Trade Responsibly Chapter 1: Money Management

Mon, Feb 18 2013, 16:28 GMT
by Yohay Elam | Forex Crunch

Isn’t money management a nice buzzword? Many forex brokers flash around this nice phrase. I’m sure you’ve heard it many times. How can you turn this buzzword into practical, actionable advice?

As with any type of investment, there is risk. The idea is to control your risk and be aware of it. This will save you from the infamous margin call, as well as let you control your account in a better way.

1. Limit the risk: When you open a trade, place a stop loss order to get you out of your trade and prevent a situation where you lose too much. This states the obvious for the vast majority of traders reading this, but I still know some traders who don’t use a stop loss order. This precarious deed is done also by people who work at forex broker firms and trade with their account. Sad but true.

2. How much money are you risking: Many traders calculate the risk / reward ratio. Some look for 2:1 or 3:1. That’s great. But how many dollars are you actually risking? This data is available with most brokers. Is this sum too high? In that case, there are two mathematical options to reduce the amount of money you risk:

1. Tighten your Stop Loss: In this way, less money is at risk. Sounds good? Not exactly. Perhaps your new Stop Loss is too tight and will yield an immediate loss to that position. Lowering the amount of money you risk doesn’t mean raising the chances of a loss! The stop loss point should be based on your analysis: technical, fundamental or a combination. It shouldn’t be based on the amount of money risked.

2. Lowering the position size: With a lower position size, you will still get to place the stop loss point in the right place for you, but the money that is risked will be lower. Yes, also the rewards side will be lower. And yes, it is tempting to trade large positions. But remember: this is leveraged money, not real money that you have. By lowering the position size you still get to trade your position in full, and just risk less cash.

3. How much of your account are you risking? OK, you already see the amount of dollars that you are risking, but saying it bluntly: what is your burn rate? Let’s say you have an account of $1000 and you risk 20%. Now your first trade has gone bad, and you lose $200. You stick to your method but it doesn’t work out again and you lose another $200. In 5 trades you are out, liquidated, margin-called. If you are new to forex trading, you are likely to make more mistakes and lose more in your initial trades. Risking a big portion of your account means that you can burn out quickly before you had enough time to learn, improve and win enough trades.

A rule of thumb: Don’t risk more than 2% of your account!

I know this sounds very strict, but this rule will help you survive, learn and eventually increase your chances of having sustainable profits in forex trading.

A forex demo account is very useful for practice, but it doesn’t fully simulate the real thing – not in execution (detailed later) and not in the emotional stress. Having enough opportunities to trade helps you trade better.

source:http://www.fxstreet.com/education/forex-basics/trade-responsibly-chapter-1-money-management/2013/02/18/

Clement Jouling ialah Perunding Unit Amanah berlesen (Licensed Unit Trust Consultant). Sekiranya anda berminat untuk mengetahui lebih lanjut tentang pelaburan unit amanah, boleh hubungi beliau terutamanya buat anda yang berada di Kota Kinabalu dan sekitarnya.

6 Simple Steps to Wealth

By Aktive Learning | MoneyMatters.sg – Wed, Feb 6, 2013

By Brian Halim (guest contributor)

Many believe there is a great secret to becoming wealthy. Few realize that the simple basics are all you need to build wealth. The “secret” to wealth is not much of a secret. A variety of simple concepts and actions can be applied to achieve prosperity. Follow the following six steps and you will be on your way to building your wealth.

1. Spend less than you earn

The number one rule of personal finance is this: You cannot spend more than what you earn. You must live within your means, and take care that you never outspend your income.

2. Reduce Debt

Pay down your debt, and you free up resources that can be used to improve your net worth. If you are leveraging on your loan, repay your loans diligently. Reduce the amount of interest you pay, and instead use that money to your advantage.

3. Grow Income

If you want more, you need to earn more. Look for ways to grow your income. Maximize the lifetime earnings of your career as well as seek non-career options to profit like part-time jobs. Staying overtime in an office that does not pay you extra will not help you, unless it will lead to a promotion.

4. Save for the Future

Your emergency fund can protect you against financial setbacks or unforeseen emergencies. Be prepared and stay calm.

