Ease Into the World of Investing

The United Nations does it. Governments do it. Companies do it. Fund managers do it. Millions of ordinary working people – from business owners to factory workers – do it. Housewives do it. Even farmers and children do it.

‘It’ here is investing: the science and art of creating, protecting and enhancing your wealth in the financial markets. This article introduces some of the most important concerns in the world of investment.

Let’s start with your objectives. While clearly the goal is to make more money, there are 3 specific reasons institutions, professionals and retail investors (people like you and me) invest:

  • For Security, ie for protection against inflation or market crashes
  • For Income, ie to receive regular income from their investments
  • For Growth, ie for long-term growth in the value of their investments

Investments are generally structured to focus on one or other of these objectives, and investment professionals (such as fund managers) spend a lot of time balancing these competing objectives. With a little bit of education and time, you can do almost the same thing yourself.

One of the first questions to ask yourself is how much risk you’re comfortable with. To put it more plainly: how much money are you prepared to lose? Your risk tolerance level depends on your personality, experiences, number of dependents, age, level of financial knowledge and several other factors. Investment advisors measure your risk tolerance level so they can classify you by risk profile (eg, ‘Conservative’, ‘Moderate’, ‘Aggressive’) and recommend the appropriate investment portfolio (explained below).

However, understanding your personal risk tolerance level is necessary for you too, especially with something as important as your own money. Your investments should be a source of comfort, not pain. Nobody can guarantee you’ll make a profit; even the most sensible investment decisions can turn against you; there are always ‘good years’ and ‘bad years’. You may lose part or all of your investment so always invest only what you are prepared to lose.

At some point you’ll want to withdraw some or all of your investment funds. When is that point likely to be: in 1 year, 5 years, 10 years or 25 years? Clearly, you’ll want an investment that allows you to withdraw at least part of your funds at this point. Your investment timeframe – short-term, medium-term or long-term – will often determine what kinds of investments you can go for and what kinds of returns to expect.

All investments involve a degree of risk. One of the ‘golden rules’ of investing is that reward is related to risk: the higher the reward you want, the higher the risk you have to take. Different investments can come with very different levels of risk (and associated reward); it’s important that you appreciate the risks associated with any investment you’re planning to make. There’s no such thing as a risk-free investment, and your bank deposits are no exception. Firstly, while Singapore bank deposits are rightly considered very safe, banks in other countries have failed before and continue to fail. More importantly, in 2010 the highest interest rate on Singapore dollar deposits up to $10,000 was 0.375%, while the average inflation rate from Jan-Nov 2010 was 2.66%. You were losing money just by leaving your savings in the bank.

Today, there are many, many types of investments (‘asset classes’) available. Some – such as bank deposits, stocks (shares) and unit trusts – you’re already familiar with, but there are several others you should be aware of. Some of the most common ones:

  • Bank Deposits
  • Shares
  • Investment-Linked Product1
  • Unit Trusts2
  • ETFs3
  • Gold4

1 An Investment-Linked Product (ILP) is an insurance plan that combines protection and investment. ILPs main advantage is that they offer life insurance.

2 A Unit Trust is a pool of money professionally managed according to a specific, long-term management objective (eg, a unit trust may invest in well-known companies all over the world to try to provide a balance of high returns and diversification). The main advantage of unit trusts is that you don’t have to pay brokers’ commissions.

3 An ETF or Exchange-Traded Fund comes in many different forms: for example, there are equity ETFs that hold, or track the performance of, a basket of stocks (eg Singapore, emerging economies); commodity ETFs that hold, or track the price of, a single commodity or basket of commodities (eg Silver, metals); and currency ETFs that track a major currency or basket of currencies (eg Euro). ETFs offer two main advantages: they trade like shares (on stock exchanges such as the SGX) and typically come with very low management fees.

The main difference between ETFs and Unit Trusts is that ETFs are publicly-traded assets while Unit Trusts are privately-traded assets, meaning that you can buy and sell them yourself anytime during market hours.

4 ‘Gold’ here refers to gold bullion, certificates of ownership or gold savings accounts. However, note that you can invest in gold in many other ways, including gold ETFs, gold Unit Trusts; and shares in gold mining companies.

With the advent of the Internet and online brokers, there are so many investment alternatives available today that even a beginner investor with $5,000 to invest can find several investment options suited to her objectives, risk profile and timeframe.

Diversification basically means trying to reduce risk by making a variety of investments, ie investing your money in multiple companies, industries and countries (and as your financial knowledge and wealth grows, in different ‘asset classes’ – cash, stocks, ETFs, commodities such as gold and silver, etc). This collection of investments is termed your Investment Portfolio.

Some level of diversification is important because in times of crisis, similar investments tend to behave similarly. Two of the best examples in recent history are the Singapore stock market crashes of late-2008/early-2009, during the US ‘Subprime’ crisis, and 1997, during the ‘Asian Financial Crisis’, when the price of large numbers of stocks plunged. ‘Diversifying’ by investing in different stocks wouldn’t have helped you very much on these occasions.

The concept and power of compounding are best explained by example. Assume we have 3 investments: the first returns 0.25% a year; the second returns 5% a year; and the third returns 10% a year. For each investment, we compare 2 scenarios:

  • Without compounding, ie the annual interest is taken out of the account.
  • With compounding, ie the annual interest is left (re-invested) in the account.

