Tag Archives: Personal Finance

Raising Good and Responsible Next Generation

This subject is always up for debate and there are no right or wrong answers. Only bad ones. I have always stick to certain values when I start raising my kids and there are certain times I doubt if I’m doing the right things.

I am Asian born and raised in South East Asia. Hence, there are certain values instilled in me growing up by my parents and what I observed. These values are filtered and now build within my wife and me. Obviously these values are being passed down to my kids, of whom my eldest son is now considered an adult as he will be hitting the major milestone.

It is very difficult to compare and contrast one tradition over another. I can’t say Asian culture is better than Western culture or vise versa. All I can say is when we raise good responsible generation we need to use common sense.

I had good feedback over the weekend from my son when I was giving him a haircut. After this year he will graduate from Rutgers and get ready to head out on his own. Prior to that he will be heading to the West at Seatle for his internship. He told me that what I have telling him over the last years were really good suggestions and he thanked me for everything I taught him.

Being Financial Responsible

I’ve been teaching my kids of being financial responsible. While our family never shy away on spending money but we never spend lavishly. For example, we don’t rush out to but the newest gadgets or the newest cars. We spend what we can afford. And we don’t consider brand name items as must have – we go to WalMart when we can because we now we usually get good deals. Two months ago my son told me that he wanted to buy the latest BMW once he got a job. However, he told me that he no longer consider that option because he realized that the monthly car payment of $1,000 per month is too much and the money can be well spend on other important things.

Take Ownership of Self

When my kids were growing up my wife and I would check on their well beings every moment. As they grow older around middle school we started to relax a bit. As my son started to attend Rutgers I told him that I will no longer check on his education. In those years I been telling them that if they don’t take charge of their future, the only option for them to support themselves is by working McDonald’s. Having worked at a fast food restaurant during high school, my son had the experience that working in this industry is not sustainable. Now he aspires to be a software engineer and work for Amazon (he will be an intern at Amazon in Seatle).

Education is Important

Both my wife and I are not the typical Asians who want perfect grades. We let our kids experience the American values as much as we could by letting them have freedom on how they study. At the same time, we stress the importance of having good education as we believe this is the only way to get good job and may lead to good life. While some may debate that this is the wrong message to send, it is still unfortunately very true today. My son noticed this too as he found better opportunity while studying at Rutgers. He realized that some of his friends from high school who are not doing well at school are struggling – one of his friends even drop out of college and joined the Navy because he was just doing badly at the local college.

Don’t Spoon Feed – Use Force Feed

I remember the time when my son asked me to buy him a car when he turned 18. Obviously, I refused. He said he needed a car to travel to Rutgers for his education. I told him that he would be using my wife’s car but he was not allowed to use the car for hanging out with his friends. While that seems excessive he agreed to it. The only way for him to be able to use the car hanging out is to buy his own car. And that goes back to being financial responsible – because of the added pressure of financing and insurance he realized the stress of being able to afford for the car. I was surprised that he thanked me – he told me that if I’ve given his the car when the turned 18 he would not be where he is today. He has seen some of his friends who received a car for their birthdays turn out to be losers today as they have no concept of value and what is right or wrong.

Family Values

Our family of five has been very close. Whenever possible we always do things together and celebrate all milestones together. For this reason we never fight. Some may argue that some arguments or disagreements are healthy; I personally disagree. Arguments can escalate quickly and not everyone can forgive and forget easily. Our family likes to joke around and even when we have disagreements they tend to go away really quickly because we downplay them through laughter. As an example, my oldest son will be 21 this summer and all the years with his younger brother who is 3 years apart only had a verbal spat once. All my kids have strong bonds and continue to have good relationship with each other.

Every parent always worries what is the right thing to do or how to raise kids. While there are help books or various advice you could seek from friends or relatives every situation and every family is different. For me having hearing from my son that I’ve been doing things right is a good pat on the back and that I’ve done what I set out to do – by being a good parent and raise good and responsible kids.

Side-Hustle De-bunked!

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Over the past few years I have been trying to get a side-hustle to supplement my income. Not that I need it but I find that a second stream of income appealing and after reading so many great “success” stories I say to myself “why not?”

