How should I invest when stocks are booming? I heard prices are all far too high. Deposits are not an option, as I will never meet my investment goal with such a low return.
ANSWERED BY... Teera Phutrakul, CFP, Chairman, TFPA As an owner of stocks, you should regard them as part ownership of a business and not be too concerned with erratic fluctuations in stock prices. An investor is neither right nor wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.
Each trading day, you will be offered a price to buy or sell your stocks. You are free either to agree with the quoted price or ignore it. You should not regard the whims of the market as determining the value of the shares that you own. You should profit from market folly rather than participate in it. You are better off concentrating on the real performance of the companies in your portfolio and receiving dividends rather than being too concerned with the stock market's irrational behaviour.
Bear markets and corrections are normal occurrences, happening about once every two years since 1942. Smart investors know that bear markets and corrections may be great buying opportunities. By adding to investments after the market drops, you can take advantage of lower stock prices _ this strategy is called dollar-cost averaging. As long as your portfolio is well diversified and your investment horizon is sufficiently long, there is no reason why you cannot reach your goal.
I previously planned to retire at 60, but my employer offered an early retirement deal where I would receive 50% of my salary for 2.5 years or about 3 million baht. My healthcare benefits remain unchanged until I reach 60. I'm 52 with about 5 million baht in savings, no debt and no big bills to pay. I think if I take the deal, I would spend most of my money on investments and could live on the returns. But I'm not sure if this is too risky. And what type of assets should I cash in? Could you please help me create a financial plan?
ANSWERED BY... Teera Phutrakul, CFP, Chairman, TFPA Sometimes firms attempt to trim their payrolls by offering early retirement packages. Whether you should accept such an offer depends on a number of factors:
- Were you considering early retirement before you received the offer?
- Would you be able to find other work?
- Have you already amassed considerable retirement savings?
- How attractive is the financial package?
- How will accepting the offer affect your provident fund benefits?
- Are you likely to be laid off under less favourable terms if you decline the offer?
But before throwing in the towel, here are a few tips that you should consider:
- Trim your pre-retirement budget. Your best chance to amass the funds you will need for early retirement is to make saving your top priority, not something to do when there's money left over.
- Invest aggressively, even into retirement. Retirement is when you stop saving from your earnings and start earning from your savings. Therefore, you better make sure your savings are working as hard as possible. While a typical 65-year-old retiree may have only 40-60% of his or her portfolio in stocks, a 52-year-old retiree should probably have 50-70% in such aggressive investments.
- Part-time job. Finding a job at 52 is never going to be easy, but a part-time job may be easier. It's true that part-time jobs don't pay as well, but at least you may be able to delay withdrawing funds from your existing savings, and that might be enough to make your early retirement plans successful.
Whatever the part-time job, better to take this step now rather than be forced into it later in your retirement when you find out your savings are disappearing faster than you had planned or that your skills may be obsolete or you might be too old to work.
The Thai Financial Planners Association is the Certified Financial Planner (CFP) trademark licensing authority in Thailand. It is a self-regulated, non-profit group of financial advisers and experts from various organisations set up to give advice to investors. Questions can be submitted through firstname.lastname@example.org or posted on the TFPA webboard at www.tfpa.or.th
About the author
Writer: Thai Financial Planners Association