I am sure when you come across investing, there is a quote not to "Put all your eggs in one basket". People are always encouraged to diversify to spread risk. There is nothing wrong about diversifying but at times some misconceptions and interpretations has put a different meaning to diversifying which makes it wrong. So here a bit of information to clear to confusion.
A "normal" portfolio normally consists of investments of different risk. The higher risk would usually be equities, medium risk to be real estate and precious metals, and the very low risk investments are the ones consisting of term deposits, bonds and treasury notes.
There is no ideal percentage we should allocate to high, medium or low risk investments. But we SHOULD have all. Over the long run, equities might give you the best returns, but its not sound to be holding too much of them as cash flow might be a problem.
Back to the main topic, diversifying. The lesson of the day is "DO NOT DIVERSIFY FOR THE SAKE OF DIVERSIFYING!!". I have come across people going into the stock market and trying to create a portfolio of companies from different industries. They buy companies from different industries to diversify. I have no right to say that it is wrong or less profitable. But I won't recommend people diversifying like this unless it is really sound to do so.
A quote from Buffett says " DO NOT DIVERSIFY". Does it put all your money into equity? Or does it mean buy only 1 stock? Okay, here is what it really means. He is not meaning absolutely don't diversify at all, he is trying to say don't try to diversify just because the rule of the thumb says so. Why?? "When you diversify, you will put money in average investments and leaving not enough money into the good investments".This ends up showing a mediocre return. Buffet owns a porfolio ranging from financials, insurance, energy to staples. He is diversifying isn't he? Yes he is, based on his diversified portfolio. So is that contradicting? NO. He diversifies based on his thorough analysis on companies he understands and believes will outperform the rest.
Having said that, had he diversified into technology in his early days like Microsoft, he would be making a much bigger return. But till today, he tells people he doesn't understand technology and still stands by it. I think its a pretty good example to follow.
I hope I have cleared some confusion about diversification. So the next time someone tells you to diversify your portfolio through some form of investment, please remember it isn't necessary going to be good or reduces your risk. It could just mean you own a different "type" of investment and thus giving you a diversified portfolio.
Diversify your portfolio the right way
~deyao~
Saturday, September 19, 2009
Monday, September 7, 2009
Investing is Not Risky, YOU ARE!
Firstly, I didn't really create the title myself. Robert Kiyosaki did have a quote that "Investments are not risky, it is the Investor that is risky". So that's how I got it. For those who didn't already know, his books kinda kick start the thinking in me and I thank him so much for it. And of course, Warren Buffet's quotes and techniques have also been great guidance to me. I have gained so much confidence because of them. Thank You Gurus!
In this post, I hope to help anyone who reads this to gain confidence in investing. Sorry I might be repeating some things I have written previously, but the truth is things are all inter-connected so its too easy to be talking about the same thing.
Robert made his books exciting by providing some very interesting examples to help people understand a situation and it is a brilliant way to describe some things that are hard to picture. I have an example today on why investing is not risky as people think. Nothing is risk-free in this world. The closest thing to risk free are government bonds, but history has shown even government can default. Here's the example.
Students are the investors and the exam is the stock market.
We have two students, one is the scholar (the smarter one) and the second is the average student . The scholar obviously studies a lot harder and smarter than the average student. Which of them runs the higher risk of failing the exam? Obviously the average student. Lesson of the day, do your homework and your risk is instantly lowered. The exam is the same for both students just like the stock market is the same for you and the entire world, but why are some investors just better than the others?? They do their homework.Another way to say this, if you studied for the exam thoroughly and understood very clearly all the topics, would you feel confident walking into the exam..I am sure you will. It's the same thing, if you did your homework in investing terms, there's where you get your confidence from.You know what is better than the others.
Experience. I hear people say don't go into the market because you lack experience. Very true, a less experienced investor might run a higher risk as they are unfamiliar with certain situations. But once you have done your homework, taking small steps into the market would be the best. You don't need a lot of money to start off so just have a reasonable amount and buy securities you fully understand. I am repeating again, you learn by playing!! The longer you get yourself involved, you will realise some mistakes which you can avoid making again and learn to watch some trends which will give you huge benefits. Later on, you can devise strategies and plans which you can try out and learn. You will be moving up the ladder in no time.
I know it may sound wrong to plan your retirement if you at your 20s. But have a thought, if you have another 30 years before retirement, thats not a lot time to save up. If you have $1 today, putting it in the bank at 3% compounded, you will have $2.43 in 30 years. In the middle of that 30 years comes family and bills to pay. And the true thing is without proper planning, you might be left with very little when you retire. If for 30 years, you return 140%, that is really not sufficient in todays terms. Also we look at the time value of money factor. This rule tells us a dollar today is different than a dollar in a years time because that dollar can be invested to earn interest. It means, YOUR MONEY IS MOST POWERFUL AT THIS PRESENT MOMENT. If you wait another month or year, its power depletes gradually.
