Asked by Anonymous
Asked on 13 Jul 2019
Hi Seedly community, I am a 27 yr old and currently looking for advice from the experts in the financial world on a good way to invest 25K. I would like to allocate them into 1: 1 ratio for the following time frames, 1) Mid term (5 to 10 years) 2) Long term (10 years+) All inputs are welcome as I am new to investments and honestly quite reluctant to keep the cash in bank accounts with the low interest rates.. Best regards, Liam
For monies that are needed within the next 10 years, stay conservative. You can go for defensive investments like Singapore Saving Bonds or investment grade bond UTs, with some allocation in equities through either ETF or UT. Rebalance whenever your allocation starts to skew heavily to equities as it is an indication that markets have gone up and it is time to take profit.
Long term you can consider a more aggressive weighing on equities. Maintain bonds in the portfolio, something like 30-70 should be OK. This assumes you have no definite timeframe for liquidation and can hold on to the portfolio when the markets are down.
I was a financial consultant for a decade, recommending people insurance, managed funds, endowments, etc. What i felt was that i was doing my clients an injustice. It was simply taking their monies and pocketing into the company's and mine and investing whatever is left. Now that I've left the industry, my vision for opportunities is far wider. In the mid-term what i am doing is hedging against the currency and moving into gold, properties, masternodes and some crowdfunding causes, all with an appreciation of more than 10%. What I look for in these instruments are capital appreciation, a regular payout and a sense of control over the assets itself. Nothing is absolutely passive, spending a little time learning and being proactive can absolutely make more for a healthier bottomline. We are at the edge of a major global economic shift where fortunes are made and lost. The one who has more knowledge trumps over those who are lacking. There's my 2 cents. Hope it helps you in the long run.
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17 Jul 2019
Offhand, I have no idea where you got any idea that you were going to find experts in the Financial World here. You're not. What you're really going to get is a very mixed set of comments and you're going to lean in towards what you feel makes more sense, compared to what may actually do so. The worst advice are people who tell you you should go study and acquire knowledge entirely on your own. Thats inefficient and about as valuable as the advice. Which is free. And worthless. If you really believed this or had any interest in this prior to posting your message, you'd probably have studied very differently, or already have the capacity to figure out what you want. You have a guy who doesn't think he helped people in his job and yet he was perfectly comfortable pocketing money for 10 years. That definitely seems like a good place to take ideas from, returns or otherwise. I would literally send you off to MoneyOwl even though I clearly work in conflict with them. Them, or literally any other Finanacial Advisor can give you far more specific and valuable advise than a couple of paragraphs.
Whats the purpose of the 5 -10 year timeframe? Is there a need, or is it a feeling?
How about the 10+ years? Why 10+? Why not a very specific number towards a very specific goal? And if you didn't want to share those specific goals from the beginning, why would you think that answers based on the limited parameters and information would be any good? If you're looking for an expert in the Financial World to get advice from, go to someone with a license to give that advice.
Everyone investment strategy will be different as each individual is unique and have different expectations for their investments.
To help you better, consider some of this simple questions
What is your desired level of returns from your investments? And the level of risk you are willing to take? Are you doing a lump sum or spreading your investments out? Is there a specific event you are investing for? And will you be actively managing your investments?
Depending on your answers, you will split them between the various asset class to create your investment portfolio.
You can also look at high yield savings account from the banks. For example, I use UOB ONE account and I am actually getting around 3 plus percent on my savings; such returns are similar to bonds returns
If you only have 25k currently, you may want to look at them and allocate some towards such high yield savings account.
Set a side your emergency fund. 6-12 months of your income.
Have a short term savings those within 1-3 years time frame as you are nearing the age where you would be getting married or buying your first property soon. (50%)
Mid term. 5-10 years (30%)
Long term (20%)
The reason of why in this format is to take into accord that you might be buying a property when you reach the age of 30 hence a huge chunk would be in the short term component. 30% mid to 20% long term component can be left into either RSP, endowment, ILP, Annuities to earn a higher return.
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A lot of interesting comments here, and to be honest there are many ways to go. Some righteous ones might say, you should spend the money on educating yourself. Some say you should get your toes wet and just invest in stocks. Others who might be more risk adverse will say buy a ETF or unit trust.
They forgot. The first question should always be, what do you expect to get out of 25k?
