This is a C. N. A.
Podcast.
Hello and welcome to our brand new podcast. Money talks, my name is Sarah al Khaldi and I'm a business news presenter at C. N. A. As a young mother and like many others of my generation, I want to get better with my money. So each week I'll tap into different experts from C. E. O. S. Two financial advisors and we'll find out how to make wiser financial decisions relating to how we live, work and play. We'll go for some quick fire questions in a few words.
Can you give us your thoughts on the following?
Okay, high
inflation. It
will come down.
Green finance
definitely worth looking
at robo advisors
definitely worth considering also
china.
Um
okay
china belongs in the slightly riskier part of your portfolio
investment scams,
definitely be wary of them. Don't trust anybody. The old rule of thumb is trust but verify.
Great. Yeah. We kick off the series with a renaissance man of money. David cho is the co founder of the smart investor, a website dedicated to educating people about how to grow their wealth. David himself has been growing his money for decades and I want to ask him if it's true that you need money to make money, can you afford not to invest and how should you spend your hard earned bonus, David, thanks for joining us
for those starting out on their investment journey. What would an ideal portfolio look like?
Okay, before I even start doing that, Sarah what I would like to say is you have to invest and the sooner you invest the better it is for you and for those people who haven't started investing for their retirement or later on in life. There is a general rule of thumb that says that You take your age and you divide it by two and that is the percentage of your salary that you
should be putting aside into an investment. So if you're a 20 year old and you just starting work I don't know how many people start working 20 but a 20 year old who's starting work, you should be putting 20 divided by two which is 10% of your salary Into an investment. Now if you leave it later, if you wait until you're 30 years old before you start investing you're gonna have to put aside 15% of your salary,
30 valid by two is 15. If you wait until you're 50 before you do anything, you're going to have to put aside 25% of your salary in order to be able to enjoy your retirement. So that's a quarter of your salary going into some kind of investment. And so the secret really is to start as early as possible. And as soon as you start work, start putting some money aside into a portfolio so that you will be able to let that money grow over time and then
enjoy life later on when you get older. So that is the general rule of thumb as to what the portfolio should look like. Again, it is actually sort of based on your age and the general rule of thumb, there is, it's called the rule of 100 and the rule of 100 simply states that you subtract your age from 100 that is the amount of money
that should be going into riskier investments. Okay, so if you are a baby, if you're investing safe for your child and your child is zero age on the day that they are born, 100% of whatever money you're going to be putting to one side Should be going into a riskier investments such as the stock market. And as you get older, less of that money should be in the riskier side and more of it should be in the less risky side. So things
like stocks and bonds. So if you are for instance a 20 year old, then 80% of whatever you are going to be saving Needs to be put into the stock market and the other 20% can be put into other things such as Singapore savings bonds or cash or whatever. But 80% of it should be in riskier investments such as stock market primarily because that is the only way you're going to be able to grow your money.
A lot of young people though are saying, but I have CPF
Yeah,
so why do I have to go to the stock market if I have CPF to rely on?
I agree with that totally. And I think the CPF is a great thing because it forces people to save Now in many countries, particularly one where I grew up in Hong kong they didn't have a mandatory savings scheme for people and so nobody actually saved because you weren't forced to save. But here in Singapore, you are forced to save for
your retirement. But that money goes into the CPF fund and if you just allow it to grow using the interest that is actually being paid for you and that only gives you around 2.5% that is not going to be enough. And I go back again to that rule of 100 which is how much of that money in the CPF should be in stocks, how much should be in cash and bonds that will tell you what you are allowed to invest in.
But the CPF has very strict rules, so the amount of money that you put into the CPF will not be sufficient for you to grow that money over time because they restrict the amount of money that you can invest in stocks and bonds, you can't take the money out from the CPF, but you need to invest outside of the CPF in order to achieve that kind of balance because otherwise When you reach 55 or 60 or 65 years of age and you have a look at what that money has done for you, you will say I'm not going
to have enough to retire on. And that is the big danger that you have because whilst it is great for somebody to force you to save money, that money will not be sufficient for you. When you retire a
lot of money to goes to your house, those getting an H D B a loan or a mortgage loan and some people are saying, OK, I'll just rely on my property, I'll rely on my HDB when I get older, I'll just sell it or downgrade and maybe that can help beef up my retirement from my CPF. What do you think of that?