Let’s look at the returns over 25 years for all 3 investments, assuming we start off with $10,000 in Year 0:

  • With 0.25% return a year, your investment will grow to $10,625 after 25 years without compounding; your investment becomes $10,644 after 25 years with compounding.
  • With 5% return a year, your investment will grow to $22,500 after 25 years without compounding; your investment becomes $33,864 after 25 years with compounding.
  • With 10% return a year, your investment will grow to $35,000 after 25 years without compounding; your investment becomes $108,347 after 25 years with compounding.

This shows the dramatic effects of both higher returns and compounding: 10% annual returns coupled with 25 years of compounding will return you more than 10 times your initial investment. And 10% returns are by no means unrealistic: educated investors who actively manage their portfolio themselves and practise diversification can achieve even higher returns, even with some losing years.

People of all ages and backgrounds need practical and customised guidance in developing their financial knowledge and skills in order to reach their financial goals. In this article we’ve tried to describe in simple terms some of the most important concepts and principles you need to understand on this journey.

Passive Investment Income

What are some ways a person can generate passive investment income? There are a number of ideas about it. Everyone has his own ideas about which one can be a passive investment income. We should have our own choice of investment. The wealthy, the marginalized, and the middle class people differ in their own preferences about investing their money. Now, let’s compare ways and opportunities according to some considerations such as safety, profitability, and also liquidity.

Safety means that your investment and the income are stable. The money that you invest could be prone to the changing market condition, economic slowdown, and social unrest. The point is that your passive investment income should always be there. In that case, it is safe to invest.

On the other hand, profitability is what we usually consider when we invest. We are supposed to believe that what is profitable is ideal. That’s right. But is it risky? Is my money stuck? Obviously, everyone would go for whatever gives them profit. Whenever we consider gains, the highest amount is always the best passive investment income. What we should consider here should not have been about the top gainers only. It’s should also be the safer ones.

Another significant factor that must be considered is liquidity. Let us suppose that we earn very attractively from our safe investment. What does that mean to us anyway? When you are ready to use your fund because you really need it and that’s the reason why you invested, is it possible to convert it to cash now? If there is no liquidity, our passive investment income is only an imagination. You would become wealthy only in your dreams. Liquidity is not only about the comfort of making a withdrawal. It is also about how smooth it is to invest.

Now, here are three kinds of investment we may consider whether which passive investment income is better for us. So, let’s talk about three kinds of portfolios such as business, stocks, and real estate.

Business is a personal activity that deals with economic factors that determines future gains. It is the chemistry of work and investment. This means that a businessman does not only wait for passive income, he should also work for it. Therefore, it is an active income and at the same time passive.

In the aspect of safety, business is not that safe. It is exposed to economic cycle. Businesses are under the supply and demand law. If the demand for their goods has been increasing, the price will also increase, and so will the supply. As time goes by, the demand will influence the supply to increase more. So if the supply is much greater, it will then influence the price to decrease. Consequently, businesses are getting more unstable and their future is turning gray. But, businesses may also get more resilient. As this type of investment is a little active, the active control of a businessman can manage a worse situation. Therefore, these two characters of investment regulate the cycle. Because of this, business becomes good. It is definitely a good example of passive investment income when it comes to safety.

In stock market, it’s the other way around. Safety is a very controversial issue here. Obviously, the risk involved here is very high. But the potential return is high, too. Passive investment income is more common in stock trading. Therefore, your income here is not the product of your active participation in the company. It is the product of your decision.

In the area of real estate, the lesser amount you invest, the safer it is. The bigger the investment you have, the riskier it becomes. But land alone is considerably not risky. The reason why real estate becomes a little risky is because the cost of structural materials is getting higher. Structural materials are also subject to the law of supply and demand. So, if we only rely on land for passive investment income by renting it out, our passive income will not be affected by any price fluctuation. Aside from that, structures depreciate over a period of time. Therefore, investing in real estate can be risky or safe depending on the kind.

In terms of profit, it is more attractive in business. In some businesses, you have to spend time before you earn regularly. Usually, the profit is negative especially if they are just beginning to operate. They should promote their brands and strengthen themselves in the market. When the consumers buy their goods, passive investment income begins. On the other hand, other businesses are doing well in the beginning of the operation. During the first stage, their sales shoot up. Subsequently, they grow very early. As time goes by, consumers get sick and tired of their goods. Consequently, these businesses reduce their passive income. Nevertheless, what is nice about business is the resilience to catch up with the competition. In business, the consistency of income is stable. One more advantage in business regarding this is the petty cash. Passive investment income in business need not come after a fixed cycle like that in stocks. There is always readily available petty cash.

On one hand, profit potential in stock investing is definitely high. As the character of stocks is risky, risk appetite causes the value of stocks to go up quickly. On the other hand, risk aversion and profit taking in the intraday trading can cause the value of stocks to go down quickly, too. Risk management in the stock market depends on the traders. Speculators enjoy their passive investment income from the price volatility while non-aggressive traders and investors get their passive investment income from dividends. Therefore, we can’t rule out the risk nature of stocks. When we gauge the balance between the energy we exert and the profit we earn, investing in stocks could be the most attractive one. We must not forget that passive investment income is an income that we could get without extra effort. If stock market really offers this potential, it must be a better option for passive investment income.

In real estate, how can we have a passive investment income? There is no doubt that one may enjoy his passive investment income in real estate without extra effort. The point is whether or not the ratio of profit is balanced with the investment. Surely, we can gain in real estate primarily because the usual investment is big as well. But always remember that you should pay the capital gains tax annually. This might explain why landlords do not solely rely on renting out their lots. Hence, land is usually developed to optimize the gains. Regarding the actual amount of gains, real estate could guarantee a better passive investment income. Therefore, we should really consider the ROI.

