Luckily, STI ETF has just been declared excluded investment product so she does not need to sit for online test to qualify for ETF investment anymore!

Well, I am also thinking of changing the brokerage account and online CDP password without her knowing so she will be completely oblivious to the market gyrations and will not panic and sell at the worst time. Also save the trouble of her nagging at me and complaining to me about the losses haha.

So all is set and I am really looking forward to the first buy soon!

10 comments:

  1. Being honest in a boy and girl (or husband and wife) relationship is very important so do re-consider to be open on the password change thingy.

    ReplyDelete
  2. Alternately, you pay her monthly fixed rate interests well above the current market rate and you earn the differences as management fee.

    When people see money coming into their bank account every month; they don't bother with the market. No question ask.

    LOL!

    ReplyDelete
  3. I wouldn't touch my wife's money. Viewed positively, she hedges my risky nature. In the event I lose money, have something to fall back on. Viewed negatively, you don't get credit for making money but full "wrath" for losing it. :-P

    ReplyDelete
  4. Investing another person's money is completely different from investing your own money. Most of the time if there are losses, you'll have to take full responsibility and top it up. I have my fair share of experience investing my own family members money. I would say its not easy. Try explaining the whole thing to your fiancee and make sure she understands and agree on the risks involved.

    ReplyDelete
  5. I use a joint CDP account with my fiancee.

    ReplyDelete
  6. Agree with SgYi.

    Explaining a 50% recession to your wife isnt going to be easy. Sometimes it needs more tham facts to even be able to convince ourselves. Definitely a different ball game altogether.

    ReplyDelete
    Replies
    1. Even you are not investing your spouse's money but your own money.

      Try telling your spouse tonight: "Honey, I have lost 50% in XXX stock" and see what happen?

      Delete
    2. Just say is an unrealized loss. It happens all the time just like winter, it is a cyclical thing. When in winter you see the temperature dropping day after day you won't think is the beginning of the end of the world don't you.

      Delete
  7. All is fine except changing the pw secrectly. You're rewarding her trust in you with distrust.

    ReplyDelete
  8. Hi all,
    thanks for your comments!
    Yup agree with your opinions on the part about changing password. Honesty is always the best policy especially in money matters where one needs to be totally transparent and open.

    I am also interminttently talking to my fiancee on the potential big loss in the event of a market crash, trying not to go too deep and bore her with details, and at same time conveying my message clearly. This should prep both of us mentally for bad market conditions.

    ReplyDelete

Recent Financial Statement Analysis Workshop

More investors are getting interested in using Fundamental Analysis to short list strong company stocks to invest in, especially in a lacklu...