Timeless advice on Investing

One should commit at least 20% of your income to savings. Such reserves are badly needed in urgent situations. The accumulation of your savings should be committed in liquid financial instruments. Liquidity is the primary consideration because you want the option to retrieve the money quickly at a low cost.

Some of my friends invest in land-related structured products that lock up their money over a long time. Some others invest their money in alternative schemes. Always put your money in traditional instruments such as stocks, bonds, exchange-traded funds, mutual funds and money market funds.

Investing in a long-term affair. Anyone that tells you otherwise isn’t a real adviser. Your returns are a function of cost and risk. The riskier your instrument, the lower your returns. The costlier your investments, the lower your returns. This is pretty straightforward.

There is no magic formula in investing. Diversification allows you to reap benefits of lower risk with the same expected return over time. The cheapest way to diversify is to put 2/3 of your money in stocks and 1/3 in bonds. Some recommend a 60/40 split. This is fine too, as long as you re-balance your portfolio annually. The proof of the benefits of diversification is mathematical. Giants in the financial industry have also urged individual investors to adopt such a simple investing rule. I recommend two books that you need to read; Common Sense on Mutual Funds and The Intelligent Investor.

My opinion is that you do not need a financial adviser. They increase your investing cost. The rules of investing are relatively simple. You do not need to outsource this responsibility. First, select low-cost funds. On average, managed funds charge at least 2% over passion exchange-traded funds. This reduces your overall returns in the long run by a gigantic amount. Beware of unique fee structures. Some fees can be hidden in sale charges, some in wrap accounts.

William F. Sharpe, a Nobel Laureate in Economics said: “The first thing to look at is the expense ratio”. You will definitely earn the highest returns in a low-cost index fund. An index fund that mirrors the market will also likely outperform any funds in the long term. In fact, more than 90% of funds fail to outperform the benchmark index. Funds with high expenses will under-perform their benchmark. Funds performance typically exhibit mean reversion. In other words, the worst fund of the year will more likely outperform the best fund of the year in future. To me, past performance means nothing. I will always only look out for index funds with the lowest costs.

Within the equity portion of your portfolio, simply invest in low-cost index funds in the U.S and the U.K and in Asia. Avoid synthetic exchange-traded funds because there is an additional layer of counter-party risk. Actually, you only need to hold a couple of funds in your entire lifetime. If you hold too many funds, it can be difficult to manage the exposure. Many of your funds will overlap significantly.

Want to invest in Commodities?

Commodities usually involves high costs of storage and procurement. For this reason, investors have relied on futures or commodities firms to obtain commodities exposure. With the introduction of commodities ETF, there is renewed interests. ETFs provide cheap and transparent way to invest in commodities futures.

Factors affecting commodities comprise weather, geopolitical developments, supply constraints in physical production, unanticipated increases in demand as a result of prosperity in emerging markets, and incidents that create political or economic turmoil.

Recent crisis have shaken investor’s confidence in equities. This motivate investors to explore alternative investments in commodities. What are some ways an investor can invest in commodities?
  • Exchange Traded Funds provide the cheapest way to buy commodities exposure. These ETF track major commodities index
  • Exchange Traded Notes track non interest paying debt and the credit risks of commodities contracts. Payoff to the ETN depends on the counterparty risk of the futures issuer
  • Unit trusts have higher fees than ETFs as they typically employ discretionary management methods to invest in commodities or companies in the businesses related to commodities

An investor can also trade derivative contracts such as futures and swaps directly. The most direct way of investing in commodities is to buy the physical commodities incurring storage costs. One of the most indirect ways to gain exposure to commodities is to buy equities of related businesses.

Commodities have unique characteristics. Metals are seen as safe haven for investors and demand can be driven by the stability of the value of money. Soft commodities such as grain, crops and coffee generally react well to extraordinary detrimental events.

Agriculture sector is less dependent on economic conditions and more dependent on factors such as global weather. The low correlation (even lower than bonds) is an important tool for portfolio allocation. Commodity prices can also hedge inflation.

For long term investors, commodities will be a strategic allocation tool for the portfolio due to the low correlation with equities. For short term tactical allocations, commodities rise when inflationary pressures increase.