In terms of liquidity, it is somewhat less in business. Of course, liquidity still exists. However, much time is spent to put up a business, to start gaining, and even the time it takes to stop operating. Although the period of time executing all these can be determined according to a business plan, the process is still slower depending on the kind of business. Retail businesses are quite liquid whereas manufacturing industries are not.

Among the common types of investments known to many, investment in stocks is the most liquid one. You can open and close an investment account at your convenience. Moreover, you may select any available stock you wish to invest in. If you wish to have exposure in stock market, to take profit, or to pull out your investment, it won’t take that long. You may do so at any given time wherever you may be.

On the contrary, liquidity is a big problem in real estate. In business, there are still ways to determine it, but hardly in real estate. Usually, it is like a game of chance to sell even a small house and lot. Thus, investing in real estate, earning passive income, and even pulling out your investment will never occur overnight. It won’t matter if it doesn’t affect productivity. For instance, you have found a better opportunity that needs quick decision. Then, you think it best to change your existing investment into such a new one. Perhaps, before you are able to pull out your investment from real estate, your commitment to others will have already been canceled. In similar case, you might get stuck.

These are some ways a person can generate passive investment income. Whether you wish to invest in stocks, real estate, or business, you can always find an opportunity to generate passive investment income.

Best Investment Ideas and Best Safe Investments for 2012

Here we list some of the best investment ideas and tackle the challenge of finding the best safe investments for 2012. What might appear to be one of the best investment ideas to the uninformed could turn out to be one of the worst.

Looking at the big picture for investment ideas in 2012, moderation in asset allocation and a balanced investment portfolio will be the most basic key to success. There are 4 asset classes, and average investors need to spread their money across at least the first three to keep their overall portfolio risk moderate. The 4 categories in asset allocation are: safe investments, bonds, stocks and alternative investments like gold and real estate (optional). Asset allocation can be simplified, because there are mutual funds available to average investors that represent each of the 4 asset classes. Now let’s get more specific about the best investment ideas for 2012 starting with safe investments.

Safe investments earn interest and do not fluctuate in price. You will need to look outside of mutual funds in 2012 to find the best safe investments because record low interest rates have taken yields on money market securities (and hence money market funds) down to just about zero. One of the best investment ideas if you have an account with a discount broker or major mutual fund company is to shop for one-year CDs paying higher rates if you can’t get competitive rates from your local bank. Do not tie your money up for longer periods just to earn a little more interest. One of these days interest rates will go back up and you will be locked in at a lower rate and face penalty charges if you cash in early.

Finding the best safe investments will be truly challenging in 2012, but here are some more investment ideas. If you are in a retirement plan like a 401k that has a fixed or stable account option do not overlook it. You can often get a much higher interest rate there (maybe 4% to 5%) than anywhere else outside of your retirement plan. If you own an older retirement annuity or universal life insurance policy, it might have a fixed account you can add money to that is guaranteed to never pay less than 3% or 4%. Remember, truly safe investments like U.S. Treasury bills and bank money market and savings accounts are paying WAY LESS than 1%!

Over the past 30 years bonds and bond funds have become a favorite with investors because they have been consistent performers and returned on average about 10% per year… basically about equal to what stocks have returned, but with considerably less risk. Many investors have fallen in love with their bonds funds and consider them to be among the world’s best safe investments. Bond funds are NOT safe investments. They have performed well since 1981 (when interest rates and inflation were at record highs) for one primary reason. Both inflation and interest rates have been falling for 30 years, which has sent bond prices higher. Loading up on bond funds now is NOT one of the best investment ideas for 2012. In fact, it is one of the worst investment ideas.

When interest rates and/or inflation turn around and head upward bond funds, especially those that hold long-term bond issues, will be losers. That’s how bonds work. One of the very best investment ideas for 2012 is to sell your long-term bond funds if you own any, and switch to funds holding bonds with average maturities of about five years. These are called intermediate-term bond funds; and average investors should have some money invested here as part of their asset allocation strategy to add balance to their investment portfolio. These are not truly safe investments, but they are much safer than long-term funds.

My best investment ideas in the stock department focus on stock funds. Do not go heavily into the more aggressive funds that invest primarily in growth and/or small company stocks. These pay little if anything in dividend income and tend to be more risky and volatile than the average stock fund. Go with funds that invest in high quality large-company stocks with excellent dividend paying histories. Look for funds that are paying 2% or more in dividends. One of the best investment ideas for 2012 and beyond: invest in no-load funds with low yearly expenses. No-load means no sales charges, and low expenses mean higher net returns to the investor.

Alternative investments include the likes of real estate, gold and other precious metals, natural resources, commodities, foreign investments and so on. One of the best investment ideas for managing a truly balanced investment portfolio is to include this fourth asset class as well. The simplest way for the average investor to add these alternatives to their portfolio is with mutual funds that specialize in these areas or sectors. My best investment ideas here: don’t go heavily into any one area, and don’t chase after a sector (like gold) just because it’s hot. Real estate and natural resources funds would be my picks as two of the best investment ideas in the alternative investments asset class.

Moderation and diversification across the asset classes will be the key to asset allocation in 2012. I have also listed some specific best investment ideas for keeping the average investor in the game and out of serious trouble should the investment scene turn ugly. Above all else memorize this: long-term bond funds are not among the best safe investments for 2012. They are not safe investments, period.