If you are reading this you are probably questioning the success rate of a side-hustle or you are interested in jumping on the bandwagon. Who is not interested in earning extra cash beside their full-time jobs? Well, today I’m going to tell you that not all side-hustle are successful. Some people were able to make a good amount of money from side-hustles and I do not question the validity of these claims.

A few months ago I read this article that claims some side gigs can make you richer than a full-time job. I immediately click on the link and start reading every words. As I was reading the first job it listed, I started to question if the writer who wrote this was insane.

I work professionally in a bank and I can tell you that the article would not apply to me because no matter which side-hustle that I want to do would not make me richer than my current full-time job. Let’s de-bunk some of the claims.

Time Commitment

The definition of a side-hustle refers to a job that you take on on the side. Usually it is for full-timers already have a job and is interested in doing extra work to earn extra income. Unfortunately there are only so many hours in a day and usually the work hours are in the day. So for full-timers like me in order to have a side gig I have to commit to a second job after 5 PM. That is not going to happen because by the end of the day after by banking job I get too tired to do anything else. As a husband and a father, I would rather use the free time to connect with my family than strangers.

Building Clientele

Understandably that people may have been more successful than others when it comes to second gig. However, in order to be successful you need to have enough clients to make the extra income. Let use online tutor as an example, you will need to have enough students to attend your class in order for you to be successful. That is easier to say than to actually make it happen. If you are thinking about that job, there are already hundreds of people in front of you already doing the same thing.

Subject Matter Expertise (SME)

If you read the article that I refer to some of the jobs require certain expertise in order to earn that rate. Let’s take one of the jobs listed as an example, a bookkeeper or an online instructor, how many of us can claim that we are a bookkeeper or great online instructor? We can fake it but sooner or later we would get caught and lose the credibility. I am quite handy when it comes to fixing certain things around my house; however, I will never be able to claim that I am a certified plumber or electrician.

Who wouldn’t want to be rich one day. Unfortunately, all the side-hustles that the internet is listing may never lead to immediate wealth. We need to take all these advise as a grain of salt because while some jobs may help some gain some extra income but I can tell you that for the majority of us they are just wishful thinking.

Investing – To Hold or Follow the Crowd?

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The last few months had been a huge roller coaster ride when it comes to investing in stock markets. The increase in Covid-19 infection rate together with the economic conditions have such profound effect on the stock market that making a profit is a hit or miss.

Investing in stock market has its own inherent risk. One one hand you can earn some great money if you made the right choice. On another hand you can easily lose everything if you made the wrong choice.

If you follow my earlier posts, my investment strategy is a mix. I have a diversified portfolio to reduce the risk of losing all my investment. Besides investing in well known stable companies, I also invest in bonds and stocks. I only invest less than 30% of my assets in volatile stocks.

Here is what I noticed on my portfolio for the last 2 months. The stable companies such as Microsoft or Apple continue to do well. Stocks that pay dividends are also stable and had very little volatility. In fact I did not lose any values on these stocks, bonds and ETFs.

On the other hand, the stocks that go up and down the most are those that do not fall into any of the categories I noted above. Stocks such as meme stocks or those that do not pay dividends. Some of the stocks that I own are Pinterests, Snapchat and pharmaceutical companies. These stocks continue to lose value as more investors continue to buy and sell at higher volume. In total, my portfolio for this portion of the stocks did not do as well as I hope.

Luckily I diversified my portfolio that the risk for it to lose is minimal. In fact, I learned that by holding onto the stable stocks, I continue to make capital gain on them. Unfortunately, some of the value was negated by the volatile stocks.

Here is what I learned since I started investing actively. Sometimes it is safer and more profitable if you just invest in stable stocks and hold them forever. The value of these stocks continue to increase while stocks that are being bought and sold tend to lose value at a higher rate.

If you are interested in investing stock market, I highly recommend that you do some research on the stock market and the companies that you plan to invest in. Do diversify your portfolio to minimize the risks and finally if you want to “follow the crowd” do put only a small percentage of your portfolio on risky stocks.