Costs are the best single predictor of the future performance of an investment

Costs are the best single predictor of the future performance of an investment. Keep costs lower — by tracking an index rather than investing in attempts to beat it — and for any given level of risk, your returns should be a little higher.

Why investors need to know about indices.

Research by London’s Cass Business School shows that randomly chosen portfolios — that might as well have been picked by monkeys — are overwhelmingly likely to beat market-cap-weighted indices. But most monkeys failed to match equal-weighted indices, or indices based on most sophisticated measures to limit risk.

So the hierarchy is that simple equal weighting indices beat monkeys, who beat value-weighted indices like the S&P, which beats the average active manager (who nonetheless complains that the S&P benchmark is unfair).

Yet our money is still mostly run by active managers, while none that I am aware of is run by monkeys. For these reasons and much more, we need to know more about indices.

Mr. Markowitz’s comment on this: “One lesson from 2008 is that if it’s very complicated and you don’t understand it, maybe you shouldn’t buy it.”

Anyone with a simple rule that required them to keep 40 percent in bonds and 60 percent in stocks would have “rebalanced” — bought stocks — near the market’s nadir five years ago, he points out. “Those who were too clever by half suffered tragic

Passive better than active

Net returns received by investors is net of cost. There are many types of costs. Some are clear, some are hidden. Our financial system is complex. There are too many middlemen, the leftover returns for the common man can be too little to sustain savings. Investors (you) becomes the bottom of the priority list.

Investors commit money and get exposed to risk. If the market moves in your direction, the hedge fund manager takes a large chunk of your wins. If the market moves against your direction, the manager is insulated from losses. He still takes a fee from you.

Benjamin Graham said that anyone can design a strong portfolio with just stocks and bonds that are representative of the market.

A doing nothing policy is always better than an active strategy. As long as you make a decision to move money, someone charges a fee. If I may summarize, always invest with the lowest cost instrument - index funds.

Just get that index fund

I hope to simply the process of investing among individuals. The investment sector is filled with fraud. As long as you buy or sell, someone makes money from you. And the world is consistently asking you to buy or sell. No one ever tells you to buy and hold forever, even though that’s the best strategy to induce the least cost.
I’m going to sure a few tips that you will find boring. But it’s going to save your life.
First, invest in an index fund. Never ever buy any collective instruments if possible. Any active managed fund will cost you an arm and a leg compared to a passive index fund. Run from anyone who tells you you can beat the market. No one can. If there is actually a fund with a superior strategy, it’s never going to last long before the market neutralizes it. Most likely you earn normal returns after cost.

Do not fall for simulated results. Be aware that most fund houses present results from a pool of funds they select – we call it survivorship biases. No one ever beats the market. There are great investors who existed in the past. But after taking their returns, adjusted by risk, the risk adjusted return also cannot beat the market over the long term.

Just buy the index fund. Please do not fall for tricks and sweet talkings.

Secret to buying insurance

Should I buy from a friend or direct?

Try not to buy from an adviser because insurance commissions can be very high. Yes, it can go up to 50% for your entire first year’s premium. This is why you should go online to get one yourself. Simply Google “Compare Insurance” to find out portals that can help you spot the cheapest coverage.

How do I shop for insurance by myself? I don’t even know what is needed?

There are just a few categories of insurance.
  • Health insurance mitigates the risk of falling sick – I recommend to upgrade to cover private hospital expenses
  • Life insurance – I recommend to cover your projected income until the age of retirement. By retirement you won’t need insurance because your savings is supposed to take over. Frankly, if your family is wealthy enough to survive should you pass on, forget about this.
  • Critical illness – I like this. Buy this because you don’t want to be a drag to your family when you are critically sick. Note that both euthanasia and suicide is illegal in Singapore
Buy term insurance. They are cheaper. Do not buy wholelife or ILP. There is, however, a special case for ILP where you can choose to maximise coverage and use the rest of the remaining units to invest (very little).

Honestly, the products that an adviser sells you won’t be able to help you retire well. You need to seek higher income and, perhaps, work harder.

Con men and cheaters selling investment courses

Many errant businessmen are selling trading courses. No one with a working formula will reveal their “magic formula” for a few thousand dollars. The efficient market hypothesis states that any formula that takes if released into public hands and if adopted by the public, will result in the nullification of the effects of the formula.

