Promoting Prudent investing in Penang

THERE’S much to be said for exerting ourselves in locations that appeal to us, particularly if our work benefits others living there. I love our Pearl of the Orient, Penang. Sadly, I don’t get the chance to spend as much time on that island as I would like.

Over the last two decades, there have been entire calendar years when I didn’t set foot on Penang, which is a monumental pity because of its world-class cuisine, hospitable people and old world charm.

This month, however, has been different. I was able to visit Penang twice in the span of a fortnight for different reasons: first to meet two new financial planning clients and second, to teach a financial planning workshop to 170 people.

In early July, I cleared my overladen schedule to fly there to spend seven hours with two ladies in their late 70s and mid-50s, an aunt and her niece.

The aunt is a long-time family friend who knows of my practice andwithwhomIhavebeenchatting intermittently over a couple of years concerning the pros and cons of long-term investing using a combination of low risk, low volatility asset classes like cash and fixed income (bonds), and high risk, high volatility asset classes like equities, investment real estate (REITs) and alternative investments (specifically commodities).

When I reiterated to her that such investment approaches tend to yield the best results only if people are willing to invest over the long haul of at least a decade, preferably longer, she advised her much younger niece to also meet with me.

Our long meeting was broken up by excellent meals at two different restaurants. My attempts to pay were sternly rebuffed.

The next day I flew back to KLIA2 and resumed my frenetic routine in and around Seremban and the Klang Valley. Then, about 10 days later, it was time to fly back to Penang, again out of KLIA2; this time for my Building Your Financial Fortress signature workshop. The needs of the group were such that I spoke at the formal event from 10.30am to 3.30pm, before adjourning to a smaller room for an informal question and answer session with some of the more engaged participants, which stretched on for another two hours.

As I had booked a late flight back, I was in no rush to end the interesting dialogue. However the organisers eventually wrapped up our ad hoc Q & A so that I would have time for dinner before being dropped off at the airport.

Despite the two rather different reasons for heading up north this month, I found that when explaining and elaborating on riskreducing prudent investment strategies on a one-to-two-person and later on a one-to170-person basis, both times I ended up talking about the intricacies of dollar-cost averaging (DCA).

DCA is a strategy that receives a lot of lip service yet is often misunderstood or at least misremembered.

Even when I am teaching this powerful strategy to investment professionals like unit trust advisers and frontline bank staff, I often encounter people who previously understood DCA well enough to get through their professional examinations but who then permitted its intricacies to escape their recollection through inadequate repetition and practical implementation.

First off, we all need to know that while this investment strategy is often effective, it isn’t guaranteed. In investing, nothing is!

You see, the key difference between saving, investing, speculating and gambling is the level of risk we expose ourselves to.

The higher the risk level, the higher the probability of failure. As such, I do not advise speculating or gambling at all, unless your goal is to live with undue stress, anxiety, fear and potential impoverishment. I do, however, believe investing — particularly intelligent investing — can be immensely rewarding.

When anyone invests, the probability of failure is always present even though it is lower than when she speculates and minuscule compared to when he gambles. Furthermore, the probability of a negative outcome (translation: losing money) when we invest can be mitigated, though not eliminated, by diversifying and implementing an extra prudent strategy like DCA.

With straightforward saving, the probability of loss is close to zero; however, the likelihood of growing our money faster than inflation erodes its precious buying power is also close to zero if we merely save money in the bank.

So this is what I advocated in Penang concerning the five criteria necessary to properly implement DCA:

1. Only buy a high quality asset. Avoid low

quality ones;

2. Buy an asset that fluctuates in price;

3. Invest equal amounts of money;

4. Invest at equal time intervals;

5. Continue doing so regardless of market conditions.

To be able to meet criterion number 5 we must first have heeded criterion 1. Also, we should always have sufficient cash savings and thick liquidity buffers in place to help steady our emotions during wild market gyrations.

To succeed in investing, we need to strengthen our resolve and patience to stick to our personal wealth accumulation programme over the long-term or, better yet, the very long-term.

Prudence in investing, whether it’s exercised in Penang or anywhere else, dictates that we start early, begin gently, learn diligently, and persist courageously.

© 2018 Rajen Devadason

Read his free articles at www.FreeCool Articles. com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may follow him on Twitter @RajenDevadason