I don't disagree with that either. If you have a look at property, property prices tend to appreciate over time. And you have to have a look at some examples outside of Singapore, there are lots of people in the U. K. For instance, that have put their money into their property and just as you have highlighted, they say, well, you know, my property can be my pension later on, but
how is that even possible? Because you have to downgrade, you have to sell your house in order to do something and over in the UK, they've come up with some really ingenious schemes, such as mortgage equity, withdrawal, lifetime mortgages whereby you can say, oh, I'll take a portion of that equity that I have in my house and I don't have to repay that. But instead I'll be able to live off that lump sum that I take from there?
And on the other side, whoever is actually financing that lump sum that you've taken out will roll up the interest slowly over time. And as we know, if you keep on doing that, eventually the interest will become quite onerous. But you don't have to worry about it. You don't have to pay it off.
But on the day that you pass away, you may actually find that The 100,000 or the 200,000 you took out from your property plus the interest that has been accruing will mean that there is no equity left in your property at all. And so if you thought that I would be able to leave the property to my Children, that isn't going to happen. Because the person who will be taking the property will be the insurance company, not your Children. So you spent your life buying a property, financing the
property through mortgage repayments. And then you hope that you will be able to leave something for your Children. And you find out that you've got nothing left for your Children at all. And so you're not really sort of helping the next generation.
Now, there was a survey done recently last year by franklin Templeton and it showed that a third of young singaporeans think that making the right investment is difficult and investments make them anxious. So where do you think they should start? And do you think this is something that they can do alone or should they tap into an advisor perhaps or some kind of person who will give them advice on their investments.
There are several ways of looking at that and my philosophy and it's not my philosophy, but it's just a general philosophy of most people. Is that that rule of 100 will apply right. That rule of 100 has been around for a very long time. And the rule of 100 will help to guide you as to how your portfolio should look. So if you are a 40 year old, then 60% of that portfolio should be in stocks And the other 40% should be in cash and bonds.
And just use that as your template. Now, the other question is that 60% that you put into stocks, how should I allocate that 60%. Should I just go and take the 60% and go and buy investments in emerging markets? Should I buy penny stocks? Should I do what
The answer is no right? You don't do that. You take that sum of money that 60% that you're going to be investing in the stock market and then whatever that amount of money is, you then need to apply another rule and this is the rule that has stood the test of time. And what that rule actually says is that 60 of that amount of money should be in safer investments. So by that we're talking about income generating stocks. And here in Singapore, we have this wealth of real estate
investment trusts. So if you are going to be putting that money into the stock market than 60% into strong income generating stocks such as The real estate investment trusts or maybe the bank shares that we have here in Singapore, they pay good dividends. The Singapore stock exchange is another good example of a company that is able to reward you with regular dividends.
So that is the 60% of whatever you're going to be putting into the stock market, then you have the 30% which is slightly riskier investments. And these are the faster growing companies. And unfortunately in Singapore, we don't have that many faster growing companies. So you have to look overseas for that. So, a good place to go and sort of look for those kind of stocks would be NASDAQ where you have a lot of faster growing companies.
So if you do your math 60 plus 30 is 90 that still leaves you 10% and that 10% can be then put into what we call speculative investments. And so as long as you have that, whether you want to call it the pyramid or the beer bottle call it whatever you want, you must have a stable base of income generating shares, some faster growing shares and then the other 10% put into whatever you want, I don't care what you put it into. Put into something that you think is going
to be quite exciting for you. Be the value shares, shares that you think have been undervalued by the market. You could even put it into Cryptocurrency, I don't really care what you put that 10% of your investment into, But don't fool around with the 60% of the income shares and the 30% of the growth shares because that will generate for you. The kind of returns that you require.
Conventional investment wisdom says that over time stock markets go up despite the volatility in the near term. Do you think that still holds now, Do you think decades down the line, we can still get some kind of return from equity market investments right now.