But the case is different if the formula is one based on simple probability. 50% of the time it works, 50% of the time it does not work. You sell the formula for thousands, show the cases when it works, find a reason when it does not. Offer advice on hindsight, give many caveats for future looking tips. This is an old business. People have sold gambling tips over centuries. Today, the same con men are legitimizing this trade by dealing with regulated instruments like stocks.

Let me unveil the business model. They get you in to attend a free course, hype you up, sell a 3 to 4 - day course for thousands. At the end of the course, they sell you more courses and formulas and unique programs. You get sucked into the program. Just when you think this is it, there’s more. You signed up with one of the brokers they brought. Every trade you make, they make a fee, or at least, they earned an introductory fee.

If you want to learn how to trade FX or stocks, read a proper textbook. There is no shortcut. Keep a few honest financial blogs. There’s not many.

Regression to the mean - how one means the market over the long run

Look at the table above. Well performing funds do not stay at the top. They revert to the mean. This implies if you had bought a fund simply because it made good results in the past, you are more likely to lose. Simply put, if you came first, overtime you will underperform to emerge somewhere in the middle (the mean).

I get it that many professionals tell you they have insights. They print beautiful brochures. Anyone can report good results. Think about it this way, you came in 20th in a class of 40th. How do you show you did well? Well, you can say you were top 5 of those who went to the same club as you did. You could also say you were first in the entire neighborhood you stay in. These could be facts. But it does not take away the fact that you only came in 20th.
  • Fund performance is hypothesized to be random
  • Cost and fees are everything. Buy the cheapest that gives you the broadest diversification
  • Please buy funds yourself, direct, not through advisors. They take a big cut

Simple investing truths

I haven't been writing about investments because I genuinely believe the public needs to be taught a lesson for listening to sub standard advice.

They believe that 0.5% processing fees, 1% sales charges are acceptable as long as the sales person is hot. The general public does not know simple mathematics and bloggers and advisers similar do not know simple mathematics. The first step is to learn geometric progression — go back to primary school, please.

Rule 1: Fees should be kept minimal. Free is better than 0.1%. 0.1% is better than 0.5% and in turn, 0.5% is better than 1%. In this light, buying from exchanges make more sense than from anyone else. Period.

Rule 2: Run away from ongoing charges. Sales platforms like charge you a fee on AUM (asset under management) is simply disgusting. They will all be disrupted by Fintech soon. The only persons that deserve a fee is the manager.

Rule 3: Diversify. Diversification is scientific. Read this set of slides. Buy into an index fund. A non-traded index fund is better than an ETF. A physical ETF is better than a synthetic ETF.

Rule 4: Re-balance annually. Not anymore or less. Stop reading substandard blogs and start taking the CFA curriculum if you are genuinely interested in finance. You won't get a job in the financial industry because you passed all 3 levels, but at least you won't get cheated.

The MAS money sense website has one of the best and most updated information on investments. Please read it.

My personal advice:

A. Spend money on Uber. Save time. Don't spend money on expensive investment intermediaries

B. Spend money outsourcing work. Don't do administrative work yourself and waste all the time and effort learning nothing. Rest more often. Think deeper. Read FT.com, take the CFA curriculum.

C. Enjoy life. Eat better. Do not take anything to sales platforms. At best, pay a small commission to the exchange and an electronic broker.

Nevada’s pension fund is invested in stocks and bonds that are all in low-cost funds that mimic indexes

Cutting costs and investing in low risk bonds and stocks

Nevada’s pension fund is invested in stocks and bonds that are all in low-cost funds that mimic indexes. Mr. Edmundson rarely makes more than one change to his portfolio every year. News headlines don’t matter much to him, whether it’s local or global.

Mr. Edmundson’s secret isn’t a complex formula or inside information on the markets, instead his strategy is not to outperform the market, but instead keep expenses low. He’s stated numerous times that his firm is “bare bones”, when it comes to expenses.

Instead of racking up expenses Mr. Edmundson prefers to save every penny his fund has. This is why he doesn’t have expensive office furniture, or high end perks, nor does he even buy lunch. He has stated that he doesn’t want to spend $10 every day in order to have lunch.

