I recently returned from a ski vacation with my family. It was the first time in three years that family members living all over the world got together — and interestingly, money was something we discussed in much more detail than ever before.

Talking about money would have felt like a slight faux pas in the past. This time, though, was different. From my younger brothers to my mother, everyone had stories to share of ups and downs over the last few years. With inflation showing itself in strength, a resounding fear persisted, and with that came the need to save prudently and invest right.

First, know why you should buy

Your money goals need to be personalised to your life. It took me over a decade to understand this very simple fact. Books, podcasts, the news, investment gurus, and traditional banks keep telling us what to buy now. 

Yet, for any of us who have been investing for a while, we know how hard it is to consistently guess the next hot thing, right? The reality is that we all have limited ammunition, so we have to be critical and selective of where we put our money.

The step often missed is to define why we should own certain asset classes and investment strategies, given the investing environment as well as our life needs and goals. The biggest sovereign wealth funds and institutions have a framework they use to achieve their goals while covering their liabilities — there is no reason why you and I should not, too.

To do so, map out your core life needs to match specific portfolios.

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When it comes to your rainy-day savings, be cash smart.

To invest my first pot of money, I would first look to set up my emergency fund — money I might need in case of a medical emergency in the family, a loss of income, or other unforeseen circumstances. Four to six months of necessary expenses is a good benchmark for this. 

Let’s say my necessary expenses are S$8,000 a month. I would allocate around S$40,000 to a portfolio of diversified cash and money market funds, investing in institutional fixed deposits, Treasury bills, and short-duration bonds.

This is particularly good in our current environment, where you can enjoy projected yields of around 4% with daily liquidity, no penalties, and no lock-ups. For reference, at the start of 2022, for a similar risk investment, the projected yields were closer to 1%.

Next, think about near-term goals for the next five years

This could be for financial commitments such as a new house down payment or a new car. It could also be for recurring cash outflows such as a child’s education fees or money set aside to take care of your parents.

Depending on your goal and risk tolerance, I would look to put this to work in a balanced portfolio of globally diversified stocks and bonds. The 60-40 portfolio (60% stocks and 40% bonds) is alive and well, and is looking more attractive now than it has been in a long time.

If generating recurring passive income is an objective, I would consider an income portfolio of globally diversified high dividend stocks and higher coupon bonds. Given the current environment, this can generate payouts of over 6%.

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Long-term and retirement plans in focus

Cash savings, CPF, and SRS can be invested towards this goal, so you can benefit from the power of compounding over time. 

With this goal, you may need to grow your money more aggressively if you have the behavioural risk tolerance to ride the markets. 

When reading projections by journalists, fund managers, and economists, their views are divergent, as always. But the one rule we can rely on is the power of markets to price risk and drive asset prices. 

If you can tolerate the fluctuations, invest in 100% globally diversified stocks. Over time, this investing goal will reap gains from the persistent long-term outperformance of stocks versus bonds or versus cash. This relationship persists because it is how the capital markets are designed — bondholders are paid back before stockholders, and therefore, stockholders should be compensated with higher returns.

With S$1 million to deploy, you can also afford to have your capital held in more illiquid assets to achieve unique risk-return objectives. This can be through the likes of multi-strategy, global macro, and quant hedge funds, as well as private equity, private real estate, and other asset classes.

That said, more choices do not mean better choices – be discerning and make sure these strategies are appropriate for your goals. For anything you do, make sure you are getting aligned advice at a fair and transparent cost and are sufficiently diversified so you are compensated for the risk you take.

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Bonus round: What to do with tactical calls

Clients often ask: What about China, technology or megatrends? 

My answer is to express such tactical views only after taking care of essential life goals in your core portfolios. When expressing such views, be diversified in your play, so your investing fate is not dragged down by one or a few companies or by a narrow sectoral exposure.

With these steps, collectively, these goals and their portfolios make up your overall holdings. The same framework can be deployed for your second million and beyond.

With your money goals personalised, I hope you unlock quality time to chase those bluebird powder days with your loved ones.

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