Investing – How To Choose The Best Option

Investors are increasingly forced to choose from a proliferation of investment options. They also have to deal with contradictory advice on how to achieve their financial goals and how to invest the savings they have accumulated during their lifetime. If you consider that there are more than 7000 mutual funds available in the United States alone, and thousands of insurance products worldwide, making the choice that will satisfy them ever after is daunting, to say the least.

No wonder people so often ask the rather general question: Which investment is best? The first part of the answer is easy: No single investment is ‘the best’ under all circumstances for all investors. Personal circumstances, goals and different people’s needs differ, as do the characteristics of different investments. Secondly, one asset class’s strength in certain circumstances could be another’s weakness. It is therefore important to compare investments according to relevant criteria. The art is to find the appropriate investment for each objective and need.

The following are the most important criteria:

  • the goal of the investment
  • the risk the investor can handle
  • liquidity required
  • taxability of the investment
  • the period until the financial goal is reached
  • last but not least, the cost of the investment.

THE GOAL

Goals determine the characteristics sought in an investment. You will be in a position to choose the most appropriate investment only when you have decided on your short-, medium- and long-term goals. The following generic goals are normally involved:

Emergency fund

Emergency fund money should be readily available when needed, and the value of the fund should be equal to about six months’ income. Money market funds are excellent for this purpose. While these funds do not perform much higher than inflation, their benefit is that capital is saved and is easily accessible.

If you already have a ready emergency fund covering more than six months’ income, you could consider a more aggressive mutual fund

Capital protection

If your primary aim is capital protection, you will have to be satisfied with a lower growth rate on the investment. Those above 50 are normally advised to be conservative in their investment approach. While this may for the most part be sound advice, you should also keep an eye on the risk of inflation, so that the purchasing power of your money does not depreciate. It is not the nominal value of the capital that should be protected, but the inflation-adjusted one. At an annual inflation rate of 6%, $1 million today will buy the same as $174 110 in 30 years’ time. A 50 year-old with $1 million would therefore have to lower his living standard substantially if he only retains the $1 million until he was 80.

Conservative investments like those listed above should form the normal basis for providing an income. Because of inflation risk, investments should be structured so that they can at least keep up with inflation. This means that at least a percentage of the investment source providing the income should be made up of other asset classes like property and equity mutual funds. The percentage would differ according to individual and economic circumstances.

Investors fortunate enough to have their basic budget provided for by a conservative fund could consider increasing their income with commercial property funds and tax-free income from dividends paid out by listed shares.

Capital growth

If an investor’s primary goal is to achieve capital growth, the real rate of return should be higher than inflation. This implies greater risk to capital in the short term. Investors aiming at capital growth should not be apprehensive, as they will reap the rewards in the long term.

The history of equity prices over the past 100 years proves equity investments to be the best performer, followed by property. This does not mean you should buy either of these investments blindfolded. Wait until the quality shares in which you are interested are trading at inexpensive price levels.

RISK

The investment with a history of the highest growth is not necessarily the one to choose. The Standard Bank’s Gold Fund increased by 178% during the period 13 August 2001 – 24 May 2002 (284 days). Judging only on the growth of the fund during this period, it performed exceptionally well. But would it be the right investment for a retiree? During the 805 days following this, the same fund experienced a negative growth rate of 44%! The problem with an investment that decreases by this percentage is that it will not reach its previous peak by increasing again by 44%. This is because the growth this time will take place from a lower base, so in fact the investment would have to increase by approximately 80%.

LIQUIDITY

Hard assets like Persian carpets, works of art and antique furniture may be good investments in the long term, but unfortunately they are not very liquid. The same is true of certain shares in smaller companies. Money market funds, on the other hand, are very liquid, but the returns may not always be as good as those from other investments. The need to liquidise the investment quickly is therefore also a criterion to consider when evaluating investments.

TAXABILITY

The taxability of an investment has a considerable impact on its value to the investor. When comparing the returns on different investments, the return after tax has been deducted should be used. The investor should always ask what will be left in his pocket after tax deduction.

PERIOD

Conservative investments with no potential for high returns are suitable for shorter periods, while investment-objectives with longer time horizons aspire to achieving higher returns. Money market funds are suitable for periods of one or two years. Income and conservative asset allocation funds for three or four years and flexible asset allocation funds, commercial property funds and value equity funds may be chosen for longer periods, dependent on the economic and interest cycle and the propensity of the investor to accept risk.

COSTS

The costs involved in an investment are normally things like administrative cost and commission. The percentage of the costs to the investment amount directly affects the value of the investment. Many of the currently available investment products are structured in such a way that investors can negotiate commission.

CONCLUSION

No investment strategy blueprint is going to be perfect for everyone’s circumstances. Investment opportunities should therefore be examined critically before any decision is made. It should also be kept in mind that there are different companies managing specific funds under the investment categories referred to above. Some are more effectively managed than others. Investors should therefore research investments as well as the managers thoroughly before investing. Otherwise, they could appoint professional asset managers to do so on their behalf. Time spent determining the type of investment you really need is time invested in your future financial well-being.

A New Way to Invest in Property

The two most frequently asked questions by investors are:

  1. What investment should I buy?
  2. Is now the right time to buy it?

Most people want to know how to spot the right investment at the right time, because they believe that is the key to successful investing. Let me tell you that is far from the truth: even if you could get the answers to those questions right, you would only have a 50% chance to make your investment successful. Let me explain.