5. Invest in Yourself

Wealth also depends on your human capital. Invest in yourself by getting an education, and/or developing a skill. It does not necessarily need to be a degree. All you need is a marketable skill, or a knowledge base that can help you improve your finances.

6. Play Good Defense

Be sure to avoid the worst finance mistakes that people make. They can derail your gains and even ruin all of the hard work you put in to grow your net worth. When reading the above actions, it is easy to dismiss them. If it were so easy, everyone would be wealthy. The steps that lead to wealth are simple concepts. Applying these concepts is much harder.

7. Building Blocks of Wealth: Discipline, Patience, and Persistence

In addition to the steps above, you also need to develop three qualities to ensure maximize the chances that you will achieve wealth.

7(a). Discipline

Discipline requires a measure of self-control in expenditure. Rather than buying everything you want, prioritize and purchase only what is important to you. This will help get rid of debt and build your savings. Earning money requires discipline. Growing your income means that you have to get up early and do extra work. Occasionally, you might have to complete tasks you find unpleasant. Knowledge and skills too are acquired only after you exercise the discipline to study and to practice them.

7(b). Patience

In today’s world, we are bombarded with promises of instant gratification. We want that expensive car now. You can have your vacation with a credit card. A 60-inch television can be yours if you qualify for in-store financing. The inability to wait and save up the money for what we want leads to debt and financial insecurity.

Results require time. A good emergency fund takes months, or even years, to build. Dollar-cost averaging in your investment portfolio requires decades of patience.

7(c). Persistence

Persistence is the ability to keep with your wealth-building efforts. It is easy to give up when you do not see quick results, or when you see your neighbors enjoying their over-leveraged lifestyles. However, in the long run, those neighbors are likely to have very little wealth, since most of the goods they enjoy have been bought with debt. It is hard to see that when everyone around you is having fun while you follow a more practical course. But stay the course.

Take action now. There will be many temptations along the way. It is up to you to decide which path to take. Follow the simple concepts of building wealth with discipline, patience, persistence, and you will achieve financial freedom. The concepts behind wealth are that simple, but it takes hard work to put them into practice.

By guest contributor Brian Halim, a professional accountant who blogs at A Path to Forever Financial Freedom. Posted via www.MoneyMatters.sg, your guide on how to make more money, save smarter, invest intelligently, and enjoy your money like a pro. Click here to get our free report on what you must know about financial freedom.

Source: http://my.news.yahoo.com/6-simple-steps-wealth-064740946--sector.html

Clement Jouling ialah Perunding Unit Amanah berlesen (Licensed Unit Trust Consultant). Sekiranya anda berminat untuk mengetahui lebih lanjut tentang pelaburan unit amanah, boleh hubungi beliau terutamanya buat anda yang berada di Kota Kinabalu dan sekitarnya.

Do you dream of early retirement - when you are still young?

Financial Snacks by Joyce Chuah

To be able to afford to retire young is a dream held by many as it is an indication of financial success. Early retirement usually does not mean ceasing from work but freedom from having to work due to financial needs. So where can we start? Grace Chuah writes:

Decide on the life-style you wish to have in retirement.

Some have a simple lifestyle − walking, gardening, and local holidays − but for others, enjoyment means overseas holidays, fine dining, living in high end condos. One consideration is also whether or not you want to continue working and earning active income during your retirement years', though at a more relaxed pace.

Calculate how much you need in order to fund your retirement lifestyle.

Mortgage repayments, children education and living and medical bills (ideally covered by medical insurance) are major expenses. If you need RM5,000 spending money per month, a capital sum of RM1mil (retirement nest egg) at a consistent dividend yield of 6% per annum will be simple enough to cover retirement costs.

However, one needs to factor in inflation. At 7% inflation rate, RM5,000 becomes RM7,000 and at 6% inflation rate, a RM200,000 education fee becomes RM335,000 in five years' time. The only way to overcome inflation is to invest.

Work out the strategy to meet the gap between what you would have and what you would need during retirement.