Oh, for sure. You see one of the big problems that investors have, and I'm not just talking about new investors coming into the market, I'm talking about seasoned investors also, What they suffer from is something called recent events syndrome and recent events syndrome just says that what is happening now is going to be happening into the future and it scares them, right. They think that the kind of geopolitical problems that we have at the moment is going
to persist for the very long term. And that isn't true, right? If we have a look at the stock market, say over the last 70 years, which is slightly older than me. But over the last 70 years we have had 10 bear markets right over that 70 year period. And each time we've had a bear market, we've recovered Somehow we have recovered. So if you say 70 years and we've had 10 bear markets, that's one bear market
every seven years. So if you are a new investor now, you are going to be experiencing a bear market roughly every seven years. I wouldn't set my clock on my calendar by it. But roughly about every seven years you're going to see a downturn in the stock market. But don't be scared by it. When you get that downturn jump in and buy more shares, right? Just carry on carry on investing. It's going to be harder at the moment because inflation
is a big problem. And there will be some people out there that will be saying, hey, inflation is so bad. I can't afford to invest. Well, don't fall into that trap. Cut whatever you can, but don't cut the amount of money that you're going to be investing for your long term future because that is very, very dangerous. You might think, oh, I won't put my $100 or my $200 into my savings pot now because I need it in order to
buy food or whatever, do anything else. But don't sacrifice that $100 that you're going to be putting into the market and don't listen to those people who are saying, oh the market is terrible at the moment is going to go down even further. Well if it goes down even further, you are a long term investor. So if you don't buy today and you think I can buy tomorrow, well tomorrow, the prices could be higher. Nobody will tell you when the bottom of the market is there. So don't fall into that trap.
Yeah, that's an interesting point because markets have been under a lot of pressure this year and some young investors are experiencing their first down market or bear market ever. I've had people tell me they're down thousands of dollars in the stock market right now. So what advice would you give them?
Well, I was up last night and I was buying shares last night, even though the market was down, I don't really care because primarily I am an income investor. And what that really means is that I am buying shares that have the ability to pay me dividends regularly. Some of those dividends come in quarterly, some come in semi annually, some only come in once a year. But the stocks that I buy are rewarding me with income.
And because I've been investing for such a long time sarah, my biggest problem is the amount of cash that is coming into my portfolio and for the young people that are investing today, you will have the same problem later on in life. It may not seem like that
now doesn't seem like
It may not seem like that now, but in 2030 years time you will have that problem because the cash generated from the investments that you have made will be coming in regardless of what is happening in the market. I will be collecting dividends from one of Singapore's banks today and whether the market is high, whether the market is low, it will be paying me a dividend. So my problem is putting that money to work and looking at where it is going to be able to generate for me more
money in the future. And that is what you should be looking at, not what is happening today.
And because if you don't put that to work, David, the value of that money will go down because prices are now going up, inflation going up. And that is a problem that we all have to face, isn't it?
Well, quite right, Sarah. I mean if if you have $100 today and you don't put it to work In a year's time with 5% inflation, that $100 will only buy you $95 worth of goods. That is what inflation really means is that it is the shrinking of the money that you have. If you don't put it to work somewhere else now, the other thing is Right, I'm going to throw in another rule of thumb, right? I promise no more rules of thumbs after this because I haven't got that many thumbs. Yeah. Okay, so the
third rule of thumb is the rule of 72. Right? And what that really tells you is if you take an investment and you have some rough idea as to how that investment is going to be rewarding you over the long term, Take that percentage divided into 72 and that will tell you how long it will take your money to double. Okay, so let's for argument's sake say that you put it into the Singapore stock market, a good stable Singapore stock market and on average it should give you about 7% return a year.
So it means that if you put $100 into the Singapore stock market today, that $100 should double in 10 years time, 72 divided by seven is roughly 10. So it means that the $100 will double to $200 in 10 years time. The $200 will double to $400 in another 10 years time. So in 20 years time, your $100 will have turned into 100 204 $100 In 20 years time. Now if you don't put $100 in this year, you're gonna be missing out on $400 in 20 years time.
And that is really what you should be looking at over the long term. And if you think, oh, I won't put the $100 in because I need $100 for something else, find $100 or don't spend $100 on the other things, but put the $100 in because you're going to be missing out on $400 in 20 years time and that is what you should be looking at, not what is happening today.
We're going for a short break, we'll be
right back.
Hi, my name is julie you and I'm the host of the new season of the climate conversations from chefs to scientists, join me as we get personal
with the people driving change in sustainability. Look out for our episodes wherever you get your podcasts, you're a seasoned investor, you've done this for so many years and as you mentioned, you've got a lot of cash coming in, But do you still remember your first investment loss when you saw all the red and the screen and you felt that it affected your perspective on investments?
