The 1-2 Step Investment Approach

Monday, November 24, 2014

The 1-2 Step Investment Approach





You probably won’t find this anywhere in books or seminars because this is something I made up for myself. This is somewhat of a continuation from “The power of 3% savings.”

In our world today full of options you can be trapped by inaction. I believe there are only two ways to get things done in this world, first is to DECIDE, (second) and then DO IT!

QUICK RECAP on The Power of 3% Savings:
When you attach a goal to your savings plan, you are more likely to continue doing it rather than going for the huge 80% savings deduction from your income; instead we’ll start off by assigning those goals into a 3% goal-oriented savings from your salary.
·         3% Travel Funds
·         3% House and Lot
·         3% Car fund
·         3% education fund
·         3% Fun Fund
·         3% Love Fund
·         3% or 6% Emergency Fund
·         3% Investments
·         3% Protection
·         3% Entrepreneurial

After these savings are allocated into different ‘baskets’ (or multiple banks via automation), they just usually stay there until consumed or until its purpose is achieved (Example: Travel Funds). This is usually true for short term goals, but what if you set mid, to long term goals? This is where we can utilize my so-called 1-2 step investment plan.

The 1st step is allocating available “idle” funds for investment or savings for short. Okay, a savings account is technically ‘active’ given that you are willing to wait for the maximum 1% increase per annum.

The next step is to make these - 1% per annum funds more active by transferring them into a higher-return financial product. But of course always remember that: the higher the return, the higher the risk.

Now in between step 1 and 2, you have to decide which of these 3% savings funds you are willing to transfer to another financial product rather than keeping them ‘in-storage’ for later consumption, which depends on your mid-to-long-term goals.

Example:
Let’s say you are saving up for a long term ASEAN or EURO Trip which makes your 3% Travel fund in a way, a long term goal which will definitely take time before you consume this fund. So rather than wait in vain for the 1% per annum savings account growth, you can choose to transfer this into various investment vehicles. In a way, this accelerates the growth of the fund and the achievement of your goals!

You can choose different investment vehicles, depending on the amount of risk you wish to take (here are a few options below):
·         Time deposit – 3-6% growth per annum
·         Mutual Funds – 5-7%
·         Stock market – 12% and up

Of course, you need to keep on saving still to pour in funds into the investment vehicle of choice to make it grow more!

The perils of dogmatism
There’s too much dogmatism in our culture. People are convinced that their way is the right way to do things. When you get trapped by the belief that there’s just one right way to do something, you set yourself up for failure. When something works for you, you have a tendency to believe it’s the right choice for everyone else. For this 1-2 step investment approach, it’s really up to you!

For example: 
- There’s no right way to pay off debt
- There’s no right or single way to invest or perfect financial product
- There’s no one single right way to tackle your mortgage
- There’s no right or wrong way to be frugal - Some people are unwilling to “go green” or “go organic” and even unwilling to take public transport. That’s fine; it’s their choice and “thing.”

People have different upbringing, culture, passion and priorities!

Also, allow yourself to consider other options, different perspectives which will open you up to multiple paths to success. When you spend so much time looking for the “best” choice that you never actually do anything, you’re sabotaging yourself. The perfect is the enemy of the good.

Life is about cause and effect in general. When you pursue or do something, you better be prepared for the potential outcomes. And if you don’t do anything about your finances, then things will remain the same and you don’t get to achieve your goals or live your dreams!

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