You have always known that your hard-earned money deserves something better than sitting in your savings account, but what’s stopping you from investing and creating money with money?

 

1. I simply have no savings

2. I don’t have the time to do the research

3. The financial market is pretty dangerous and  I don’t want anything to do with it

 

(Feel free to let us know your response.)

 

Instant pleasure vs. Delayed benefits

 

“Your vision is already leading the way for how your wealth may grow/shrink.”

 

Why is your money never turning into your savings?

 

“Latte Factor”, coined by financial author David Bach, points out a potential reason. A latte costs 36HKD at Starbucks - your habit of one latte every morning is going to cost you 1080HKD per month, which is 12960HKD annually. and if you think back to all the gym membership, the perfume you never used,  and the pair of jeans you got on sales… Trust you can do the math.

 

This doesn’t mean that you should not enjoy yourself, but rather, we’d like to point out that it is due to the lack of long-term goals that you tend to spend your earnings quickly and instantaneously.

 

Long-term goals are usually important but take time to be realized, and on the other hand, short-term goals are not as important to our lives but require less patience. Without vision, we often lack sufficient imagination to picture our long-term goals achieved, which in turn allows us to opt for the quick, simple satisfaction brought by the “Latte Factors”.

 

Macro vs. Micro

 

“Think about how much it takes when you approach the topic of investment.”

 

It’s only normal to feel overwhelmed when you see all the numbers, figures, red, green, rows, columns when you open up all those financial news platforms. Also, think about all the “insider” news you hear on the streets: “You know the trade war, right? I’m telling you, my cousin at XYZ firm told me that UVW is going to happen so buy that ABC stock now!!” Then you think, “Is this news spread already? Should I still act on this news?”

 

This type of situation can go on forever and you can’t even decide between a simple “buy or not buy”.

 

As a non-professional investor, should you really be looking at such kind of micro information? That’s when index investing and passive investing come into play - you no longer need to spend so much time digesting the information but rather enjoy the benefit of economic growth on a large scale.

 

You’ve always heard about the famous bet made by Warren Buffett. Actually, before that bet, Buffett got a question at an Annual Meeting: “Suppose that you are just over 30 with a full-time job, how will you allocate your first 1 million saved?” And he said what he did later: “I’d pick a low-cost index fund tracking the S&P 500 and go back to my job working hard.”

 

A complicated approach is not necessarily the best. You should always weigh in the time and efforts you will be spending when you decide how to invest. A professional financial analyst might be reading a huge number of research reports and monitoring hundreds of market indicators. As for us average investors, it could be a better option to focus on capturing the long-term trend. “Go back and work hard” is also a useful piece of advice because it makes sure you are consistent throughout your investment decisions and avoid unnecessary switches in style.

 

 

Long-term vs. Short-term

 

“Growth should be measured by sustainability.”

 

Lei Zhang, the founder of Hillhouse Capital, has been one of the top long-term fundamental investors. Hillhouse has demonstrated an annualized return of nearly 40% over the past decade, generated by successful investments in Tencent, JC.com, Didi and so on.

 

Lei always likes to say, “As long as you spend enough time with quality talents doing high-quality things, monetary returns will just come along the way. Most people value the returns the most, some care about the risks, but rarely do people look at the costs, let alone the value of time. Returns tend to grow itself with time and risks smoothen out over time, but the costs that come with them might catch you off guard.”

 

When we think back to our decisions of buying certain funds, we often find ourselves triggered by their promising return stats at that moment and didn’t give much thought about the sustainability of that return. We wouldn’t be able to draw a conclusion from just a snapshot on a certain date but should demand a series of data in time to verify the return.

 

Sustainability should also be verified by a relevant benchmark, which suggests a relatively reasonable return over the time period you are looking at and helps you understand the strength of the returns. Common benchmarks include MSCI All-Country World Index for stocks globally, S&P 500 for US stocks, AGG Bond for US bonds, CSI 500 for large-cap stocks in China A Shares, MSCI China for all China A Share stocks, and Hang Seng Index for Hong Kong stocks.

 

 

The three principles here are not just about investments, it could offer some great guidance into your life as well:

 

Vision - think about the tradeoff between instant pleasure and delayed benefits;

 

Cost-reward balance - is it necessary to spend so much effort on the micro or can the simple macro monitoring bring you what you want?

 

Sustainability - will this last? How will it last?

 

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