How Do You Become Debt Free from Credit Cards

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Getting in debt is as common as getting a cup of coffee in today’s modern world. The debt that most people incur continue to be increase at a faster rate that the money that they can bring it. The end results is personal bankruptcy is on the rise, especially in difficult times like these as more people are borrowing more on credit.

Increase in debt can be attributed to several factors. If we dig deeper we can all point out to the creation of credit cards as the major factor. Credit cards was introduced by Diners’ Club in the 1950. The premise of credit card is it allows consumers to purchase items by borrowing short term from the issuer of the cards with the agreement to repay back in the near future.

Most adult consumers today have at least 3 or more credit cards. If each card carries a credit limit of $5,000, a person can easily be in $15,000 debt or more easily in a very short time. The major problem with credit cards are that they allow the borrowers to carry forward the balance to future dates as long as the borrower continue to pay a minimum balance every month. The interests that credit card carry is usually high and the more the person borrow the more the person will have to pay in the future due to compounding interests.

As more and more adults continue to borrow from credit cards, the likelihood for the borrowers to pay off the debt becomes more and more difficult. This post is to touch on several strategies on how to become debt free. There are a lot of articles out there describing how one can be completely debt free in a very short time. However, I can tell you from first hand experience that this is close to impossible unless you are very discipline in your expenses.

I remember when my son was growing up he told me that we will never borrow money from the banks and will be debt free forever. In an ideal world this is possible. However, in today’s modern world, being totally debt free is a dream. Regardless how well we plan our finance, carrying certain debt is unavoidable. The question is how do we control our debt before it becomes out of control.

Get to Know Your Own Finance

Before we incur any debt, you need to be aware of your current finance. That includes if you have any outstanding debt, your current income and if you have any disposable income. Based on you current asset, you can easily determine if you are able to purchase the shiny new car you always dream off or if you can treat yourself to a vacation in the Caribbean. One way to find out if you can afford to make such purchase is by doing a detail monthly budget. Keep in mind that it is a budget and it should be used as a guide. My past experience showed that budgeting rarely work because there is always unforeseen circumstances that make sticking to the budget impossible.

Pay Off Credit Card First

Credit card debt is considered short term debt; mortgages and car payments are considered long term debt. Long term debt must always be paid off first; any leftover money that you have should go to credit card debt because they have high interest rates. The longer the debt the more expensive it is. To prevent from incurring any more debt, I recommend that you place the credit card with the highest balance in the drawer so you are not tempted to use it again. Once you finish paying off one card, continue paying off another card using the same strategy.

Consolidate Balance

One other option to managing paying off credit card is by consolidating the balances of the credit cards into one. You may consider using some of the debt consolidation services available online. Some do carry some fees so it is important to do some research and try to understand the terms and conditions. Consolidating the debt in one account allow paying off the credit card manageable. Some services allow you to negotiate a lower interest rates depending on your credit history. This will allow you to save thousands of dollars in the long run.

Use Cash Only

Credit cards are necessary evil. They are convenient especially for emergency use or if you need to purchase something very expensive. However, more and more people use credit cards to make all purchases; carrying cash around is no longer a practice. Using cash allow us to limit our purchase because we can tell how much cash we have and if we are able to afford the purchase.

Cancel the Credit Cards

Don’t be tempted by all the freebies or low interest rates that credit cards offer. They are designed to entice consumers to open an account. Instead of opening more credit card accounts, you should close or cancel the accounts as soon as you pay off the debt. Keep only one or two the most for any purchase that require a credit card. The added benefit is it allows managing monthly payment easier too.

There are a lot of apps out there which will help you manage your finance and expenses. However, I find that most require personal information and require a considerable amount of time to manage all the inputs. While they may help, I believe the time investment is too high to worth the effort.

There is no real magic bullets when it comes to managing finance. Reducing debt simply falls into two main categories, avoid temptation and be discipline in paying any outstanding debt as soon as possible.

Do These 5 Things to Ensure You Don’t Get into Debt

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For the last several decades the rates of Americans become more in debt have increased dramatically. With the creation of plastic money (credit cards) the debt ratio continue to climb higher year on year. The pandemic also accelerated a lot of consumers who continue to spend on credit to seek relief from the unfortunate worldwide event.