There are two key influencers that can lead to the success or failure of any investment:

  1. External factors: these are the markets and investment performance in general. For example:
    • The likely performance of that particular investment over time;
    • Whether that market will go up or down, and when it will change from one direction to another.
  2. Internal factors: these are the investor’s own preference, experience and capacity. For example:
    • Which investment you have more affinity with and have a track record of making good money in;
    • What capacity you have to hold on to an investment during bad times;
    • What tax advantages do you have which can help manage cash flow;
    • What level of risk you can tolerate without tending to make panic decisions.

When we are looking at any particular investment, we can’t simply look at the charts or research reports to decide what to invest and when to invest, we need to look at ourselves and find out what works for us as an individual.

Let’s look at a few examples to demonstrate my viewpoint here. These can show you why investment theories often don’t work in real life because they are an analysis of the external factors, and investors can usually make or break these theories themselves due to their individual differences (i.e. internal factors).

Example 1: Pick the best investment at the time.

Most investment advisors I have seen make an assumption that if the investment performs well, then any investor can definitely make good money out of it. In other words, the external factors alone determine the return.

I beg to differ. Consider these for example:

  • Have you ever heard of an instance where two property investors bought identical properties side by side in the same street at the same time? One makes good money in rent with a good tenant and sells it at a good profit later; the other has much lower rent with a bad tenant and sells it at a loss later. They can be both using the same property management agent, the same selling agent, the same bank for finance, and getting the same advice from the same investment advisor.
  • You may have also seen share investors who bought the same shares at the same time, one is forced to sell theirs at a loss due to personal circumstances and the other sells them for a profit at a better time.
  • I have even seen the same builder building 5 identical houses side by side for 5 investors. One took 6 months longer to build than the other 4, and he ended up having to sell it at the wrong time due to personal cash flow pressures whereas others are doing much better financially.

What is the sole difference in the above cases? The investors themselves (i.e. the internal factors).

Over the years I have reviewed the financial positions of a few thousand investors personally. When people ask me what investment they should get into at any particular moment, they expect me to compare shares, properties, and other asset classes to advise them how to allocate their money.

My answer to them is to always ask them to go back over their track record first. I would ask them to list down all the investments they have ever made: cash, shares, options, futures, properties, property development, property renovation, etc. and ask them to tell me which one made them the most money and which one didn’t. Then I suggest to them to stick to the winners and cut the losers. In other words, I tell them to invest more in what has made them good money in the past and stop investing in what has not made them any money in the past (assuming their money will get a 5% return per year sitting in the bank, they need to at least beat that when doing the comparison).

If you take time to do that exercise for yourself, you will very quickly discover your favourite investment to invest in, so that you can concentrate your resources on getting the best return rather than allocating any of them to the losers.

You may ask for my rationale in choosing investments this way rather than looking at the theories of diversification or portfolio management, like most others do. I simply believe the law of nature governs many things beyond our scientific understanding; and it is not smart to go against the law of nature.

For example, have you ever noticed that sardines swim together in the ocean? And similarly so do the sharks. In a natural forest, similar trees grow together too. This is the idea that similar things attract each other as they have affinity with each other.

You can look around at the people you know. The people you like to spend more time with are probably people who are in some ways similar to you.

It seems that there is a law of affinity at work that says that similar things beget similar things; whether they are animals, trees, rocks or humans. Why do you think there would be any difference between an investor and their investments?

So in my opinion, the question is not necessarily about which investment works. Rather it is about which investment works for you.

If you have affinity with properties, properties are likely to be attracted to you. If you have affinity with shares, shares are likely to be attracted to you. If you have affinity with good cash flow, good cash flow is likely to be attracted to you. If you have affinity with good capital gain, good capital growth is likely to be attracted to you (but not necessary good cash flow ).

You can improve your affinity with anything to a degree by spending more time and effort on it, but there are things that you naturally have affinity with. These are the things you should go with as they are effortless for you. Can you imagine the effort required for a shark to work on himself to become sardine-like or vice versa?

One of the reasons why our company has spent a lot of time lately to work on our client’s cash flow management, is because if our clients have low affinity with their own family cash flow, they are unlikely to have good cash flow with their investment properties. Remember, it is a natural law that similar things beget similar things. Investors who have poor cash flow management at home, usually end up with investments (or businesses) with poor cash flow.

Have you ever wondered why the world’s greatest investors, such as Warren Buffet, tend only to invest in a few very concentrated areas they have great affinity with? While he has more money than most of us and could afford to diversify into many different things, he sticks to only the few things that he has successfully made his money from in the past and cut off the ones which didn’t (such as the airline business).

What if you haven’t done any investing and you have no track record to go by? In this case I would suggest you first look at your parents’ track record in investing. The chances are you are somehow similar to your parents (even when you don’t like to admit it ). If you think your parents never invested in anything successfully, then look at whether they have done well with their family home. Alternatively you will need to do your own testing to find out what works for you.

Obviously there will be exceptions to this rule. Ultimately your results will be the only judge for what investment works for you.

Example 2: Picking the bottom of the market to invest.

When the news in any market is not positive, many investors automatically go into a “waiting mode”. What are they waiting for? The market to bottom out! This is because they believe investing is about buying low and selling high – pretty simple right? But why do most people fail to do even that?