Now based on your question, you decided to invest the money, and decided the ratio to be 1:1 for a 5-10 years time horizon, and a more than 10 years time horizon. So if I may, I would want to deep dive on why 5 to 10 years. Is there a need for the money after that, and what happens if you hit a loss after that time period?
Why I am asking is that if there is a fixed use for the money after a time period, then you should go for low risk assets so to ensure you hit your time frame.
If all you are saying is, you want to invest for the long term, and you have no specific use for the money, but you want to be able to have a pot of gold for luxury if the investment makes a profit, then the recommendations would change.
Hypothetically, if I was your age, and I would try to put myself into your mind-frame, what I would do is to try to do things that will generate intangible life lessons. Hence, I would invest a chunk into stocks directly. This could be blue chip stocks in Singapore, in order to have vested interest and subconsciously you will learn more about them. This could also be higher risk small cap stocks, where you must understand it is a gamble. I might also even venture into US stocks. Options selling is getting popular as a way of active income. If you don't intend to take courses, then put a small amount of money just to learn about that. What is your expectation for this? To be honest, you might generate 671% return from a single stock or option, or you could lose all the money. That's not the important thing. The key is long term consistency, and you are trying to preserve that notion while using the money to learn more.
Next, I might look at other viable investments that would take less than 10% of my capital. So I might put a small bit of money into crypto currency, IF it is something I believe will appreciate. Of course, if you think it is a scam, you should avoid.
In summary, a good 30-40% should go into a basket that is going to generate life lessons for you. Based on 25k, I might put $5-10k into bluechip types, 2-3k into options writing, and maybe 2k into crypto.
The remaining 10k, I would probably put into an investment basket. This is money that is meant for future planning such as retirement. Hence, I would put this chunk into things like ETFs, Unit Trusts, ILPs, or super bluechip stocks. My expectation would be realistic and a longer term 8-12% annual returns. Ideally, not much time and effort should go into managing this, besides top ups, ocassional switches, etc. You should not even have to read financial reports and all too often.
Reason is this. You are still fairly young. At your current age, you are going to make more in the next 5 years, than the money you saved in the last 10 years. What you want to do is to focus on increasing your earning potential. This could be focusing on your job (and climbing the ladder), or taking courses to build a side hustle. In the grand scheme of things, you could lose the 25k, and it will just be a drop in your life's ocean. Hence, you should use the money to learn things through experiences.
Honestly, 25k, even if you miraculously did better than all the fund managers in the world and hit 30% annual return, it's only $7,500 and if you are a high earner, you might spend that on a business class ticket when you have a wife and 2 kids anyway.
Of course, keeping cash in the bank and doing fixed deposits is the worse. Even buying Singapore Savings Bonds teaches you more life lessons.
TL:DR: Spread your assets across different RISK classes, and use those as opportunity to be better in investment in the next 10 years. PS: Please don't invest shitloads into crypto mining or other get rich quick investments that promises 25% per annum, or some ridiculous monthly ROI.
For any monies required in 5 to 10 years, I'd go for a conservative portfolio of around 30% Equities, 50% Bonds, 10% Commodities, 10% Cash Instruments.
For anything longer than 10 years or possibly for retirement, I'd have my age as my bond allocation and the rest in equities. Maybe drop some equities to include property as an asset class as well. I'd rebalance yearly and adjust my asset allocation every 5 years or so.
Hi Liam, I'm assuming that you have emergency funds already set aside and you're going to be working for the next 10+ years.
Honestly for long term planning people don't set aside a lump sum for it at the start. Long term planning (more than 10 years) can be imagined as a project that you like to have later on, e.g. retirement, business set up, family planning, that you can progressively achieve. Thus is this where insurance savings comes in.
For your budget and age, you can consider 3 things, (1) whether you need the $25k in the next 5 to 10 and/or 10+ years, (2) how much you want this pot of money to grow, and (3) how much risk you're willing to take.
If you do not have any general direction, just want to grow your money, and if you're confident that you do not need the money in the next 10+ years, then it's good time (for your age) to use this money more aggressively in a progressive manner, e.g. if you have at least a day in a week and you are interested in investments, you can put $1k to start off buying shares and progressively add more money to the portfolio as you learn.
The important thing is to get started, but do not neglect your long term needs at the same time!