It’s smart to learn from your own mistakes, your self-induced catastrophes, and your personal hard-won experience. It’s even smarter to augment your knowledge through the pain, terrors and errors of others! Therefore, I will — later — invite you to hear me speak (for free) in KL about some of my most foolish financial mistakes, worst wasted opportunities and, to balance things out, a few of the most enriching personal finance lessons I have derived from my wrong turns down the side lanes of life and from two decades of working and studying in the field of financial planning.
My mistakes include getting into credit card debt more than once and falling for the allure of speculation. The associated valuable lessons I have extracted from such mistakes are understanding the importance of delayed gratification, managing cash flow patterns, and eventually favouring the grow-rich-slow approach to long-term wealth accumulation that focuses on aggressive saving and cautious investing.
If you think about the key life lessons you have internalised through observing your family and friends, you will acknowledge that we can benefit both from good examples and bad ones! Over time, we learn to emulate the good behaviour that yields good outcomes, and to eschew or turn our backs on the bad behaviour that yields bad outcomes.
In addition to the benefits of observing people you know well, I know you will also gain from discovering how the most economically successful people in the world are segmenting their investment wealth. In case you’re wondering how doing so can help you when your situation might be lightyears removed from the happy circumstances of the super-wealthy, remember that everyone on Earth suffers from money woes.
Most of us have financial problems stemming from not having enough money, while the rest have financial problems associated with having too much money! Therefore, it seems to me that if we study how the planet’s wealthiest set splits its money across various asset classes, then that will provide us with valuable insights into wise money moves we may harness to bolster our families’ finances.
THE WEALTHY SET
When I referred to Earth’s ‘wealthiest set’, I was not just referring to those on the well-known Forbes 400 list or even to the 2,043 billionaires in the Forbes 2017 global (USD) billionaires list.
No, in this context I’m referring to all 16.5 million people (out of Earth’s 7.4 billion living humans) who own at least US$1 million (RM4.23 million) in investment assets (according to the recently released World Wealth Report 2017, published by consulting giant Capgemini). Note: Those investment assets exclude, among other things, a person’s primary residence, collectibles like works of art, and consumer durables such as private planes and cars.
That floor of US$1 million in investment assets is roughly RM4.2 million today, which is a lot of money for most Malaysians. It’s also a lot of money for every other national population when you consider just one person out of 448 worldwide has that much (or more) in investable assets. It will interest you to learn that according to the WWR 2017, those wealthy people called HNWIs (pronounced hun-wees) fall into three wealth slices:
1.Millionaires next door — 89.98 per cent of the world’s 16.515 million HNWIs;
2.Mid-tier millionaires — 9.07 per cent of that number; and
3.Ultra-HNWIs — 0.95 per cent, again, of that number.
Regardless of whether you are already a HNWI or aspire to become one or have a more modest goal of building up your lifetime investable assets to between, let’s say, RM500,000 and RM3 million, taking a close look at how the world’s rich invest their money is illuminating.
According to the WWR 2017, in the second quarter of this year the world’s HNWIs broke down their investable assets within their financial portfolios in this manner:
1.Equities — 31.1 per cent
2.Cash — 27.3 per cent
3.Investment real estate — 14 per cent
4.Fixed income, meaning bonds — 18 per cent
5.Alternative investments — 9.7 per cent
(Alternative investments or Alts as an asset class comprises structured products, hedge funds, derivatives, foreign currency, private equity and, my favourite segment within this asset class, commodities.)
I suggest you take a look at the current breakdown of your wealth portfolio by asset class and then contemplate changes you might wisely make to align your strategy for long-term wealth accumulation to that of the world’s proven economic winners.
As you do so, particularly if you live in the Klang Valley, as mentioned earlier, you’re welcome to snag one of the 100 free seats at my public talk Building Your Financial Fortress in the afternoon of Friday Oct 13 at the KL Convention Centre, Exhibition Hall 5.
My presentation is just one of many such educational events that will be held at the InvestSmart Fest 2017. (As seats are limited I suggest you immediately pre-register for this useful initiative by the Securities Commission at www.investsmartsc.my/isf2017.html and also email email@example.com with a request for a booked seat.)
I plan to be candid about my numerous financial missteps, which is relevant to you because, quite frankly, learning from the failures and successes of others is, hands down, the best way to catapult yourself toward financial strength and maturity.
© 2017 Rajen Devadason