Here are a few reasons:

  • When investors have the money to invest safely in a market, that market may not be at its bottom yet, so they choose to wait. By the time the market hits the bottom; their money has already been taken up by other things, as money rarely sits still. If it is not going to some sort of investment, it will tend to go to expenses or other silly things such as get-rich-quick scheme, repairs and other “life dramas”.
  • Investors who are used to waiting for when the market is not very positive before they act are usually driven either by a fear of losing money or the greed of gaining more. Let’s look at the impact of each of them:
  • If their behaviour was due to the fear of losing money, they are less likely to get into the market when it hits rock bottom as you can imagine how bad the news would be then. If they couldn’t act when the news was less negative, how do you expect them to have the courage to act when it is really negative? So usually they miss out on the bottom anyway.
  • If their behaviour was driven by the greed of hoping to make more money on the way up when it reaches the bottom, they are more likely to find other “get-rich-quick schemes” to put their money in before the market hits the bottom, by the time the market hits the bottom, their money won’t be around to invest. Hence you would notice that the get-rich-quick schemes are usually heavily promoted during a time of negative market sentiment as they can easily capture money from this type of investor.
  • Very often, something negative begets something else negative. People who are fearful to get into the market when their capacity allows them to do so, will spend most of their time looking at all the bad news to confirm their decision. Not only they will miss the bottom, but they are likely to also miss the opportunities on the way up as well, because they see any market upward movement as a preparation for a further and bigger dive the next day.

Hence it is my observation that most people who are too fearful or too greedy to get into the market during a slow market have rarely been able to benefit financially from waiting. They usually end up getting into the market after it has had its bull run for far too long when there is very little negative news left. But that is actually often the time when things are over-valued, so they get into the market then, and get slaughtered on the way down.

So my advice to our clients is to first start from your internal factors, check your own track records and financial viability to invest. Decide whether you are in a position to invest safely, regardless of the external factors (i.e. the market):

  • If the answer is yes, then go to the market and find the best value you can find at that time;
  • If the answer is no, then wait.

Unfortunately, most investors do it the other way around. They tend to let the market (an external factor) decide what they should do, regardless of their own situation, and they end up wasting time and resources within their capacity.

I hope, from the above 2 examples, that you can see that investing is not necessarily about picking the right investment and the right market timing, but it is more about picking the investment that works for you and sticking to your own investment timetable, within your own capacity.

A new way to invest in properties

During a consultation last month with a client who has been with us for 6 years, I suddenly realised they didn’t know anything about our Property Advisory Service which has been around since April 2010. I thought I’d better fix this oversight and explain what it is and why it is unique and unprecedented in Australia.

But before I do, I would like to give you some data you simply don’t get from investment books and seminars, so you can see where I am coming from.

Over the last 10 years of running a mortgage business for property investors:

  • We have executed more than 7,000 individual investment mortgages with around 60 different lenders;
  • Myself and our mortgage team have reviewed the financial positions of approximately 6,000 individual property investors and developers;
  • I have enjoyed privileged access to vital data including the original purchase price, value of property improvements and the current valuation of close to 30,000 individual investment properties all around Australia from our considerable client base.

When you have such a large sample size to do your research on and make observations, you are bound to discover something unknown to most people.

I have discovered many things that may surprise you as much as they surprised me, some of which are against conventional wisdom:

Paying more tax can be financially good for you.

This one took me years to swallow, but I can’t deny the facts. The clients who have managed to get into a positive cashflow position have paid a lot of tax and will continue to pay a lot of tax, whether it is capital gains, income tax or stamp duty. They don’t have an issue with the tax man making some money as long as they continue to make more themselves! They regularly cash in the profits from their properties and reduce their debt, but always continue to invest and park their money where the return is best. In fact, I can almost say that the only people who enjoy positive cashflow from their investment properties are the people who have little concern about paying taxes as they treat them as the cost of doing business.

Just about every property strategy works. It just depends on who does it, how it is done, when it is done and where it is done.

When I first started investing, I went and read many property investment books and attended many investment educational seminars. Just about every one of them was convincing and this confused the hell out of me. Just when I was about to form an opinion against a particular property strategy, someone would show up in one of my client consultations and prove that it worked for them!

After testing many of these strategies myself, I came to realise that it is not about the strategy,(which is only a tool) but rather it is about whether the person is using the tool appropriately at the right time, in the right place and in the right way.

There is no such thing as the best suburb to invest in, forever.

If you randomly pick a particular property in what you think is the best suburb over a 30 year window, you will find that there are periods during which this property will outperform the market average, and there are periods when this property will underperform the market average.

Many property investors find themselves jumping into historically high growth suburbs at the end of the period when it is outperforming the average, and then stay there for 5-7 years during the underperforming period. (Naturally this can taint their view of property investing as a whole!)

There is no such thing as the worst suburb to invest in, forever.

If you pick a property in the worst suburb you can think of from 40 years ago, and pitch that against the best suburb you can think of over the same period of time, you will find they both grew at about 7-9% a year on average over the long-term.

Hence in the 1960s, a median house in Melbourne and Sydney was valued at $10k. The worst property around that time may have been 30% of the median price for then, which was say about $3k. Today, the median house price in these cities is about $600k. The worst suburb you can find is still around 30% of that price which is say $200k a house. If you believe a bad suburb will never grow, then show me where you can find a house today in these cities, that is still worth around $3k.

Median Price growth is very misleading.

Many beginner property investors look at median price growth as the guidance for suburb selection. A few points worth mentioning on median price are:

We understand the way median price is calculated as the middle price point based on the number of sales during a period. We can talk about the median price for a particular suburb on a particular day, week, month, year, or even longer. So an influx of new stocks or low sales volume can severely distort the median price.

