Principle
Managing one’s finances should be as simple as possible. The world is filled with complications and countless options already, we are getting information overload. The last thing we want is to have many assets that are serving us the way we want them to be.
We want the straightest and most direct path possible to our financial goal. We want to retire early and have the right assets to support us financially.
After many missteps and wrong turns, much research and classes, I want to share a simple asset allocation that you will ever need. Anything beyond that would be too much and going against our principle.
There are only 3 assets you need:
- Insurance
You need to at least have life and critical illness insurance. You may also add a healthcare insurance (which should cover diseases other than critical illnesses).
Our life and body is our ultimate asset, without which none of the money matters. The first thing we need to mitigate the risk of health issues or life threats is to have insurance so that if anything happens to us, our family and loved ones would still have some support financially. This is particularly important if you are the only bread-winner of the family.
And we do not want the saving or investment combined insurance plan because those are priced at a much higher premium than the pure insurance plan. The basic rule of thumb is to buy what most insurance agents would not sell actively. They will only inform you of the products when you ask or specifically request because they do not have much commission for these kind of products (which means that the insurance company does not profit much from these plans). This will save you a lot of money and we have other asset that will give us investment return.
2. Property
If you start investing in property at age 30, and take a 30 years mortgage, chances are you would be able to clear the mortgage and have a full paid property by age 50 or 55 with some prepayment of principles (which will reduce the interest and speed up your repayment rate).
I highly suggest having one full paid property because you can have many ways to produce income or cash from the property:
you can rent it out
rent one of the rooms out, or live in it yourself
rent out to airbnb management company
going to the bank for re-mortgage or a new mortgage to benefit from the capital growth
or you may consider going for a reverse mortgage
3. Any investment tool you are familiar with
This can be anything from stocks, bonds, options, deposits, private lending, derivatives, foreign exchange, car trading, day trading, anything that provides a return on your investment of money.
You do not have to follow the crowd and invest in what others find provides great return for them. Because what serves them does not necessarily serves you. Some people do very well in day trading but others lose money doing the same. It has to do with personality, mentality, time available, personal interest, active or passive management required, expertise required, capital requirement etc.
Any investment tool is merely tools. If you do not like a scissors try a cutter. Use whatever you feel right and works for you. To start with, go for the investment tool that you are familiar with. Chances are if you are familiar with the tool and how to use it, you are more likely to utilise it better and yield better results.
Although some tool may have higher prima facie return, it does not concern you if this is something that you are not familiar with (unless you are dedicated to learn). And we can find examples of people doing very well with each of the investment tool, so we know that there are multiple paths to the goal.
The key is to mind our own business and stay on the course once we have chosen. Wealth has to be accumulated over time and we should have a long-term perspective when it comes to investing. Hoping to profit overnight or a few months is called gambling and speculating.
As we all have limited time and resources, spreading ourselves too thin would give adverse effects. These 3 assets are the ones we need to have a balanced financial life.
Note: this is not investment advice. Please be reminded to do your own research and consider your own circumstances before making any financial decisions.