Both. Yes and no, I think I learned some very valuable lessons when I first started investing and one of the biggest lessons I learned was that I invested in the company, which at the time was a very stable company. But then this company decided that it wanted to take advantage of what was going on in the booming dot com era. And so consequently it changed its business model and because it changes its business model, it borrowed a lot of money and eventually it went past.
And so the biggest lessons I learned was if you were investing in a business, then make sure that this company is going to carry on doing what it said, it was going to be doing right. Don't invest in the company. That suddenly changes direction and does something else. Because that wasn't your original investing thesis.
That wasn't the company that you invested in. This company originally made household goods and all kinds of things and suddenly decided that it wanted to go into the internet and in order to do that, it borrowed a lot of money. Then the dot com bubble came and it couldn't repay the debt, it went bust and I lost my money. But in the short term the share price went up phenomenally. And I thought, what a clever guy I am right. But then I forgot my first investing rule, which was don't lose money,
right? And the second investing rule is, don't forget rule number one, don't lose money if you were invested in the company and it suddenly changes direction. Think twice about whether or not you want to carry on investing in that company. And generally it is not a good idea when a company does that.
What happens though? If you as an investor can't track all these businesses that closely if I have to invest all this money in the stock market, how do I ensure that all these companies are going to stay on track to what they set out to do.
Okay. There are two ways of doing it. Sarah. The first one is keep your portfolio relatively small. And so generally we say that you shouldn't invest if you're going to be picking single stocks. Single companies don't try and invest in hundreds or thousands of different companies but keep your portfolio to around the 20 best companies that you think you want to put your money into and tracking 20 companies isn't that difficult? But my Children are at that stage now where they also
need to start investing money. And my advice to them was invest in an index tracker and E. T. F. And the E. T. F. That I suggested to them was the MSC I World Index. And so you will get exposure to the whole world and within that index there will be thousands of companies and you don't have to actually sort of know what is going on and instead just let the index tracker do whatever you wanted to do.
Now if you don't want to go overseas, you can stick to the Singapore straits times E. T. F. And that way you will have exposure to Singapore's 30 biggest companies. You don't have to watch how all 30 are doing because that index will regenerate over time. It'll refresh over time. Companies will go out to the index companies will come into the index. But what you are getting is Exposure to the 30 biggest companies here in Singapore that
way you don't have to worry about anything. So going back to all those different rules that I had, if you're going to be putting 60% of your money into the stock market, make sure that 60% is in the Singapore Straits Times Index and just let the do it for you. You don't have to do anything and the charges are considerably lower as well.
If our listeners have some extra cash, let's say from a bonus payout or even a side hustle, where do you think they should put it
right, you have to go back again to those earlier rules that I had. And first of all remember that a bonus payment isn't guaranteed. So a bonus this year may not be a bonus next year. There may not be a bonus next year, but if you have got some extra cash then put it to work straight away. What I wouldn't suggest is to spend that money or to go on holiday because it is a bonus.
But just think of it as being something that you can put to work immediately and if there are various parts of your portfolio that you think need beefing up then do so just put that money in because remember what I said, the $100 that you put in today at a 7% return Will turn into $200 in 10 years time and $400 in 20 years time. So just think of that bonus as being something extra. And the other thing that people need to remember is that It isn't what you earn that makes you rich Sarah.
It's how you spend what you've got that counts, right? And so the bonus is an extra and so put that to work somewhere and you will not regret it in 20 or 30 years time
you just talked me out of buying a nice bag.
There's nothing wrong with having a nice bag. No.
Back to what you're saying about putting your money to work.
My goodness, my husband.
Um back to what you're saying is putting your money to work immediately, not making sure it's not just sitting there. There is another side to this where recently we've seen a lot of young people put their money in the crypto market or crypto related products and like what we saw in the stock market, the crypto market has also been battered. We heard what happened with us T and luna crashing one report by Today online said one investor
here in Singapore lost $40,000 just in days. So what do you think young investors should take away from this experience?