An example, if a person challenges you to earn a return of 100%. Would it be easier to make to 100% in 5 years or 10 years? Definitely 10 years. If interest was 10% a year, the challenge would be too simple. The extra 5 years does make it easier ....doesn't it. If your investing lifespan is 30 years, please start now! 30 years becomes 29,28,27.....years very soon so please make use of these precious years. I use precious because time is probably the most important factor when you decide on investments. I hope everyone realises the power of time in investing. Waiting any longer.....now thats risky!!!
Have a good day. Thanks for reading.
~deyao~
Saturday, September 5, 2009
Mini update
I was suppose to have an update on life in Australia but I never really got started, but now since I have a study break I'll just put in a few paragraphs.
Firstly, in terms of the weather, it was really cold as first in July when it was at the peak of the winter, was really trying to adapt to the climate and found it really hard. But the weather got better gradually but there were days when you thought, "Hey, the weather is getting warm already", then the very next day comes to a very cold one. The strong winds sometimes just blows you so hard that you could feel a bit tired..lol. With proper clothing, the weather is alright. It's like free air-conditioning at times.
The people. In a much more developed country compared to back home, the people here are generally much better. They are definitely more friendly and polite. In general (meaning half of the time), you meet very nice people when you need help or assistance to something. The orientation week was very well planned, I would say it really gave the new students most of the important information to start off. Thumbs up to that. The mixed diversity of cultures here are also something that I've learned quite a lot about. People come from so many different countries and it is just quite unbelievable that you are at the place to see it all.
Uni. Quite a huge change this one. Although with one full year of tertiary study in the bag, the changes were still quite huge to adapt to. First time being enrolled in a real University, I actually feel quite proud. Although entry is not considered difficult, but being in the real Uni itself tells you that you have reached another level. Back home, Pre-U in one building, and degree at the next building. Here its a uni with so many different faculties that some I never heard off, from faculty of botany, to clean water something faculty, you get the feeling of a fully structured institution. Plus, UWA is really huge in area. By my estimation of walking and timing, it is approx. 1km by 400m. Relatively small compared to Curtin in WA but it's still freaking huge. Walking one end to another is not funny, it's almost 20mins on a normal walking speed. Some lectures are split to 2 sessions of 45 minutes and tutes are only 45 minutes per subject a week. This is a big difference compared to 2 full hours back home. You get in the tute, discuss the allocated questions (some beforehand), you try you best to participate and out you go. It's so quick I tell you. Goodbye to the 2 hour tutes back in TBS where there is abundant of time to fully go through most of the aspects of the topics and have off topic discussions. Oh ya, lectures are recorded and you get to watch the lectures at your own time. The audio is clear and everything on the screen is recorded too. So you feel quite safe sometimes when you actually don't feel like attending lectures on some days or have to study.
Uni lecturers and tutors. Hopefully things will be better for the lecturer part. 3 out of 4 of them are boring. They all are very knowledgeable and have certs ranging from Doctor, Assistant Professor to Professor. No doubts on them being very knowledgeable, but they lack the teaching skills to make things interesting. which really makes me drag my feet to lectures. The real situation is just pick up the few important points and study it at home, it works for now. Tutors are quite different. Some of them are postgraduate students and they look just like your other classmates that sit beside you. They are so damn young! I find all of them pretty good, such a good consolation. The funny thing is when you see them for the first time when they walk in and your brain signals you that "Oh, here comes another student". But this student takes the seat in front and is your tutor. Feels like your friend tutoring you..haha.
Accomodation. The place I stay is probably one of the best places to stay in Perth (at least in my view). Subi (short for Subiaco) is a suburb located beside the city. I have made a list of why this place is great.
1. Very close to the city, takes about a little more than 5 mins to city.
2. Direct bus to Uni, which is really great for me who takes it everyday. The buses are on time and they are affordable.
3. Supermarkets. The two largest supermarket chains Woolworths and Coles are walking distance which is so awesome. I love supermarkets here.
4.Banks. Subi has all the major banks here also within walking distance which makes things so convenient. 7 mins on foot and about 2 mins on car.
5.Train station. About 8 mins on foot, you get to the train station which can lead you to almost anywhere you want. Haven't been on one though.
6. Subi market. Wonderful place to get all the vegetables and fruits. It's like a one-stop place . Also has some eateries there.
7. Bunnings. It's one of the largest hardware retailers in Australia and its just beside the train station and Subi market. Any hardware or spare parts, probably has it all.
8.Subiaco Oval. Not quite a big plus to me but it looks so damn nice. This is the only stadium where National Australian Footie is played in WA. It also recently hosted South Africa against the Wallabies for rugby. When there's a game, the crowd is quite loud and it echoes around the houses nearby and can definitely hear it.
9.Restaurants. There's plenty of places to eat in Subi. Ranging from fast food to classy ones. Desserts are also everywhere. Host of choices here except for the Asian food.
10. Shopping. Not quite my thing, but there are so many apparel and clothing outlets for shopppers. It ranges from the Esprits to the D&Gs range. So for people on a tight budget like me, we just walk past them everyday. I would say there are about 30 clothing outlets nearby. City is a stone throw away so there's a lot to look at. We also have Harvey Norman ( home appliances) and Harbour Town (Place for apparels and some eateries) nearby.
