Hello🌻

Indian Rupee & Mexican Peso look interesting. Yes, I’ve got my eyes on them 👀

This year, I want to try investing in something new. Although I love ETF investments, it can get a bit boring just doing that.

Then I found Peso & Rupee✨

Both country have 7%+ 10 year bond yield.

Both country’s credit rating is Low Medium Grade, so not the best, but still ok. India is just above the non-investment grade though… Mexico better.

But then, I don’t know anything about these countries.

I remember Indian government banned the used of high-value notes suddenly few years ago. I don’t know how stable the government is etc.

It looks quite interesting though. It does have a big economic potential as well, so I think it is worth looking into 😀

Mexican economy must be closely linked with the US economy. My image is quite biased and negative because of the drug industry. But their credit rating is much higher compared to the rest of the Central/South American countries. Is it because they are putting effort into expanding other industries? I really am not sure, but it is worth looking into😀

“If you don’t understand, learn & then invest‼️”

This is my motto❤️

If it looks too risky after researching, just don’t do it. At least, you have learnt something new.

If you don’t know, and you don’t want to learn, then don’t do it.

Also I don’t like to make an investment if it contradicts with my morals.

I need to speak to my Indian & Mexican friends. That’s a good place to start.

My happy samurai life in London💫

Hinata

Hello🌻

I’m not a big fun of buying individual shares unless I feel strongly about owning a part of a particular company, which is quite rare. I think it is much easier to buy the whole market and own the ETFs.

But then, very once in a while, I feel like buying a particular share.

“DO NOT get emotionally attached to the share you bought!!”

This is my No.1 motto of buying company shares.

When you buy a share, and the share price goes down for whatever the reason. You are very disappointed…. but then you don’t want to give it up. This is the company that you felt strongly about and you really like it. You are emotionally attached – you have fallen in love ❤️

You don’t want to admit that you were wrong. You tell yourself “this must be just a bad blip. I’m sure it is going to turn around and the share price will come back”

Then the price goes down even further…. You think “people are so stupid!! They don’t understand how great this company is. I’m the only one who can tell & they will see later”

Then the price goes down furthermore….”Did I make a mistake??? No it can’t be. Deep inside, he is such a nice guy!!!” oops, sorry, it is not “HE”. It is a share.

Isn’t it like falling in love with a wrong guy by mistake? Same thing. You have fallen in love so you want to believe that he is still the one. You don’t want to admit your defeat💢 You become so stubborn.

Isn’t it better to cut your loss and break up with him when you first realise that something is not quite right? Exactly the same as cutting the loss of the shares you own.

We all make mistakes. It is ok. You are not a loser.

Yes, very once in a while he/share may have a huge come back, but it is a risky bet. If you have any doubt, just cut the loss and get rid of him/it. There are plenty of other fish in the pond (whether they are shares or men😉)

My girlfriend & I used to say

“Men & Shares – don’t be afraid to cut the loss”

My happy samurai life in London💫

Hinata

Hello🌻

So what is going to happen to our currency? All the Brexit saga…can we bet on it and make some money? Wouldn’t that be great?

We will all be billionaires if it was that easy😅

I think

1. If we leave EU without any deals, no-deal Brexit, £ will crash (at least initially)
2. If we can leave EU with a deal, £ will go up (at least initially)
3. If we get an extension from EU, £ will trade within a certain range

I’m sure that you are thinking

“This information is useless. You can’t place a bet based on this prediction”

Yes, you are right. We can’t bet on this prediction.

The truth is we don’t know what is really going to happen with Brexit. No-deal, some deal, 2nd referendum etc…Unless we know that, we just don’t know which way £ will go.

That is why it is so hard to bet on the political issues, almost impossible, really.

Who knew for certain that Donald Trump would become a president? Can you be 100% sure that North Korea will not fire a nuclear missile? In hind sight, we can be clever and say all sorts of things. But the reality is, nobody knows what is going to happen for sure.

Don’t listen to people boasting

“I made money on this and that! I knew that’s what was going to happen, so I made the right call”

Oh well, they were just lucky, and they might not be next time.

That is why diversifying your investment is very important😀 If you have all your investment/asset in UK£, it is just too risky. If you have some in US$, Euro, Japanese Yen etc, at least some of your investment will be protected from the sharp devaluation of £ if it ever happens (I guess it already did happen around referendum time…)

If you still want to bet on Brexit, do it with the amount that you are willing to lose. Yes, you might be rewarded, and that’ll be great!!! But then you might not be… oh well, that’s life.

So going back to the question

“what is going to happen to UK£?”

My answer is “I don’t know” AND you don’t know either😉

My happy samurai life in London💫

Hinata

Hello🌻

Continuing from the last talk. How is it that the regular monthly investment plan can help to diversify the risk.

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I will try explaining using maths 😉 Using simple numbers & ignoring the commission costs to make it easier to understand.

I’m an UK investor & am going to invest £1000 into FTSE100ETF. There is no currency risk.