In an older suburb, median price growth tends to be higher than it really is. This is because it does not reflect the large sum of money people put into renovating their properties nor does it reflect the subdivision of large blocks of land into multiple dwellings which can be a substantial percentage of the entire suburb.

In a newer suburb, median price growth tend to be lower than it really is. This is because it does not reflect the fact that the land and buildings are both getting smaller. For example, you could buy a block of land of 650 square metres for $120k in 2006 in a newer suburb of Melbourne, but 5 years later, half the size block (i.e.325 square metres) will cost you $260k. That’s a whopping 34% annual growth rate per year for 5 years, but median price growth will never reflect that, as median prices today are calculated on much smaller properties.

Median price growth takes away people’s focus from looking at the cost of carrying the property. When you have a net 2-3% rental yield against interest rates of 7-8%, you are out-of-pocket by 5% a year. This is not including the money you have to put in to fix and maintain your property from time to time.

Buying and holding the same property forever doesn’t give you the best returns on your money.

The longer you hold a property, the more likely you will achieve an average growth of 7-9%. But you will be bound to hit periods where your property outperforms the 7-9% growth and periods where it under performs the 7-9% growth.

The longer you hold a property, if its growth is at or above average, the lower its rental yields will become.

The longer you hold a property, the higher the capital gains tax you will need to pay when you sell, and the less likely you will be able to sell it.

The longer you hold a property, the more likely there will be a need for an expensive upgrade of the property.

The longer you hold a property, the more likely you will forget which part of the equity actually belongs to the tax man, AND the more likely you will be to try to leverage the equity that doesn’t belong to you. This can get you into a negative equity position with a negative cashflow forever, unless you have proper financial guidance.

All About Athens

Athens is the capital city of Greece. It is a modern, big city as the capitals of other European countries are, and more than a million people live in Athens and its suburbs. But Athens is also one of the most important cities of history. Thousands of years ago, when most of the men on earth were still ignorant savages, the learning and the science and the art of today had their start in Athens . About five thousand years ago, men first built a city where Athens stands today. They built the city around a rocky hill about four hundred feet high.

On this hill they built walled-in fortifications called an acropolis, about which there is a separate article. The people lived around the hill and farmed the land. If an enemy attacked, they could all go to the Acropolis for safety. All cities in those ancient times passed under the rule of one king after another, fought and lost many wars, sometimes were conquered and ruled by neighbouring peoples, and sometimes conquered the neighbouring peoples and ruled them. For hundreds of years, Athens rose and fell in this way.

But about three thousand years ago-not long after the year 1000 B.C. – the people of Athens began to develop a civilisation greater than the world had known before. The first step toward this was the Greek language as the Athenians learned to use it. No other language then had the words needed to write great books of science as well as great poetry and other literature. The poetry of Homer, written in this language, is still as great as any that has ever been written. In the hundreds of years that followed, the drama was born in the plays of Aeschylus, Sophocles, Euripides, Aristophanes, and others. Three of the greatest philosophers of all time, Socrates, Plato, and Aristotle, taught and wrote in this Greek language.

Laws written in this language, by the great statesman Solon and others, gave Athens one of the earliest democratic governments. The Greek language is still used by scholars throughout the world. Athens became a democracy in 508 B.C. The two hundred years that followed were the times of its greatest glory. During this period the sculptor Phidias and other Athenian sculptors built the magnificent buildings on the Acropolis and carved statues that are still models of beauty. The people elected their own leaders. Athens was a ” city-state ,” which means that it was a city but also an independent country. There were many slaves, however. In 338 B.C., Athens was conquered by King Philip of Macedon, a neighbouring country in Greece. (Philip was the father of Alexander the Great, who conquered almost the entire civilised world.)

After it fell under the rule of Macedon, Athens did not become big and independent again for more than two thousand years. The Romans ruled it, then a series of conquerors until the Turks made it part of Turkey about four hundred years ago. Athens became just a small town. In the year 1834, the entire country of Greece became independent again and Athens was made the capital. It began to grow, and now is a great city again. It is the seat of the Greek Orthodox Church (also called the Orthodox Catholic Church), and the capital of the kingdom of Greece. About two thirds of all the manufacturing in Greece is done in and near Athens . The remains of many of the great buildings of ancient Athens , including the Acropolis, can still be seen there. During World War II, the Germans occupied Greece and captured Athens , but it was not damaged.

Visiting Athens

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Pay homage to Athen’s most impressive legacy- the Acropolis, haggled with

the merchants in the old Turkish bazaar around Monastiraki Square and Explored the 19th-century quarter of Plaka…all before noon. Now you are ready to drink like Dionysus.

Where to crash

 Athens ‘ first “hip hotel,” the Semiramis, is located in Kifissia, a wealthy suburb about 10 miles north of the  city   center .

Styled by trendy designer Karim Rashid, the hotel has such features as a glowing-pink cube in the entrance, a rotating collection of contemporary art in the rooms, and digitally

programmed door signs.

NightLife

What’s a Flagrant without checking out the nightlife?

Bars are the staple of Greek nightlife, with new establishments opening every week. In summer, many of the most popular spots, especially dance clubs, move to temporary venues along the coast (check with your hotel concierge on seasonal whereabouts of clubs).

Frequented by the under-30 crowd, these clubs are usually huge, lively, and packed.

Getting to them can be a nightmare, especially on weekends, when the coastal road, Poseidonos, becomes a kilometers-long traffic jam.

Most bars stay open at least until 3 AM. Drinks are rather steep (around EUR6) but generous, and often there is a surcharge on weekend nights at the most popular clubs. Foreigners usually get in automatically; large groups of single men may have some trouble on a busy night. Most clubs and bars do not take credit cards for drinks.