Despite his frugalness Mr. Edmundson’s funds over 1 year to 10 year periods ending on June 30, have shown greater returns than many of America’s largest public pensions, such as the New York Public Employees’ Retirement system, or The California Public Employees’ Retirement System (CalPERS).

Is doing nothing, really better than doing something?

In light of Nevada’s high returns, other state pension funds have taken note of Mr. Edmundson’s strategy, and the spokeswomen for CalPERS, which is valued at $300 billion compared to Nevada’s $35 billion, said that Nevada reduces the complexity, costs and risks in a portfolio.

For that reason, a big number of famous public pension funds have now taken up Nevada’s strategy, as numerous pension funds are dealing with low cash reserves and reduced interest rates. Even California’s $300 billion public pension fund has decided it would cut ties with 50% of firms that are handling its money.

Accordingly, compared to a decade ago nearly half of US public pensions are now in low-cost index funds. Many investors are now “migrating towards Nevada”, states says Stephen McCourt, who is the co-CEO at pension investments consultant Meketa Investment Group Inc.

However, other investors disapprove of Nevada’s do nothing approach. Mr. Chattergy is the pension chief investment officer for Hawaii and a friend of Mr. Edmundson’s, who disagrees with Mr. Edmundson’s approach. Unlike Mr. Edmundson’s approach, Mr. Chattergy relies on a myriad of investment market strategies, which have thus far been successful in getting him returns comparable to Nevada.

Should you turn funds passive?

In 2005, when Mr. Edmundson was brought onto the Nevada pension plan as an analyst, almost 60% of the funds stocks were in indexes. After becoming Chief investment officer in 2012, Mr. Edmundson did something unprecedented, by turning the fund more passive. By 2015, Mr. Edmundson had fired ten external managers, and put all of Nevada’s bonds and stocks into passively managed funds.

unprecedented, by turning the fund more passive. By 2015, Mr. Edmundson had fired ten external managers, and put all of Nevada’s bonds and stocks into passively managed funds.

unprecedented, by turning the fund more passive. By 2015, Mr. Edmundson had fired ten external managers, and put all of Nevada’s bonds and stocks into passively managed funds.

Subsequently, Mr. Edmundson saved the Nevada fund a fortune, as its outside management bill was nearly 1/7th of the other public pension’s, according to Callan Associates, which tracks retirement-plan expenses.

If Mr. Edmundson relied on outside management like other public pensions, he would have racked up $120 million annually in fees; however in 2016 the Nevada fund only paid $18 million.

Despite the success of Mr. Edmunson’s cost cutting, he still does day to day work, like any other average office employee. He prepares material for board meetings, drafts proposals and does administrative tasks, as he believes taking on extra employees would cut into costs.

Nonetheless, Mr. Edmunson still has some way to go if he truly wants his fund to succeed, as Nevada’s current assets would only fund 73% of what is needed to meet future retirement obligations to workers.

Key takeaways

Unlike other investment firms that woo and buy the attention of their clients, through expensive lunches or grandiose presentations, Mr. Edmunson often councils Nevada’s top pension officials on interest-rate risk, as well as investment targets in his small boardroom, through uninspiring Powerpoint presentations. Additionally, he avoids taking his clients out for expensive dinners, as he sees it as an unnecessary expense.

Moreover, Mr. Edmunson generally doesn’t work overtime, outside his normal 8-5 hours, drives to work every day in his 2005 Honda Element, which has over 280,000 kilometers on it, and in 2015 his salary was $127,121.75, according to a Nevada Policy Research Institute database.

The key take away from Mr. Edmunson’s success is not necessarily hard work, instead it’s the opposite. By doing the least work possible, Mr. Edmunson has cut huge risks and expense for his fund, and instead provided huge returns.

High fees rob your peace

I’m amazed by the proliferation of articles and content on methods to make big money online. On forums, ordinary men try to give advice on which broker to use, which product to buy.

The truth is simpler. People simply want to earn commissions on your investment. The more you trade, the more they earn. The more you buy into mutual funds, the more fees you pay to agents. Investments should be boring. Put your money in a globally diversified fund and leave it there. Do not move money. Companies layer fees when you try to move money.

