Investment Commitments

I am reading my M5 textbook and I finally come across something which is useful. Ops.

The Know Your Client states that in order for a financial advisor to make a recommendation, he needs to understand the client’s investment objectives, financial situation and particular needs. From there, the financial advisor needs to carefully curtail a plan for the client.

This brings me to Investment Commitment. Are you able to commit money to invest on a regular basis? If yes, then you can harness the advantage of dollar cost averaging. I had an unfair advantage because since 2009 onwards, I was the Constant Cashflow Investor. I have strong net income (in my context) which comes in on a monthly basis and I will use them to acquire financial assets. I have a high saving ratio as I live frugally. I am quite proud of how I allocate resources most of the time. Hence, it is possible for me to get out of a “bad” investment (temporary having paper loss), I can choose to continue to buy more and average down the cost. Using this approach, I have seldom lose money and able to either i) grow the portfolio by acquiring more or ii) take dividend while waiting for stock to rise back up and reinvest to compound it further.

I will soon become the second type of investor because there is no income from employment. This is the Lumpsum Investor. They do not have constant income and they rely on an one-time investment, park it there and forget about it. Then how should this type of investor plan the investment game? There are a lot of experts who will recommend going in based on stages. For instance, pump 20% first, if it drops another 10%, pump into another 20%, so on and so forth. However, will it be a concentrated move or diversified investment? This is a tough call. I will think that if you do not have a strong stock broker to work with or you do not good investment skills, just buy ETF. Stagger the lumpsum into the ETF and reinvest the dividend. You should be able to get above average returns. Does this mean I will go into ETF? Yes, if I cannot get above average returns. Alternatively, I will use ETF to invest in countries such as Russia and China. 

Now I am going back to my studies, continue reading page 63 of 519. What a way to spend my Friday evening.

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