Okay, remember what I was saying about the pyramid, right? 60% in income shares, 30% in grow shares and the other 10% In whatever you want now, if that whatever you want that 10% you put into cryptocurrencies and then you suddenly had a look at your pyramid And you suddenly found that that 10% is now 60%
of your portfolio. You need to rebalance, you need to do something and keep that at 10% because otherwise, what you'll end up with is the pyramid being tipped upside down and we all know that you cannot balance a pyramid on its point easily. So that is what happened to these people. They put their money into the crypto currencies and sure
they probably made a lot of money. What they should have done was to take that money that they had made and then rebalance their portfolio so that the cryptocurrencies or whatever it was, is still only 10% of your portfolio that way, if you lose 10%, you still have 90%. But if that 10% suddenly becomes 60% of your portfolio and that blows up, then you've lost 60% of whatever investment you had. So the pyramid is a very, very sort of strong base. It's a very strong concept for
people to think about how their portfolio is looking. And I am, I wouldn't say constantly, but I'm regularly looking at my portfolio and say Have I got 60% in income, have I got 30% in growth and that other 10% of those investments that I have have, they grown too big. If they have then I need to either number one put more money into the income side or number to try and reduce the amount on the top by selling some of it in order to
maintain that pyramid shape again. And if you have the pyramid shape, I can assure you you will sleep very well at night. But if that pyramid is tipped upside down and it's balancing on its point, you will have loads of sleepless nights and I love my sleep.
Don't you mentioned that as a rule of thumb, your investment should double in 10 years if you get a 7% return, is that right? Where do we find 7% returns now? You're seeing the market down and sometimes it's quite discouraging when I think 7%. Where do I go?
Okay, right. I think it is primarily because you are falling into that same trap of the recent event syndrome. You're saying that the stock market is down at the moment. But if you go back and you have a look at Over the long term, if you have a look at how the stock market has performed over the long term, you will be able to find the 7% right. It is, it is not that difficult.
7% over 10 years. Not every year,
7%. Every year.
Every year, I'm looking at
7% a year accumulating Over the ten-year period. So you should be able to get a 7% return on your investment Without a great deal of difficulty. If you want more than that, then you will have to actually start looking at shares that I have the capability of delivering more than the 7% return. But in general you should be able to get at least 7%, I'm getting more than that. But where that is because I am That is because I am more tolerant of risk. And so I am able to pick stocks that have the
ability of growing 15, a year. And because I do that my portfolio grows a lot faster than 7% a year. So if you can pick A portfolio that can grow at 14% a year, Then you will double your money every five years instead of every 10 years. There are those investments around
you mean like specific stocks versus index funds that you mentioned.
If you want to look for index funds that have the ability to grow faster than 7%, then you will have to have a look at certain specific indices. So something like a bunch of stocks that follow NASDAQ will give you more than 7% a year. But if you have a look at say the Singapore Straits Times Index, that is around 7% a year.
Okay, anything else that you think the young investors should keep in mind or any mistakes that you, you're seeing too often.
I think the biggest problem that people have is listening to
say it, David,
no, is listening to experts out there, right. There are many experts out there, and the problem with experts is that they are experts in their own field. And so when you listen to too many experts, what you then end up with is far too much information that you need to be able to digest. The simplest thing that you need to remember is that over the long term the stock market will grow, right? That is just a feature of capitalism that the stock
market will grow. Companies will find ways of generating profits for their shareholders and they will do whatever they can if they are dividend paying companies. The last thing they want to do is to cut the dividend. The last thing they want to do is to withhold that dividend. They want to carry on paying that dividend. And there are some companies out there which we call dividend aristocrats. And these are companies that have been able to either
maintain or to grow their dividends over the last 25 years. Right? And if a company is able to grow its dividend over 25 years, can you imagine what has happened to the share price over the 25 years it has actually gone up at the same rate. And so consequently look for those kind of companies, they do exist.
I'm not here to give you stock specific tips but there are companies that fall into that dividend aristocrat google that and then you'll be able to find those companies and you'll go wow those are the companies that I want to invest in over the long term and I don't ever want to sell those shares.
Lots of rules of thumb from David today you have to invest and the sooner the better in your investment portfolio depends of course on your age and that inflation will eat away the value of your money if you don't do anything about it. Thanks so much, David for your
thank you. Thank you so much.
We hope you enjoyed this episode of money talks. My guest next week is planning on retiring at 35 so I find out how he's planning to do that. The team behind this podcast is hope a name. Danieley Christina Robert and you've got a refreshed slate of audio material you can listen to on your commute or your workout go to the C. N. A. Website or app. Look for the listen button and subscribe to the podcast. See like if you have thoughts, ideas or even stories you'd like to share. Please write
to us. The details are in our episode notes. Until next time. This is Sarah call Dean.
Mhm