From September to May, Athen’s beautiful people make an appearance at Central to see and be seen in the cool, creamy interior while enjoying cocktails and sushi.

From May to September, Central is closed in town; it reopens on the coast as Island, which is dreamily decked out in gauzy linens and directly overlooks the Aegean.

with notes from Fodors and USA Today

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Athens Greece – Church of Kapnikarea

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Let us now visit the church of Kapnikarea. The simplest way to get there, is to return to Plateia Syntagmatos (Constitution Square) and then turn right into Odos Ermou. A few minutes’ walk along this street will bring us to this famous church.

Actually, Kapnikarea consists of two churches: the original structure, dedicated to the Presentation of the Virgin, a mid-eleventh century cruciform building with a dome supported by four columns with Roman capitals, and a nave with a smaller dome, dedicated to St. Barbara, which was later added on the north. In the twelfth century the two churches were joined into one and an exonarthex with series of gabled roofs and four large bays separated by columns was added on the west. The charming little porch on the south also dates from the twelfth century. The mosaic of the Madonna and Child over the portal is, however, of modern workmanship.

The name “Kapnikarea” is of doubtful origin. Though it is generally believed that this name is derived from the occupation of its putative founder, a collector of the hearth-tax (hearth equals smoke) others contend that the name is a corruption of Kamoucharea, by which the church was also known, probably from its proximity to a weaver of Kamouchas, a Byzantine term for cloth woven with golden threads.

Let us now turn back into Odos Ermou, walking in the direction of Plateia Syntagmatos (Constitution Square), and take the first turn on the right; this will bring us to Plateia Mitropoleos.

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The Perfect Start With Car Hire at the Athens Airport

Athens Airport is a sophisticated and a contemporary transportation hub. The airport is a civilian port for all the passengers entering and exiting the city of Athens. The airport serves as a significant seat of Olympic Air. It successfully acts as the terminal for around 16 million passengers each year. The airport has been named after the eminent Greek Statesman Eleftherios Venizelos.

The airport serves as a significant passage to Asia and the Middle East countries. You will be amazed to know that this contemporary and cosmopolitan airport has been certified by the European Aviation Safety Agency and the Federal Aviation Administration. If you are arriving in Greece, you can conveniently pick up a car hire Athens Airport to get a perfect start to your holiday.

The present airport is in the same place as the previous one. It was outdated and really needed to be updated. The towns of Markopoulo, Koropoi, Spata and Loutsa are well connected by the airport. And it is now known as one of the busiest airports in Europe. In 2006 the airport was felicitated with a Skytrax award as it was recognized as one of the best airports in Southern Europe.

One of the uncomplicated and economical ways of travelling the city is car hire Athens Airport. The city of Athens still has the ruins and the monuments of the Roman and the Byzantine monarchs that had ruled the city. The tourists are allured by the rich and the expansive cultural heritage of the city. Car hire Athens Airport is the best way to navigate the city. The nearby tourist attractions can be easily reached and viewed by car hire Athens Airport.

Athens is known as a contemporary and an idyllic destination for vacations with plethora of tourist spots and attractions. The colorful history of the city is still clearly visible by the historical and cultural imprints in the city. The mesmerizing monuments, enchanting churches and scenic location allures tourists all over the world to the city.

The tourists should view the neoclassical architectural brilliance dominating the historic city of Athens. The ancient yet sturdy building of the Athens Academy is a masterpiece and the beautifully constructed National library that has successfully housed timeless books, journals and other literary classics.

The tourist will have a great time shopping as Athens has many reputed stores, and wonderful beaches that result in entertaining tourists. The most beautiful and sun-kissed beaches include Vouliagmeni, Varkiza, Kavouri and so on. The scenic beauty, the lush green patches in the city and the impeccable architectural beauties make the city one of the most sought after tourist destinations in the world.

Greece Flights

Athens, the capital of Greece is well connected to major international cities. The International Airport of Athens’, Eleftherios Venizelos, was inaugurated in March 2001 and was built to cater to the needs of a modern world. It is located 23 miles northeast of the city. It has 157 check-in counters and two runways that are 2.5 miles each. The airport can accommodate close to 600 flights a day. It has conference facilities, a post office, a hotel, courier service, banks, currency exchanges, ATMs and many stores and restaurants.

There are 5 international airports in Greece. They are situated in the major cities of the country namely, Athens, Corfu (Ionian), Heraklio (in Crete), Kos (Dodecanese) and Thesaloniki (near the region of Halkidiki). Some Greek islands are not directly accessible by flights. The best way to travel to these Islands is by organizing for a cab transfer from the Athens airport. The airfares to Greece between June and September and during holidays are comparatively more expensive. The weekend flights are also expensive. Of recent, many charter flights have begun operating to and from Greece. Most charter flights operate during summer.

Olympic Airways is the national airline of Greece. It operates daily flights from New York City and Boston to Athens. The approximate flight time from Athens to Los Angeles is 15 hours and from Athens to New York, 13 hours; Most European airlines connect North American cities with Greece via major European cities. Direct flights also operate from major European cities to Macedonia International Airport in Thesaloniki, Northern Greece, as well as to Corfu (Kerkira), Grete and Rhodes.

American and Canadian citizens entering Greece for a period of less than 3 months require a valid passport. There is no need to get a visa, though. Passport and visa requirements vary for tourists of different nationalities, and should be checked well in advance of the trip.