The Gone Fishing Portfolio

As most people will have heard before : "Never put all your eggs into one basket". 

This saying is perhaps what everyone hears when they first start investing.  But how many of us truly understand what it means to diversify?

When I first heard of this saying, I thought it meant not to put all my investment money into 1 single stock.  How wrong was I!  The proper interpretation of this saying should be " Never put all your money into stocks alone "

Asset allocation is perhaps the single most important determining factor of any investor's investment returns.  Based on the Nobel Prize Winning Modern Portfolio Theory, rational investors ought to use diversification to optimise their portfolios.  This does not mean just diversifying within stocks in a single stock exchange but across countries and across other investment instruments like bonds, gold, commodities, fixed income instruments, etc.

In the book Gone Fishing Portfolio, Alexander Green who is the investement director of The Oxford Club proposes an asset allocation that beats both the S&P500 in returns for both good years and bad years by just spending 15 minutes a year for making your investment decisions.

In the Gone Fishing Portfolio, the Vanguard mutual funds is chosen because of its low cost and also because it provides an excellent diversification opportunity.  5 principal long term investments are used : stocks, bonds, property, cash and precious metals.

Your eggs are spread around by diversifying into investment instruments that do not perform similarly so that your overall investment is protected in both good times and bad times.

Have you been burnt by the recent selloff in the stock market?  Has your networth depreciated significantly?  This could be due to the fact that you have placed all your eggs into a single basket called the stock market.  Perhaps it is useful to take this opportunity to diversify your assets so as to optimise your returns for both good years and bad years.

The proposed asset allocation mix under the Gone Fishing Portfolio is as follows:

Vanguard Total Stock Market Index (VTSMX) - 15%
Vanguard Small-Cap Index (NAESX) - 15%
Vanguard European Stock Index (VEURX) - 10%
Vanguard Pacific Stock Index (VPACX) - 10%
Vanguard Emerging Markets Index (VEIEX) - 10%
Vanguard Short-term Bond Index (VFSTX) - 10%
Vanguard High-Yield Corporates Fund (VWEHX) - 10%
Vanguard Inflation-Protected Securities Fund (VIPSX) - 10%
Vanguard REIT Index (VGSIX) - 5%
Vanguard Precious Metals Fund (VGPMX) - 5%

Determining Your Financial Freedom Number

In the book Commonsense Rules for Financial Freedom, the author comes up with a financial freedom number. What is this financial freedom number and how do you calculate your financial freedom number?

The financial freedom number is simply taking your monthly total passive income and subtracting it with your monthly expenses.

Financial Freedom Number = Monthly Total Passive Income - Monthly Expenses

A negative number would mean that you are still not financially free and would need to make up for that number in terms of passive income to become financially free. Let's take for example my scenario:

I have $224 in monthly total passive income and $3887 in monthly expenses. My financial freedom number is thus -$3663. That would mean to be financially free, I will need to make an additional $3663 per month in terms of passive income to maintain my current standard of living (without accounting for inflation).

This is enlightening. First it means that in my initial financial freedom goal, the sum of $2800 per month that I was targeting is not enough for me to be financially free. That is unless I continue to reduce my monthly expenses to $2800 or less.

There you have it, a simple way to calculate your financial freedom number. Mine is -$3663. What is your financial freedom number?

Other Articles of Interest:

What is Financial Freedom to You?  This is my own definition of Financial Freedom:  My Financial Freedom Goal

Why People Read This Blog

This hugely popular blog is intended for readers from all countries.

It's sole purpose is to provide a platform to exchange ideas, knowledge and experience to all who are on their journey to financial success.

Why Spend Time Reading This Blog?

There are only two ways to gain knowledge. One is to experience it yourself, the other is to read and learn from other's experience.

People who visit this blog want to:

1. Achieve Financial Freedom
2. Increase their Financial IQ

3. Learn from the experinces of others.

So why do people read this blog?

I seriously do not have an answer to that. Perhaps Google's Search Engine Optimisation is doing me a favour and sending me loads of traffic. Or perhaps it could be that people simply enjoy reading the posts.

Whatever the reason, I do hope that you find the articles in this blog useful for your own journey.

For starters, I suggest that you turn to this page to read about My Financial Freedom Journey.

That will be a good way to get you acquainted to this blog.

Don't forget to check out the Most Popular Posts, Most Commented Posts and Most Recent Posts on the sidebar! There is surely something that you will find interesting.