I remembered one proverb that my mom told me when I was in my teens. I’m not sure if this is a Chinese proverb but it definitely applies to getting into debt and how to get rid of debt. It goes like this: “It takes 3 days to learn bad behavior but it takes 3 years to learn how not to be bad.” Debt is very similar – it takes a very short while to spend money and get into debt, but it takes years to pay it off.

No one likes to get into debt but there are certain circumstances that force us to assume the debt. As an example, no one has the upfront money to buy a car or a house. Naturally we take out a loan or a mortgage so we can afford the shiny new car or the big house. Some of these debts are perfect rationale, but there are others that you should always avoid.

I’m going to list several ways on how to avoid getting into too deep of the debt. However, I’m not going to provide you the magic bullet on how to get out of debt as this is a different subject altogether.

Check Your Credit Annually

At a minimum you should check your credit score annually. Credit score (or FICO score) is what creditors such as banks use to make sure you are a reliable and trustworthy borrower. Additionally, the credit score also measure if you have the means to pay off any debt by checking if you have any revolving credit – the more revolving credit you have the riskier you are. Checking the score is important because it could put you in the “risky” bracket which makes borrowing money from banks or lenders more expensive. The costs of borrowing that money could be thousands to tens of thousands depends on the amount that you need to borrow. As an example, when I bought my first car I did not check my credit score. Unbeknownst to me my credit score was terrible because of a store credit that I opened hand the wrong address. Because of the non-payment of $200 that I put on credit, I was put in the “bad credit” group and received a high interest rate. A $200 dollar purchase ended costing me almost $7,000 in extra interest that I have to pay.

Pay Off Balance

Always pay off any balance on the credit cards. Believe it or not credit cards carry the highest interest rate of any borrowing. If you have a balance on your credit cards, never pay the minimum. The interest from the credit card will continue to compound and the ending balance will continue to go up. Paying off the credit cards not only help your credit score, it also builds good habit of controlling your spending, which brings up the third point.

Buy Only What You Can Afford

We should only be buying things that we can afford. Never buy anything that is beyond your means. For example, if you work in retail store and make only less than $30,000 a year it would be a bad idea to purchase a car. Not only a car will need to be paid monthly, you have also need to consider the cost of the insurance and regular maintenance of the car. The total cost will exceed what you could afford based on your annual income. A good example is my neighbor who bought a Mercedes SMG seven years ago. The price of the car was $150,000. My neighborhood is the regular suburb and no one was a millionaire. His Mercedes started to have problems and was always in a shop. He sold the car 5 years later. And two years ago he was found guilty of failing to file $600,000 in income. He drives an 8 year old used sedan today.

Save First Spend Later

I can’t stress this enough. The money you earn every month is not free money and it is not bottomless. Once it is used up, it is gone forever. To ensure you do not get into debt, I highly recommend that you “pay yourself” by saving it in a high yield savings account or investing it in reputable stocks that pay dividend. Once you have those money saved, they are out of sight and out of mind, which creates a mindset that you no longer have those disposable income available to spend and thus creating less debt.

Don’t Treat Yourself

This is very different from “paying yourself”. I’m referring to spending unnecessary because you feel you deserve it. I’ve heard and read of how one spends lavishly on a vacation or buys a brand name handbag because he believes he earns it after working hard for the past year. I’ve even heard this from my younger sister when she said she wants to treat herself well. Well enough that she got herself into $40,000 in debt. It took her almost 10 years to pay off the debt. In the same 10 years if she invested the same $40,000 in Apple stock 20 years ago, she would be a millionaire today.

Debt is a good thing if it is being handled correctly. For example, without carrying a debt you won’t be able to build your credit score to demonstrate that you are trustworthy among the creditors eyes. However, if you start building too much debt that you can’t afford to pay off the consequences could be harsh. Not only you will not longer able to borrow the money that you desperately need you could lose everything that you own today.

