Wealth Clinic: Mother-to-Be Wants to Know How She Can Grow Her Money With Minimum Risks

We receive an incoming mail from a concerned mother-to-be on alternatives she can explore to grow money with minimum risk, and below is the response to her question.

“We will be welcoming our first baby later this year. Given the state of economy and rising prices, I’m already worried we’ll not have enough to raise our child comfortably. Is there any alternatives we can explore to grow our money with the minimum risk possible? ”
– Concerned mother-to-be

Congratulations and we hope you will welcome a healthy baby into your family later this year.

Understandably you will be concerned about how to raise your child growing up in a comfortable life and childhood especially that it takes a lot of commitment to provide a healthy and happy childhood to a toddler. The fact that you have the concerns and worries show that you have acknowledged this to be factual.

Diversify away Risks
Before you look to minimise the risks associated to your wealth, you may want to consider manage and diversify some of the risks that are naturally inherited since the day we are born, such as the risk of getting sick, being diagnose with terminal illness or premature death. Living a healthy lifestyle is of course an ideal option but it would not take away any chances of such event occurring, therefore we should be mindful of way that can diversify away these risks. One of the most effective tool we can use is insurance, but be mindful to get the right, and insurance products that are suitable for your situation and needs as there are multiple varieties of products out there.

Acknowledge that Risks exists no matter what we do
We have to acknowledge that  no matter how we manage or place our money at, risks always exists in all the options or alternatives. Placing our money under pillow will expose it to risks of being stolen, and also inflationary risk that will erode our purchasing power. On the contrary, keeping money in Fixed-Deposits (FDs) may minimise the risk of having it stolen compared to keeping it under the pillow, but it does not take away the inflationary risks. Having that said, we should be mindful before we make decision to invest our money that generally we tend to be more concerned about the risk of losing our capital and ignore the inflationary risks altogether.

Manage Risks in the Process
The whole idea of investing our money and manage our wealth is that we want to manage it right for what we have today so that it will be maintained and preserve and still be around for our need in the future. Indirectly, it means that investment is a process of determining:

1. Understanding what we have now that need to be maintained for future need;
2. Manage the process to ensure the wealth will not be lost along the way;
3. Retrieve / redeem it to fund for our financial goal and need when the time comes.

Hence, we should be able to focus on process step 2, in managing the different level of risks exposed, and making adjustment depending on current situations; for instance, during financial crisis and stock market collapse, transfer our stockholdings into fixed income or alternative assets that can preserve its value etc.

Manage your wealth as a portfolio, not transaction by transaction
It means look at the bigger picture. When we manage our wealth as a portfolio, we will somehow get to diversify away the risks inherently comes with different classes of investment vehicles as compared to only investing in the individual asset classes alone. A diversified portfolio can help you to reduce the risks associated to only a particular type of assets, and at the same time be able to reduce concentration risks in a specific asset classes. For the average people who may not have time and knowledge to invest in the stock market and do not have sizeable amount of investable assets, investing in mutual funds or unit trusts is one of the workable way to optimise your money, as it has low entry level, and your money will be professionally managed by fund managers and mutual funds will normally hold about 30-60 type of stocks which will make diversification an automated feature. However, investors are still advise to invest in Unit trust with the portfolio management approach, instead of single fund or single fund house approach which may compromise your freedom and ability to have the best performing and effective management fund in your account. If you want to invest in Unit trust effectively and with lower risks, you should invest it with the Wrap Account strategy by working with a Licensed Financial Planner who will be able to help you tailor up a customised portfolio, doing proper asset allocations and monitor and rebalance for you. [Click Here to read about What Should You Know Before Investing In Unit Trust]

Alternative investment to enhance your Portfolio performance
The use of alternative investment has become increasingly more adopted. An alternative investment is an investment in asset classes other than stocks, bonds and cash. The idea of having alternative asset class in our portfolio is that it will help in lowering correlation of your portfolio to the up and down of stock markets and the debt markets of bond. The asset value of alternative asset could be preserve even during bear market or when stock market crashed. However, having said that, the current value of alternative assets could sometimes be difficult to be determined since it is not quoted on the open exchange market, and some assets may be illiquid as compared to traditional investment assets such as stocks or bonds. Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals, but still, if you work with a Licensed Financial Planner, you may still be able to add alternative assets into your portfolio, it is quite depending on if you know how to access to and gaining access to the relevant option at the end of the day.

I wish that you will give birth to a healthy baby and continue to raise your personal financial literacy through active learning and be able to pass down good and sound financial management skill to your children.

The above response is from Mr. Kevin Neoh, a Licensed Financial Planner of VKA Wealth Planners Sdn. Bhd.

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