In this weekly series titled JUST ASK, we invite readers to send in questions on stock investing, and personal finance. We will ask an expert (or experts) to provide answers. Below is a question from a reader which is answered by Leong Sze Hian, President of the Society of Financial Service Professionals.
Reader: Both my wife and I are 32 years old. I have been trying to implement a strategy but I am not sure if it would serve me well in achieving maximum capital growth in the mid- to long-term.
I have been using a capital sum of $150k every time when I trade. I will either use all the money for buying a stock or buy a dividend stock that will pay me enough dividends to cover monthly
expenses of around $6k.
For the former, when the stock rises, I didn’t know when to sell to book my profit and sometimes when the market pulled back, I unwound the positions and suffered deficits. I feel very frustrated.
I aim to use the profits made to pay for the $6K monthly expenses so that I can invest my salary and my wife’s monthly salary (combined around $8K after CPF deduction) into stocks. Is this viable?
Sometimes, it’s simply stressful to try to make $6k profit every month and it is affecting my concentration at work. I sometimes reduce the proportion of the intra-day trading sum to $100k and the other $50k into mid and long term.
Is it still too high a ratio for intra day trading?
The $100k I would use to buy stocks to earn $6k every month. Our monthly salary will be invested together with the $50k on a monthly basis with a 3-year time horizon.
Is my approach sound? Or is it too risky?
The $150K capital is all that we have as assets. Our housing and car loan are the main liabilities.Our housing loan is paid through CPF and car loan through our income or profits.
Leong Sze Hian: Dear reader, first and foremost, I would like to suggest that you think about your
objectives of investing.
Is it to retire earlier at age 40, 50?
So that either you or your wife can stop working as soon as possible?
Why try to achieve investment profits of $6,000 a month to cover your expenses, so that you can invest your entire current monthly income of $8,000 in a longer term (3-year time horizon) strategy?
Trying to get $6,000 a month on $150,000 of capital is very high risk!
You are hoping to get a return of 6% per month, or 48% a year.
Traders trade full-time because they have to make a living. What are your reasons for doing what you are doing?
In my view, you may be focusing too much on the returns, instead of managing the risks.
There is nothing wrong with what you are doing, so long as you are prepared to lose your
trading capital.
As the Chinese saying goes - "When you keep going up the mountain often enough, you will
meet the tiger".
As you are betting your entire trading capital on just one stock at a time, if you hit one that goes bust or crashes, you may lose your entire trading capital of $100,000 or $150,000.
I suggest that you do some financial planning to align your financial goals and concerns with your investment planning and money management strategies.
You are risking $150,000 of capital to try to profit by $6,000 a month, so that you can add $8,000 to your capital. Another way of looking at it is that you are adding your $2,000 net income after expenses every month to your capital.
The fact that you are losing money and it is affecting your day job may be a signal that your current strategy is not sustainable.
Leong Sze Hian as been a Wharton Fellow and alumnus of Harvard University, authored 4 books, quoted over 1,000 times in the media, and invited to speak more than 100 times in about 20 countries on 5 continents.
He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, the UNESCO Leadership Chair Council and founding Advisor to the Financial Planning Association of Brunei and Indonesia.
He has 3 Masters degrees in Financial Planning & Financial Services, 2 Bachelor degrees in Economics & Insurance, and 13 professional qualifications.
Email your questions on personal finance or stock investing to
Last Saturday's Q&A: JUST ASK: "Can't make consistent trading profits. How to improve?"
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