Personal Budget vs Reality

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Budget Finance Cash Fund Saving Accounting Concept

All of us heard about financial responsibility starts with a budget. We need to look at our take home pay and plan ahead for any expenses. While it is a good idea because it allows us to plan how much we can save. However, in reality how may of us can actually stick to the budget?

Having working full time for almost 30 years, I can tell you that I could never stick to my budget because it never works. There are always the unexpected expenses that threw the budget out the window. Expenses such as the car needs repair, the washing machine needs replacement or buying presents for birthday parties tend to appear unexpectedly. Having a budget is definitely a plus but it should be treated it as a guide more than a bible.

I was a financial analyst helping with the budgeting for a large accounting firm (heard of Arthur Andersen?) 15 years ago. Having spent 2 years in planning and budgeting for the Assurance practice in New York, I came to the conclusion that budgeting is a waste of time. Not only the team I worked for constantly reforecast the financials every month because we missed the budget, the actuals that were recorded in the financial statements never came close to the approved budget. Personal finance is very similar. The actuals at the end of every month is usually off from what what we intend to spend. There are several reasons why budgeting never works.

Time Consuming

To prepare a proper budget we need to gather all the expenses from prior years and plan what we want to spend based on prior history. Once you have the budget, we need to start tracking actuals spending to minute details in order to have an accurate picture of true expenses. The question is how many of us actually have the time to log everything in? There are apps or online tools that could help with the budgeting. Unfortunately, all of them require a considerable amount of time to maintain.

Always Wrong

As noted earlier, the unexpected expenses tend to appear and invalidate the budget. Because of this we need to spend more time to reforecast our budget so we do not miss our monthly goals. As we progress throughout the year, we soon realize that the numbers are off again and we need to re-budget again. It becomes a never ending cycle.

Not Bound to Anything

The biggest problem with budgeting is that it is not bound to anything or no one is measuring the budget but ourselves. Having a budget is great but what happens when we exceed our budget every month? Who is going to penalize us for going over the budget? No one. At the end of every month no one will be held accountable. Hence, the value in budgeting diminishes quickly.

So that begs the next question. How do we become financially responsible and plan for our future? The best answers I can give are use your best guess and plan only several months ahead. Additionally, always consider saving for the future a priority and everything else secondary.

Investing and Saving

This is a priority and something that we must to do first. We need to put as much as possible (or to the best of our ability) in investment vehicle such as 401(k) and IRAs. If you participate in your employer’s 401(k) plan, the money is automatically withdrawn from your paycheck and you never see it. If you have extra disposable income, consider invest it in Roth IRA or traditional IRA. Finally, putting those money in stocks that pay dividends will also allow you to generate passive income.

Fixed Expenses

Every month we are required to pay for fixed expenses. Some of these expenses include mortgage or rent, utilities and education expenses. You should be able to figure out these expenses relatively easy. Personally, I only put my mortgage expense as the only expense in this category because the amount is always the same every month. Utilities such as gas, water and telephone tend to vary by month – so I place them under other expenses.

Food Expenses

The second type of expense that takes a large chunk of my monthly expense is food. Prior to the pandemic I had to have a separate category called “eating out”. Nowadays, I just have grocery. The amount I pay every month is different so instead of using a set amount, I use an estimated total. Notice that I do not set a number because this category is “fungible” and it does go up or down because it depends on what type of food my family wants to eat at any given day.

Gifts and Unexpected Expenses

Holidays such as Christmas and birthdays also have a big impact on my annual expenses. I usually try to limit how much I am willing to spend on gifts. Other unexpected expenses that can’t be planned ahead are things (such as cars or appliances) that need to be fixed or increase in utility bills due to the weather.

Taxes

Finally, I put taxes as the last item because they should not be in our mind as they are paid automatically from our paycheck. If you file your W4 with your employer correctly, you should not have to worry about paying taxes when you file your annual income tax. However, do prepare for any eventualities particularly if you have capital gain from sale of your stocks. Other taxes that could appear unexpectedly are increase in property taxes or if you are required to pay certain taxes when you withdrew money from your 401(k).

I believe budgeting is a great tool if you have time to do it correctly. However, you should use it as a guide and allow some breathing room when it comes to actual expenses. The most important thing that you should always remember to do is grow your money by saving as much as possible in certain investments vehicles. Don’t aim to buy that shiny new cars which is usually a large expense; aim to expand your portfolio as it will pay you in the long run.