Should you have any suggestions on how this blog can be further improved, please contact sgfinancialfreedom@gmail.com

High Dividend Yielding Companies

Have been thinking of buying Singpost to boost my dividends earnings. They have paid out constant dividends over the years. A purchase will help to boost my passive income closer to the $400 per month goal I have set for myself for next year.

3 Key Lessons From Rich Dad Poor Dad

A lot of reviews have probably been written about Robert Kiyosaki's Rich Dad Poor Dad book. So I will spare the reader the details of the Rich Dad Poor Dad Book and just focus on the key lessons that I have learnt from Robert Kiyosaki and which I am now trying to apply to my financial life so as to be financially free.

Lesson #1 - Pay Yourself First

The first lesson I learnt from the Rich Dad Poor Dad series is to always pay myself first. That means that investments, regular savings, etc are the top priority in my budget. I pay these things first before I start spending on any luxury items.

Lesson #2 - Acquire Assets

An asset is something that puts money into your pocket. A liability is something that takes money out of your pocket (e.g. your car). Acquire assets.

Lesson #3 - Increase Your Income

Increase your income (both earned and passive income) such that it exceeds your expenses. Do not solely rely on earned income to be rich. Always explore multiple streams of income.

There you have it, a short and simple review of the 3 key lessons I have learnt from the Rich Dad Poor Dad series. Hopefully, this will help you in your financial freedom goal.


Read Related Articles:
1. Singapore's 40 Richest
2. Conversation with A Millionaire
3. Donald Trump Lessons
4. David Bach Automatic Millionaire
5. Peter Lim

Optimising and Updating Your Insurance

What should one do during this global financial crisis when stocks are down and the market is just so moody? Well, one good thing to do will be to re-look into your insurance policies and find out whether you have them optimised or updated.

What do I mean by optimised? It means to find out whether you can find a plan that is cheaper than any existing plan you have so that you can replace your current plans. Updated means to take into account the recent developments in your life (new addition to the family, etc) and see whether you are sufficiently covered.

Below is a list of my insurance policies and the premiums that I am paying for them. Feel free to compare and do let me know if you have a cheaper insurance plan than me =). Of course, those with the higher premiums provide money back and those that are dirt cheap are the term insurance which are basically pay and throw away kind of plans.

Death and TPD

1. AIA Achiever ($100,000) - $350 per month (Investment Linked)
2. Asia Life Junior Life Care Policy ($160,000) - $150 per month (Surrender Value present)
3. Aviva SAF Group Term Insurance ($100,000) - $12.80 per month (Pay & Throw Away)

Critical Illness

1. Aviva SAF Group Insurance Living Care Policy ($100,000) - $10 per month (Pay & Throw Away)

Personal Accident

1. Aviva SAF Group Insurance Personal Accident Policy ($100,000) - $4.17 per month (Pay & Throw Away)

Hospitalisation (without rider, means must pay deductible and co-insurance)

1. AIA Healthshield - $111.30 per month

Disability Income

1. Nil

Home Insurance

1. AIG Home Assurance

The coverage details are as follows:
Coverage Descriptions Limit (SGD)
Building = $150,000
Alt Accomodation Expenses = $4,500
Household contents = $30,000
Contents at Temporary Premises =$4,500
Replacement of Locks & Keys = $250
Personal Accident (<66 age="" br="">Medical Expense (<66 age="" br="">Third Party Personal Liability = $500,000

2. Home Protection Scheme (HPS) by HDB

Pays off housing loan that is owed shd anyone pass away.

Portfolio for Passive Income

My updated portfolio for passive income for October is as such:

1. 12,000 x Ascott REITs (DPU = 4.52 per half) = $90.40 per month
2. 17,000 x First REITs (DPU = 1.91 per qtr) = $108.23 per month
3. 1000 x Suntec REITs (DPU = 2.79 qtr) = $9.30 per month
4. 1000 x NOL (estimate 8 cents per year*) = $6.66 per month
5. Maybank iSavvy Deposit = $10 per month

Total avg monthly passive income = $224.59 (this month) versus $218.23 (previous month)

Stock Portfolio Down by 50%. Feeling Weak in My Stomach

My Stock Portfolio is down 50%. I am totally weak in my stomach when I opened my UOB Kay Hian today to take a look at my portfolio. This global financial crisis has virtually wiped away all my gains over the past few years. I fear that the worse is still to come.

