Financial Freedom

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?

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.

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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)