Should You Take Risk?

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A Wall Street sign is pictured outside the New York Stock Exchange in the Manhattan borough of New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri – RC2HAJ9BI6XP

The US economy, including the world’s are at a free fall because of the pandemic. Prior to the Covid-19, the US economy started to recover until we had an inept President. One of the results of all these is the interest rate, which is perhaps the lowest we have ever seen and will remain so for a long time. What this means is that it is cheaper to borrow money. On the downside, if you have money saved in any savings accounts, you are unlikely to get any interests from the banks.

What the pandemic has taught us is that we need to keep at least 3 months in a savings account for rainy days. However, the pandemic continues to go strong in every parts of the world. Some experts believe the old belief that having 3 months of cash to cover the cost of living is no longer enough. Now we need at least 6 to 9 months saved.

The question is where do we save the money. Saving the money under the carpet is a bad idea for obvious reason. Saving the money in the bank is the best choice. However, with the interest so low even the highest yield saving account could hardly pay any interest at all. How do we continue to generate passive income, in this case interest, that will help us to have a peace of mind in case we ever need that kind of money at times of need?

I was reading the December 2020 Kiplinger issue and one of the article suggests that we should adjust our investment portfolio and put more in stocks. If you read my earlier posts we need to be aware of the risk tolerance that we are willing to take. We should be more conservative by spreading our risk between bonds, ETFs and stocks. However, with the interests so low bonds hardly pay any dividends. Should we take more risks by divesting bonds and put more in stocks?

If you follow the stock market today (as of January 2021) it is doing the opposite from what the economy is telling us. There are more and more Americans filing for unemployment and there are more and more companies shutting down because of the Covid-19. Why is the market still going up? The stock prices for many stocks are perhaps at their highest we seen in the past decade.

Investing more in stocks become more intriguing because for the past year they continue to shoot up at an unprecedented pace. After Apple stocks split, it’s price continue to go up at a steady pace. Elon Musk because the richest man in the world as Tesla stocks went up by 100% after it splits its stocks. Now experts are saying we are at the cusp of market bubble.

The Kiplinger magazine is one of the magazines that I read every month and I’m surprised that it would suggest its readers to invest more in stocks at the time like this. Is there any truth or rationale for taking such a drastic step? As I ponder this question, I totally agree given what we know of the stock market today. As an example, I helped my wife to invest in stocks using Robinhood. Since October 2019, her portfolio increased by 63%, which is crazy.

Regardless, I will continue to take careful step when it comes to investing. While I have enough cash to cover my living expenses for the next 8 month, I continue to take a conservative approach and leave my portfolio unchanged. My portfolio is made up of 40% bonds and ETFs, 30% on reputable stocks that pay dividends and the remaining 30% of “play” money where I use it to flip. My strategy has been successful in that I am able to increase my portfolio by about 70% since I started investing in 2017.

Let me know if you will subscribe to the thought that investing in stocks better today? Or are you willing to take the risks in hopes that the stock market will continue to go up?

Right Mix of Investments

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The app Robinhood has helped many new investors to monetize stocks. Previously stock investment was only for the rich and the wealthy because most brokerage firms required a minimum assets to open an account. Additionally, there is a fee for each transaction. Unless the transaction would generate a positive spread there is no reason for anyone to buy and sell stocks.

Recently Robinhood was put on the spotlight because there were a number of news how some investors took too much risk and lost a lot of money. The worst news was a 20 year old committed suicide because he thought he lost $730 thousands from betting on options. Investing in stocks are risky. Anyone who want to invest in stock needs to understand the risk and each investor needs to know his/her risk tolerance.

There are a number of experts who continue to point out that to minimize losses in stock market is to diverse their holdings. For new investors, they need to at least have a basic understanding how stock market works and what are some of the investment vehicles that are available to them in the open market. The question is what is the right mix of investments for a new investor?

