Saturday, 6 July 2013

Eat thine own cooking

I would have written this a long time ago, if my motivation wasn’t so readily eroded by distractions and general inertia.

Say you have about S$100,000 to invest, and in 10 years, you want to grow it to S$1,000,000. The actual numbers are unimportant, but the point is the compounded growth rate needed to achieve that goal. To get there in 10 years, you would need to grow that S$100,000 by around 26% every year, for 10 years.

When I was 20, I thought I’d be a millionaire by 30, and retire by 40 to live by the beach and surf and dive all day; and I thought 26% compounded over 10 years was a realistic rate of return. Ah, youth.

Merlyn Ee of the MAS was recently quoted saying, ‘We need to do more to help Singaporeans better prepare for life's unexpected events and to set aside adequate savings for their golden years.’ And citing a HSBC survey done,

Over half of Singapore respondents feel their financial preparations for a comfortable retirement are inadequate: 44% feel their preparations are not enough, whilst 12% are not preparing at all.

She does have rather lofty aspirations for financial advisors in Singapore:

Financial advisory firms can help Singaporeans realise these goals. My vision for the financial advisory industry in Singapore is for financial advisers to be viewed as professionals, just like lawyers, engineers and accountants, with their own code of conduct and high standards of practice.  We are not there yet.

With the exception of the last sentence, real reform lies in a more informed group of consumers, who won’t end up buying structured products, neglecting their investments, and falling for sales tactics practiced by some in the industry. The tricky bit is finance isn’t something people think about a lot. Sure those of us in the industry spend quite some time on it, but I would wager a good number of us, myself included, have quite a few blind spots when it comes to the financial 
phantasmagoria of products.

I can think of two reasons why. Firstly, many don’t have a foundation in finance. I certainly didn’t study finance. What I know has been gleaned over years of experience and a hodge-podge of financial literature often written for larger markets. I’d like to think I know the basic tents of investing but that leads to my second point; knowing versus doing.

This doesn’t get talked about enough. Doing finance is a bit like doing a budget. It sounds and feels good talking about it, but actually sitting down and itemizing income and expenditure ranks somewhere below watching grass grow. Picking investments is the fun part, like shopping for nerds. Portfolio maintenance, rebalancing, and creating excel models is the boring stuff.

If finance is going to be a bigger part of Singapore’s economy, it’s peculiar that not much emphasis is placed on the financial skills needed to make sense of the discipline, especially in schools. 

Some might say it’s a responsibility.

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