Start young, have a long investment horizon. Go for globally diversified passive funds. I like ETFs in Singapore because we cannot buy Vanguard funds direct yet.

Avoid actively managed funds. I wrote a few articles consolidating evidences on why active managed funds don’t work.

Also, read vanguard’s studies. See the truth about active funds here. Don’t trade actively. Don’t invest in active funds. You are simply funding the high salaries of managers. More than 80% don’t even beat the benchmark market returns.

There are only 3 simple steps to investing:
1.Save monthly, 20 to 30% is a good figure.
2.Invest the money in index passive funds.
3.Leave it. Don’t touch the pot of gold.

Run away from people who are trying to sell you active investments. Don’t even talk to people who want you to believe trading leisurely will make you rich. Let your money work for you. Leave your money in a passive fund.

Live video anchor agent firms are fixing their eyes on undergraduates

Agents promise the undergraduates of 10,000 yuan salary per month but end up offering only several hundred yuan.
Web star agents promise to offer several thousand yuan per month to undergraduate anchors
Shortly before summer vacation, Wang from Capital Normal University noticed a recruitment poster in the campus. The recruitment was for live video anchors and potential web stars. “We’d like to recruit good-looking anchors who are enthusiastic about performing, singing, dancing, and modelling, etc.", said the poster, “students who received professional training are preferred.”

Such posters and leaflets from different agent firms were soon distributed across several campuses in Beijing. The rewards seemed quite attractive. Some agent firms claimed to offer RMB 3,000 to 5,000 per month for 2-3 hours’ live video streaming work per day.
Recruit poster in campus

The agents said that many undergraduates took the anchor job with a monthly earning of 2,000 to 10,000 yuan.
The anchors are requested to dress up and chat
Our correspondent got in touch with a manager of one agent firm in Beijing and sent him a candid photo. The manager suggested that she’d better improve her appearance and replace the glasses with contact lenses. The manager invited her to a face to face interview after some chatting. “Do remember to put on your make up and dress well”, he reminded.All conference rooms are filled with applicants when the correspondent came to the company for the interview. So, her interview was taken place in one of the live video streaming rooms. 

One live video streaming room in Beijing

The correspondent is requested to come every day and work for 4 to 6 hours per day to amass fans. Otherwise, she would need to purchase for the live video devices herself and work from her dormitory.
To become a web star, you need to work as an anchor first
The web star agents were recruiting good-looking versatile anchors when they claimed to look for potential web stars. “It’s not easy to make the anchors web stars. You don’t need to become web stars to earn money”, said one manager.
The “web stars” would be graded by their appearance, talents and performance, and their payments would differ depending on the grading. The basic salary for the lowest ranking anchors is 1,500 yuan per month plus commission of 40%; for the highest ranking anchors, it is 10,000 yuan per month plus commission of 50%. To get a basic salary, they need to work at least 2 hours a day, and 22 days per month. They also need to secure ten high-quality videos per month.
“Sexy figure” is a plus

One manager from a web star agent showed the correspondent a sample popular video. In the video, a scantily-clad young lady was playing guitar. “This is the kind of video we want, we just need to avoid being caught by the platform”, said the manager, “some graduates already earned 30,000 yuan this month in this way.”

Chatting history with the agent
Some anchors only get 200 to 300 yuan per month
Li Ru from Capital Normal University has worked as a part-time anchor for a few months. Her purchased her own devices and worked in her dormitory. What she needs to do is singing, chatting and dancing. "Although the basic salary is 2,000 yuan per month, I've never achieved the basic work hours. Usually, I can only get 1,000 yuan, and there's only several hundred left to me after the deduction of commission fees", said Li. “And some audiences would speak ill of me, which hurts me a lot”. She once considered quitting. But she eventually goes on because this is a relatively easy way to make money.
Undergraduates should know how to protect themselves when engaging in the anchor job

Undergraduates should protect themselves by reading the contract carefully and refusing any illegal performances when doing live video streaming. Some undergraduates are so obsessed with the idea of becoming web stars that they are prone to be cheated by the agents. However, even becoming a web star does not mean that one can take it as a lifetime job. He or she should make long-term career plans and be more helpful to the society.