How Much Risk

There is no clear answer on what is the right mix of investments because everyone is different. There are some who has a lot of liquid assets and willing to bet all. On the other hand, there are some investors who want to dip their toes in the water and would not take any risks. I have been investing in the open stock markets for over 3 years and majority of my assets are in the traditional retirement income of which I have no control over what to invest in. I learned to understand how much risk I am willing to take and that in turn helps me to understand what mix of investments that works for me. Below are some guidelines that I hope you find helpful.

Understand Your Financial Standing Before Investing

Although investing in stock has become easier for the mass, it is still not for everyone. The type of people who should be discouraged from investing are those who are having difficulties in earning enough to make ends meet and those who have high debt. Investing involves taking a large sum of funds and put it in a basket that could lose value.

Before an investor start investing, the person should take stock of his financial status and determine if he has the means to invest the money otherwise meant for sustenance. In 2018, the Federal Reserve Board did a study and found that 40% of Americans do not have $400 in the bank for emergency. The rate today could be higher due to the pandemic. A lot of Americans borrow from their credit cards to meet daily needs, including investing in stocks. There was an article in July 2020 of how an investor started investing by borrowing from credit card and with devastating results. Investing in stocks is risky and there is a likelihood that you could lose value. No only you could not recoup your investment you are now liable for the money that you borrow.

Separate Asset into Categories

Investing in stock market is similar to gambling, but legally. Like all gambling, you could win all and you could lose all. To minimize the risk of losing all, it is advisable not to put everything in one bucket; experts call it diversification. As noted earlier, majority of my assets are in retirement account. I only have 10% of my asset invested in open market. Additionally I further diversify my investment to further minimize the risk and maximize the return. To achieve this I categorize my holdings into 3 categories and I also put in how much percentage I own.

Long Term Investment (15%) – These are the bonds and index funds that are stable. While the returns are minimal, the likelihood of them losing value is reduced due to the fact that they are consolidation of multiple stocks.
Capital Generates Passive Income (60%) – These are stocks of companies that are reputable and in good financial conditions. These companies remain to be profitable and are not likely to be at risk of default. The stock prices continue to be in the upward trend. Additionally, these stocks pay dividends, which is a type of passive income.
Play Money (25%) – I consider these stocks that are volatile and likely to lose value easily. However, volatility is also positive because to generate the spread is by buying low and sell high. These are the stocks that I will trade. These stocks to not pay dividend.

How Much Are You Willing to Lose

In an ideal world, we want to make money from stocks. However, stock markets go up and down. Hence, there are chances that one could lose money from stocks. Before anyone starts investing, he should set a limit of how much money he is willing to lose. Knowing the limit will minimize the risk of losing it all. The important question to ask is what sacrifice will you be making if you lose the money you invested.

Learn When to Quit

One of the important things I learned for the past year is know when to “sell” the stock. A profit is only realized when the stock is sold. On the other hand when the stock price falls below at a certain level, it makes sens to sell it before it goes any further. I learned the hard way when the Luckin Coffee stock that I owned continued in a downward spiral that there was no way for it to recover. I was holding to the hope that it would go up. Unfortunately that did not happen and the stock was subsequently delisted from Nasdaq. I lost over $900 when I finally sold the stock before its value dropped to $0.

One of the biggest challenge that I face is what happens when the stock prices of the company continues to go up? The premise in a stock market is buy low and sell high. However, I tend to hold on to these stocks especially if they are from reputable companies and they pay dividend.

Is there a right mix when it comes to investing in stocks? Yes, and it depends on one’s preference and how much risk is he willing to take. Before taking a big step in investing, it is also really important for the investor to understand his current financial status.

Is Robinhood Dangerous?

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The stories that we heard and watched so many time how Robin Hood swooped down from a tree and robbed from the rich and gave to the poor were classic in itself. Hence, we all automatically infer that Robin Hood was the good guy.

However, today we are not discussing the person from the folklore but the application (app) that was recently put under the spotlight for causing a 20 years old man to commit suicide after finding out that he lost $730,000 betting on options. It was sad to say the least and really unfortunate to have such a tragedy inflict on a family. However, I’m not here to discuss what went wrong with app but to argue if Robinhood is dangerous?