11. Entertainment. A half stone throw away is Northbridge, the major entertainment precinct for Perth (Lifted from the newspaper,lol). Clubs, bars, restaurants, billiard centres are all there.
And of course, living with family makes things very different. It's almost like I didn't leave home.I guess being home-sick is not quite on the menu.
~deyao~
Firstly, in terms of the weather, it was really cold as first in July when it was at the peak of the winter, was really trying to adapt to the climate and found it really hard. But the weather got better gradually but there were days when you thought, "Hey, the weather is getting warm already", then the very next day comes to a very cold one. The strong winds sometimes just blows you so hard that you could feel a bit tired..lol. With proper clothing, the weather is alright. It's like free air-conditioning at times.
The people. In a much more developed country compared to back home, the people here are generally much better. They are definitely more friendly and polite. In general (meaning half of the time), you meet very nice people when you need help or assistance to something. The orientation week was very well planned, I would say it really gave the new students most of the important information to start off. Thumbs up to that. The mixed diversity of cultures here are also something that I've learned quite a lot about. People come from so many different countries and it is just quite unbelievable that you are at the place to see it all.
Uni. Quite a huge change this one. Although with one full year of tertiary study in the bag, the changes were still quite huge to adapt to. First time being enrolled in a real University, I actually feel quite proud. Although entry is not considered difficult, but being in the real Uni itself tells you that you have reached another level. Back home, Pre-U in one building, and degree at the next building. Here its a uni with so many different faculties that some I never heard off, from faculty of botany, to clean water something faculty, you get the feeling of a fully structured institution. Plus, UWA is really huge in area. By my estimation of walking and timing, it is approx. 1km by 400m. Relatively small compared to Curtin in WA but it's still freaking huge. Walking one end to another is not funny, it's almost 20mins on a normal walking speed. Some lectures are split to 2 sessions of 45 minutes and tutes are only 45 minutes per subject a week. This is a big difference compared to 2 full hours back home. You get in the tute, discuss the allocated questions (some beforehand), you try you best to participate and out you go. It's so quick I tell you. Goodbye to the 2 hour tutes back in TBS where there is abundant of time to fully go through most of the aspects of the topics and have off topic discussions. Oh ya, lectures are recorded and you get to watch the lectures at your own time. The audio is clear and everything on the screen is recorded too. So you feel quite safe sometimes when you actually don't feel like attending lectures on some days or have to study.
Uni lecturers and tutors. Hopefully things will be better for the lecturer part. 3 out of 4 of them are boring. They all are very knowledgeable and have certs ranging from Doctor, Assistant Professor to Professor. No doubts on them being very knowledgeable, but they lack the teaching skills to make things interesting. which really makes me drag my feet to lectures. The real situation is just pick up the few important points and study it at home, it works for now. Tutors are quite different. Some of them are postgraduate students and they look just like your other classmates that sit beside you. They are so damn young! I find all of them pretty good, such a good consolation. The funny thing is when you see them for the first time when they walk in and your brain signals you that "Oh, here comes another student". But this student takes the seat in front and is your tutor. Feels like your friend tutoring you..haha.
Accomodation. The place I stay is probably one of the best places to stay in Perth (at least in my view). Subi (short for Subiaco) is a suburb located beside the city. I have made a list of why this place is great.
1. Very close to the city, takes about a little more than 5 mins to city.
2. Direct bus to Uni, which is really great for me who takes it everyday. The buses are on time and they are affordable.
3. Supermarkets. The two largest supermarket chains Woolworths and Coles are walking distance which is so awesome. I love supermarkets here.
4.Banks. Subi has all the major banks here also within walking distance which makes things so convenient. 7 mins on foot and about 2 mins on car.
5.Train station. About 8 mins on foot, you get to the train station which can lead you to almost anywhere you want. Haven't been on one though.
6. Subi market. Wonderful place to get all the vegetables and fruits. It's like a one-stop place . Also has some eateries there.
7. Bunnings. It's one of the largest hardware retailers in Australia and its just beside the train station and Subi market. Any hardware or spare parts, probably has it all.
8.Subiaco Oval. Not quite a big plus to me but it looks so damn nice. This is the only stadium where National Australian Footie is played in WA. It also recently hosted South Africa against the Wallabies for rugby. When there's a game, the crowd is quite loud and it echoes around the houses nearby and can definitely hear it.
9.Restaurants. There's plenty of places to eat in Subi. Ranging from fast food to classy ones. Desserts are also everywhere. Host of choices here except for the Asian food.
10. Shopping. Not quite my thing, but there are so many apparel and clothing outlets for shopppers. It ranges from the Esprits to the D&Gs range. So for people on a tight budget like me, we just walk past them everyday. I would say there are about 30 clothing outlets nearby. City is a stone throw away so there's a lot to look at. We also have Harvey Norman ( home appliances) and Harbour Town (Place for apparels and some eateries) nearby.
11. Entertainment. A half stone throw away is Northbridge, the major entertainment precinct for Perth (Lifted from the newspaper,lol). Clubs, bars, restaurants, billiard centres are all there.
And of course, living with family makes things very different. It's almost like I didn't leave home.I guess being home-sick is not quite on the menu.
~deyao~
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