Hello 🌻

So far, we have decided

1. Which fund manager/broker to buy ETFs from after researching the fees
2. Understand the difference between investment & speculation
3. Decide asset allocation (including speculation)
4. Decide country allocation

Now, you are ready to start investing. So when do I start???

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You can start today, tomorrow or next week. It really doesn’t matter. As long as you don’t put all your money at once!!

The safest way to start investing is to set up a monthly contribution of a set amount depending on the total amount you want to invest for that tax year. In this way, the market fluctuation risk is diversified over 12 months.

But then, I want to buy when the shares are cheap & sell when they are expensive! Yes, of course, we all want to do that.

How do you know when the market is cheap???

We can all look at the past charts and say “This was the cheapest point” That is very easy.

You might think now is the cheapest point, but how do you know if it is not going to get any cheaper from here? Or you could be right and the price might go up from here.

Basically, it is not worth gambling on the market timing. You just don’t know when is the best time to buy. That is why you keep buying over a period of time to diversify the risk.

If you feel strongly against the monthly contirubion idea, then you will be taking more market timing risk. I guess you could spread your purchase timing over 3-4times??

I’m going to explain this concept of diversifying the market timing risk next time. Maybe using some numbers – I will try anyway 😉

My happy samurai life in London 💫

Hinata

Hello 🌻

Now you have decided on your asset allocation, you can think about how much foreign exposure you want to have.

We all tend to invest more in your own country (domestic bias). It is scary to invest in something foreign, something unknown.

Invest in foreign market is too risky, so I only want to invest in my own country.

Is that right??? In some ways… yes. When you invest in a foreign market, you are taking a currency risk (unless your ETFs are currency hedged), so your risk is higher. But what if something happens to your own country, your government??? Can you be 100% sure that it will not happen?

As a UK investor, we have seen this in a past few years….Brexit!! Yes, historically we have a very stable government & currency, but right now…not really. Who would have thought that the whole country would be rocked like this by this Brexit thing💦

We all have seen how £ has devalued against other currency. You can argue that £1 is still £1 in this country, so it doesn’t matter. But what if the inflation picks up and buying food in a supermarket becomes more expensive? Your £1 now doesn’t hold as much value as few years ago, so you have lost some money in that way.

If you had some investment in a foreign market (for example, US$), the appreciation of US$ can offset the inflation in UK.

I believe that investing in overseas market is one way to diversify your risk. Of course, you don’t want to invest too much in foreign market especially getting closer to your retirement age – there needs to be a balance. But then, you just don’t know what will happen to your own country, so putting all your eggs in one basket is too risky.

So what is the magic number??? What % of the investment should be put in the foreign market???

I really am not sure…..

Personally, I’m not too risk averse, so I’m actually happy to put about 50% (or more) into foreign market. One main reason is that we own a house in this country, so a big chunk of our investment is a property in £.

Country allocation is one thing that there is no particular rule. In general, older you are, more risk averse you should be so you should invest more in a domestic market. But then, do you own any other assets domestically? If property, how many ? How much do they value?

These are the things you need to think about. If you are not sure, you could even start off putting just 5-10% into the overseas market, and increase the portion as you study and feel more confident.

“Don’t do anything you don’t know & don’t want to do”

This is my rule in investing.

My happy samurai life in London 💫

Hinata