Before I continue I want to state my position. I don’t think the app is dangerous, but I think the tragedy could be avoided if there is failsafe built on the app that would flag any anomalies in trading. I am neither a programmer or developer so I am not in the position determine if there is any artificial intelligence or models built in that would capture these anomalies. News outlet claim that there was a system error in the balance of the 20-year-old which ultimately led to the death of the trader. Could this be a “freak” error that could not have been thought of by the app developers?

If you read my earlier posts, I pointed out that trading was originally reserved for the riches. The revolution started when Robinhood allowed the mass to trade for free beginning in 2013. Since then, there are a lot more companies are using the same business model. Even the large and established investment companies have started to offer free trading to their customers. Did Robinhood started something that increase trading risks, particularly for the milenials?

Fine Print in Trading – Trading in financial markets is risky. The inherent risk is high and anyone who is involved in trading should understand the risk. Before anyone who wants to begin trading, he or she should know this and should set a risk tolerance the he or she is willing to take. Trading is not FDIC insured and this is clearly stated in the agreement before an account could be opened. Additionally, all agreements also state the risks involved in trading.

Some brokerage firms also try to protect investors by assess their portfolios to ensure the risks are reduced. For example, I was prevented from buying stocks in my Citigroup brokerage account because I have 100% of my portfolio in equity stocks. To reduce the risk, I was advised to diversify my portfolio.

Good Knowledge in Trading – Trading in financial markets is different from purchasing a product in Amazon. You look at the product to see if it meets your needs. Then you find out if it is reliable by reading the reviews. Trading in financial markets require not only the stocks itself you need to understand how the financial instruments. I personally am not well versed in all the different instruments available so I am not going to attempt to explain each one of them.

Equity trading is perhaps the easiest – buy low and sell high to make the profit margin. However, for someone who is new to buying stocks, you do need do some research on the stocks you are buying. Reading the market news is perhaps the easiest way to do research. Options trading is perhaps the most difficult to understand. And option is an contract that allows an investor to buy or sell an underlying instrument like a security, ETF or even index at a predetermined price over a certain period of time. A trader will need to have a good understanding how it works, what to bet on, and has a high level of risk tolerance. if you place your “bet” right the profit margin could be great and the opposite is true. The 20-year-old trader may not had understood this and bought options based on someone’s suggestion.

Don’t Be Greedy and Understand the Risk – The old adage that there is no free lunch is very true in the trading business. Don’t expect to double what you invested in a short period of time. Time commitment and upfront asset are required. Once you started the investment you are required to keep investing for a long period and hopefully the amount you invested will continue to grow over time. Being greedy and hoping a payout not only it is impossible, the risk is extremely high. As an example, a trader could invest in a “hot” stock that has recently been increasing in price due to an unusual market conditions. However, once the real news come out it could unravel really fast and there is a high possibility of losing all the money you invested. I had the unfortunate opportunity to invest in China’s Starbucks called Luckin Coffee earlier this year. After reading one of the articles in a magazine how the company became a rising star in the Nasdaq stock exchange. The stock went from $19 to $50 in just a year. When news came out that the company fraudulent boost its earnings, the stock price quickly dropped to $4 and was subsequently de-listed from Nasdaq. I lost lost to $900 after selling the stock for $2.50.

Know One’s Limit / Know When to Back Out – Anyone who is interested in investing in stocks must have a good understanding on his or her current financial situation first. If someone who carries a large debt, investing may not be a priority. If the person does not have extra liquid assets committing the asset in stocks is not advisable. A large portion of my investment is in 401k retirement plan. I only invested about 20% of my liquid asset in the open market and of those 70% are in equity (or individual stocks). I tried to keep my risk low but at the same time want to grow my asset at a steady pace. I continue to read the business news and stock market highlights to understand the market conditions. If for any reason that there is adverse market conditions I will only lose 20% of my asset.

What had happened to the 20-year-old was really unfortunate. Robinhood could be the cause but in no way directly responsible for the tragedy. Legally there is a clause in the agreement noted that there is a risk in all types of investment. Without a good understanding of how the financial markets work will only increase the risk when it comes to investing.