Nevertheless, to drive up my passive income, I have have decided to buy 1000 x First REIT @ $0.425 and 2000 x K1 Ventures @$0.205.

Cash is really King in this kind of stock market now. And I have been thinking about quitting my job. I keep thinking what if i had liquidated all my stock holdings earlier this year. I would have been able to use all my current paper loss to pay off my car loan! Aargh..

This is a painful lesson for me....I was too rash in making certain financial decisions...
But guess I still have 30 over more years infront of me. Compared to those retirees who bought the Lehman bonds, I am much better off. And I seriously thank God for that. I cannot imagine retiring and then losing all my retirement money due to bad investments. I really really cannot imagine. .. it is a totally scary thought. For the retirees, it is like lsoing all their 30 years of savings and hard work..... all gone down the drain just because of 1 single financial decision.

Passive Income is the way to go in these bad times.

A Jap Car In My Parking Lot is worth 2 Ferraris in Someone else's Parking Lot

It is amazing what all these bad news are doing to my mind (and of course my stock portfolio too).

The global financial crisis is making me afraid and I have been thinking of liquidating my portfolio. Surely the stock market will go lower and I can buy back all the stocks I own now at a better price..

This is so typical. When the stock market is good, I tell myself that I will wait for the crash to start buying into stocks. Now that the crash is here, I lack the guts to walk the talk and to continue buying stocks.

So.. I took a few days off blogging, a few days off thinking about investments, and asked myself this: "Am i addicted to money?" "Do I really want money so much?"

And the answer was " NO". I would rather spend my time with family and friends then be earning money or working. I would rather have a cheap Japanese car to drive NOW than to save up that money, invest it and be able to buy a Bugatti or Ferrari only 10-20 years down the road. As the proverb goes: " A jap car in my parking lot is worth 2 x Ferraris in someone else's parking lot." Why save up money that you can spend today?

So what should one do in this financial crisis?

Of course, the answer is to buy low sell high. That is the obvious answer, but do I have the guts to do it?

Should I spend $4000 to invest in stock that will give me 10 per cent yield per annum ($400 per annum) or should I just take that $4000 and spend it now? Why do I want to delay my gratification?

Hmmm.. stuff worth thinking about.....before i continue on my financial freedom journey..

The First Step of Financial Freedom

The very first step of any financial freedom journey needs to begin with this basic principle. This basic principle is spending less than you earn. Without obeying this basic principle, one can never be financially free even if one strikes the lottery or receives an inheritance. In this world, there are only 4 types of people:

People Living Above their Means

This is the kind of person who spends way above what they earn. They spend so much that they are probably in some kind of serious debt which they will never be able to repay as they are spending alot more than they are earning consistently each month.

People Living At their Means

This is the kind of person who spends every single cent he has. The time of the month that he looks forward to the most is payday. His bank account is close to zero as payday draws nearer.

People Living Within their Means

This is the person who probably spends less than they earn so that they have enough to set aside either for savings or for buying something that they really like. The amount they save though is not alot (less than 10 percent) as they are willing to live up the lifestyle expectations that they deem they are entitled to.

People Living Below their Means

This is the frugal person who could well afford a new car but would rather buy a second or third hand car. He could easily afford dining in at fancy restaurants each day but would be content with a simple home cooked meal at home. He could fly off to exotic holidays every year but would be content just taking a road trip to a nearby neighboring country or better still, just lazing at home. He is in other words content with what he has and sees no need to spend more so as to live up to the rest of the world's expectation. He can afford it but chooses to save up his money for other purposes.

Which one of these categories do you belong to?

The key idea then to financial freedom is having a budgeting system. The problem with people without a budget is that they are often saving what is left at the end of the month. Well, if you do not have a budgeting system, then a simple alternative is to always always "pay yourself first".

What does "pay yourself first" mean? It means basically to set aside a portion of your income for savings or investments. It could be 10% or 20% or whatever you are comfortable with. Once payday arrives, simply throw that money aside into another bank account or invest it through a regular savings account so that you will never spend that money at all.

Passive Income for Sept 08

This is a breakdown of my passive income for Sept 08

1. Growth Dividends : $225
2. Pac Andes Dividends: $765
3. Kingboard Dividends: $141

Total passive income for Sept 08 = $1131

Of course, the growth dividends is just a one time payout.