Every single person faces a unique set of circumstances in our lives. All of us are different – we have different problems, different jobs, different homes, different parents, different likes, and so on. What this means for our wealth-building and investments is that no two people will ever have the exact same requirements.
Beyond the common financial concepts, we should also look at how these different aspects of our lives impact the kinds of investment decisions we should make. Here are some ways our lifestyle and the unique circumstances we’re facing may impact our investment decisions.
#1 Your Exposure To The Singapore Economy
We may not truly appreciate this at first, but the value of the homes (HDB, condo or landed) we live in as well as the security of our jobs and the careers we will have is heavily dependent on how well the Singapore economy does.
If Singapore continues to do well in the future, the price of our homes may appreciate and we may enjoy pay raises and promotions. Of course, the converse is also true. If the country stagnates, faces a downturn or loses its relevance and competitiveness in the global market, a huge portion of our net worth and future income potential will be at risk.
This highlights just how much exposure we already have to the local economy. Our entire lives revolve around the Singapore economy. While Singapore will remain the market we understand best, it may be wise to gain some exposure to markets outside of the country and region.
#2 Your Career
What you do for a living should also have a bearing on the kinds of investment decisions you should be making.
As a rule of thumb, the riskier your job, the less risky your investments should be. The logic behind this is that risky careers, such as entrepreneurship, investment banking, financial and housing agents and traders, usually pay you a better salary because you’re more likely to lose your job or encounter significant fluctuations in your salary.
People working in safer careers, such as being a civil servant, professionals such as doctors, engineers or accountants, or even holding jobs in large multinational corporations, can choose investments that are slightly riskier. Of course, this is because they often salaried workers with a strong degree of job security.
#3 Your Marital And Family Status
Whether you are married or not may also have a great impact on the amount of risk you’re willing to take in life – such as sky diving, scuba diving as well as investing in riskier instruments.
If you have a spouse and young children or parents that depend on you for their livelihoods, you will stay away from investments that tend to be the riskiest and have the potential to deliver significant gains or losses. Being in this situation, you often cannot stomach the risk given what’s at stake.
Singles or those without much financial commitments can afford to take riskier investments, with far less at stake.
#4 Your Personal Or Family Wealth
Some people are born in wealthier families and some in not-so-wealthy families. That is just a fact of life.
We are not here to judge whether this is fair or not – that is a far more complex question that requires greater powers to answer. What we can say is that those born in wealthier families have the luxury of taking on slightly riskier investments.
They can afford to risk some of their wealth to gain a lot more. And in an adverse situation, if they make losses, it will not impair them in a big way. In addition, they will also have the ammunition to try again. People with less wealth do not have the luxury of being able to try several times if their first or second investments turn out to deliver substantial losses.
#5 Your Future Plans
This just means that you have to be forward-thinking when you make investments. An investment made today may have long-term repercussions on your financial well-being in the next 20, 30 or even 40 years.
If you’re single today, it does not mean you will never get married. If you’re married, it does not mean you will never have children. If you don’t need to support your ageing parents today, it does not mean you will never have to support them. You get the point – things in your life can change and you should have some foresight into that.
Another aspect of your life that you can look ahead is your plans for an early retirement or whether you want to move abroad in the future. These decisions are critical and can have a big impact on the way you should choose to invest.
If you are planning for an early retirement, you should be saving far more money than your peers and investing aggressively early and gradually pivot toward safer investments as your approach your target retirement age. This is because you will have less time to build your wealth than your peers.
If you are planning to move overseas in the future, locking your money up your CPF accounts may not be a decision you want to make even if it pays out a handsome return. You could even look at investing in the overseas country that you want to move to.
Your Life And Lifestyle Choices Will Impact How You Invest
Where you choose to invest your money and how much risk you should be taking with your money depend heavily on your life circumstances and how you choose to live your life. This is a good thing as you can plan in advance and make more astute investment decisions.
Sure, your decisions may change and you might find yourself at an entirely different point than you had expect a few years down the road. This is also why you should be regularly reviewing your portfolio to ensure you have kept within the sound basic principles as well as taken into consideration your new life.
Below are three portfolios that carry varying degrees of risks that is recommended by Fundsupermart’s FSM MAPS, a robo-advisory service. You can see that the more risk you are willing to take with your investments, the more equity (blue portions) you will include in your portfolio. And the less risk you are willing to take the more bonds (yellow portions) you will likely include in your portfolio.
This is also a general rule, because there are safer equities and riskier bonds. There are also other considerations such as where you want to invest your money and even other types of asset classes such as properties, P2P lending or even cryptocurrencies.