To close the gap, you need to build up your nest egg, readjust your desired retirement lifestyle or postpone your retirement to a later age. Cut down on unnecessary spending. What matters more is how much you save, not what you earn. Pay yourself first every month and increase this amount as your income increases. Invest your retirement savings in a long-term portfolio and rebalance it annually.

Take action now.

A retirement age is an artificial finish line but nonetheless serves as a goal-post. When we start planning early, we have the advantage of time to enjoy the effect of compounding returns over time and to fine-tune our investment strategies and recover from mistakes early.

Remember the quote “Someone's sitting in the shade today because someone planted a tree a long time ago”. Plant the tree for yourself today.

Source:http://biz.thestar.com.my/news/story.asp?file=/2013/2/4/business/12656861&sec=business

Clement Jouling ialah Perunding Unit Amanah berlesen (Licensed Unit Trust Consultant). Sekiranya anda berminat untuk mengetahui lebih lanjut tentang pelaburan unit amanah, boleh hubungi beliau terutamanya buat anda yang berada di Kota Kinabalu dan sekitarnya.

For many, EPF nest egg may not last the distance

One consultant said RM100,000 in EPF savings was insufficient to fund a leisurely retirement. — Reuters pic

KUALA LUMPUR, Jan 12 — Retirement must be the sweetest moment for any employee who has worked for over 20 years as it will allow them to rest and do leisure activities with their loved ones.

However, inadequate retirement funds may bring these dreams crashing down as some may continue to work following failure to manage their Employees Provident Fund (EPF), the only retirement scheme in the country.

According to studies conducted by the EPF, 70 per cent of inactive contributors had retirement savings of below RM50,000 and will spend it within the first five years of retirement.

Without financial stability from personal saving, pension or children to support them, this situation could put many retirees in a troubling position.

According to EPF’s senior public relations manager Nik Effendi Jaafar, the EPF hoped to increase their members’ saving with the introduction of the minimum wage.

“The main contributing factor for this situation is that low income earners will contribute a small amount into their EPF until their retirement age.

“We hope the minimum wage implemented this year will increase member contributions,” he told Bernama here today.

However, he said the EPF would like to remind its members that their responsibility was to provide basic financial security for retirement but there was a possibility that the funds would not be sufficient for their needs.

Therefore, he said members were encouraged not to depend entirely on their EPF savings by choosing other investment options to increase their savings.

“In addition to that, to avoid reducing their EPF savings, members should only make pre-retirement withdrawals only when necessary. More importantly, we emphasise that a comfortable retirement is possible through sound financial planning,” he said.

Malaysian Government Pensioners Association (PPKM) president Datuk Wan Mahmood Pawan Teh said a panel to provide financial management courses to future retirees should be set up to help them save more and manage their money well after retiring.

“For example, there are suggestions for contributors to invest in asset management companies, but the government has not provided detailed information to them so that they are not exposed to risks or fraud.

“Not all contributors, including from the private sector, can manage funds well. So we want contributors to understand the way to save, invest, set up business and spend in time for their retirement,” he said.

Independent financial consultant Fiona Tahir said, at the age of 55, even if a person receives more than RM100,000 in EPF funds, they still cannot live comfortably.

The best way is to have other forms of saving and to invest at least 10 per cent of the net monthly salary.

“Saving up through normal saving with low return is useless. Savings must be invested in an instrument that yields higher returns than the inflation rate,” she said.

Therefore she advised EPF contributors to invest in unit trust as it was capable of increasing retirement saving with low risk.

“However, we must remember that unit trust is a long-term investment for financial planning during retirement, children’s education, or for emergency matters especially health-related,” she said.

She said each investment, including property, gold and more also had risks and each individual needs to have savings or investment other than EPF to face retirement.

She added that the public should not get involved in suspicious investment schemes which promise high returns in a short period of time. — Bernama

Clement Jouling ialah Perunding Unit Amanah berlesen (Licensed Unit Trust Consultant). Sekiranya anda berminat untuk mengetahui lebih lanjut tentang instrumen pelaburan dan pelaburan unit amanah, boleh hubungi beliau terutamanya buat anda yang berada di Kota Kinabalu dan sekitarnya.