Tomorrow's Expenses is Today's Investment. Yesterday's Savings is tomorrow's Liability.

We meet again!

If you look at the top of this page, you will notice that the blog's title description is the same as this post's title.

Please allow me to briefly expand the meaning of it.

In the first sentence, the word "Tomorrow's Expenses Are Today's Investment" has profound meaning attached to it.

Here the word brings the reader to explore the meaning of future 'expenses' and 'Investment'.

Investment is explained as a portion of disposal income that have been allocated or parked in an investment scheme that generates an above average rate of return which is inflation adjusted. This simply means that the interest income from this scheme grows higher than the inherent risk of inflation. Here is an example.

If the published current inflation rate is 3.20%, and interest income bearing scheme of the investment generates a rate of return at 6.20%; than this is called an investment or also known as inflation rate adjusted interest rate.

What good then?

Well, undoubtedly your current cost of living will balloon in future due to inflation factor and if you have allocated some contingent funds to cover for the future expenses, than that fund should earn an interest greater than the inflation rate, otherwise you will get a negative net interest rate should the investment rate of return is lower than inflation rate. This will definitely deteriorate your future value of money and derail your anticipated contingent future funds that you have planned.

"Tomorrow's Expenses" means all current living cost brought forward to a date in future. Inflation rate plays an important role in determining the future living cost based on current scenario.

"Today's Investment" simply means that in the course of planning to cover the future living cost, some money needed to be invested (not saving) in an investment scheme that projects return more than the inflation rate.

Well, in the following second sentence, the word "Yesterday's Savings Are Tomorrow's Liability" in reality reflects back the first sentence in contrast. The difference between Investment and Saving is that, the former carries a return that is inflation adjusted, while the latter bears a non-inflation adjusted return. In a Saving scheme, the net return will always be in a negative regime. Hence, your contingent fund to cover all your future living cost will not be met, thus bring rise to a financial liability scenario.

So as you can see, the 2 key words in this context are "INVESTMENT" and "SAVINGS". And now that you are aware of their differences, decide well before investing!

Happy investing!!

Managing Client's Anticipation

Hi! We meet again.

I would like to start this article by touching on an issue that disturbs many Unit Trust Consultants. I believe that if this issue is not tackled properly, the relationship between the clients and the consultants will get sour and subsequently depleting the consultants reservoir of customers.
The issue in reference here is confronting the client's anticipation against their return on investment on funds entrusted under the consultants care.
In my course of work, i have met many clients with various background. From the perspective of Investment knowledge, i am able to sum all them up into 2 types of investor category.

1. First category is the type of people classified as investors who assumed that they know how the profits are captured.

2. Second category are investors who understands exactly how the profits are captured.

The distinction between this two is closely related to investment education!

In the first category, investors assumed that they know. Their assumption is purely based on their loose understanding of what is expected from them. These investors have one anchored perception buried deep in their mind and it is obviously continuous sustainable ANTICIPATED RETURN irrespective of how markets move. This understanding is very dangerous if investment time frame is not mentioned. Clients anticipation for aspired return can be managed if the investment holding period is mentioned.
To cite a case in reality, one client of mine withdrew her investment after 7 years. The redemption was done against my advice. During the time, the market  was declining. And because of her fear that the market would collapse, she decided to sell off all units. I have advised her to hold because the decline in price was just temporary and it will not prolong. However, she didn't buy my words.
If only the investor reiterated that her holding period is 7 years (instead of disclosing time frame, which normally all investors practice), i would have redeemed her position before the 7th year.
Many investors would like to keep their positions even if the target return have been met. That is fine, but i prefer to lock in the profit thereafter. Because of no disclosure is made on their time frame, consultants usually will let the fund move on market's direction.

The second category of investors mentioned above are the true investors. These investors understand the concept and the affect of 'duration/holding period' to the overall performance of the unit trust investment. They anticipate that they would achieve the aspired return at the end of stated period and, what happens during the tenure of the investment period is less of a concern. Volatility in market is a common thing to them. There is a popular saying that goes like this, "Being an investor requires us to think and act like an investor".

Consultants have a greater responsibility to educate their clients, especially in the area of investment behavior. Parting knowledge to clients are no longer seen as a burden but a service rendered with honesty and integrity.

OPPORTUNITY COST IN UNIT TRUST