Example 1: investing £1000 all at once

January

The unit price of the ETF is £10. I think this is the time to buy so I’m going to invest my £1000 into the market.

I purchase £1000÷10=100units

April

The stock market has gone down! The unit price is now £7. The current investment value is £7x100units=£700 30% loss at the moment💦

I have invested all my money, so I can’t buy anymore… I guess I’ll hold on to it & see how it goes.

May

The stock market has gone back up (phew) The unit price is now £8. The current value is £8x100units=£800 20% loss at the moment.

Example 2 : regular investment of £250/month over 4 months

January

The unit price is £10. I purchase £250÷10=25units.

February

The unit price is £9. I purchase £250÷9=27units.

March

The unit price is £8. I purchase £250÷8=31units.

April

The unit price is £7. I purchase £250÷7=35units.

Total units I hold is 25+27+31+35=118 units

My investment value now is £7x118units=£826 I have made a loss of 17%. Example 1 has the loss of 30%, so this one’s loss is smaller.

May

The unit price is now £8. The current value is £8x118units=£944. 5.6% loss at the moment. Example 1 has 20% loss at this point.

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Example 2 has much smaller loss compared to example1. This is how the regular investment plan can help to diversify the market timing risk.

If you are investing the same amount per month, you are able to purchase more number of units when the market goes down.

If you own more units, you can get a benefit of that when the market start to recover.

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I hope my maths is correct😉 Anyway, you get the concept!

Regular investment plan can diversify the market risk!!

My happy samurai life in London💫

Hinata

Hello 🌻

I want to talk about asset allocation today.

Once you decide

1. The fund manager/broker you are going to buy ETFs from (don’t forget to study their charges!!)
2. You understand the difference between investment & speculation.

You can think about how to allocate your investment into different products.

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To make it simple, I will divid it into 3 different categories.

1. High-grade Bonds ETFs (Safest)
2. Share ETFs (Medium)
3. Speculation (Can be high risk so only if you want to😉)

So how do you divide them?

People used to say that if you subtract your age from 100, that is the % you should allocate into buying non-bonds products (mainly shares I guess).

For example,

1. If you are age 35 (100-35=65), you put 65% into shares & 35% into bonds
2. If you are age 60 (100-60=40), you put 40% into shares & 60% into bonds.

Older you are, higher your bonds allocation should be to make your investment safer.

However, our life expectancy has risen, so “100 minus your age” might not necessarily apply now these days. Some advice that “110-your age” or even “120-your age”

It is up to you which rule you want to apply, but I will apply “110-your age”rule today.

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So if you are age 40. You should be putting 110-40 = 70% into shares &30% into bonds. Simple right??

But what if you want to speculate?

As I explained before, the definition of speculation varies depending on individual, but you need to have your own opinion about it. https://samuraihinata.home.blog/2019/03/17/do-you-want-to-speculate/

For me, I would put commodities such as gold, oil etc ETFs into speculation. Also If I were going to buy a particular stock, I would put that into the speculation category as its risk is not diversified like S&P500 ETFs.

If you decide that you want to put 10% of your investment into speculation, you can take that off from 70% share allocation. So the final asset allocation will be

1. 30% into high-grade bonds ETFs
2. 60% into stock ETFs
3. 10% into speculation

If you want to take more risk, I guess you could take 5% off from each bonds & share allocation.

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This is just a guideline so you don’t necessarily follow this. I’m sure that there are more sophisticated way to apply this theory, but I like making things simple and easy to understand. So this is the way I do it😀

My happy samurai life in London💫

Hello🌻

Currency hedged ETFs do exist! Not that many…but they do.

Last time I talked about the impact of the currency risk when you are buying non-domestic ETFs.

https://samuraihinata.home.blog/2019/03/19/what-risk-am-i-i-taking/

If you don’t want to be exposed to the currency risk, you can look for a currency hedged ETF. For example, iShare has a S&P500 ETF with US$ hedged to GBP. If you buy this type of ETF, you are exposed to the risk of S&P500 share price movement, but not US$:GBP exchange rate movement.

The downside is that the choice of products is limited, especially hedged against GBP. Also the fee tends to be higher than the unhedged ETFs.

I guess most investors are happy to take some currency risks especially if you are investing for a long term. Then you can just look at the simple unhedged ETF products. In my opinion, simpler the better unless you really need to purchase more complicated products 😉

How does hedging work??? Let’s not go into that😅 At this stage, all we need to know is that with the currency hedged ETFs, you are not exposed to exchange rate risk.

Happy samurai life in London💫

Hinata

Hello 🌻

So far I have talked about

1. Total amount of charges for purchasing ETFs
2. Difference between investment & speculation
3. Assset allocation between investment & speculation (if you want to speculate a bit)

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Now, we need to understand the risk of purchasing ETFs – focusing on the equity ETFs this time.

Risk is a complicated concept, and you can go into real death and read a whole book (or 2 or more!!) about it.

However, as a private investor who is thinking about sticking to those simple products, you don’t need to worry too much about the complicated concepts (I think… 😉)

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So what risk am I taking when I’m purchasing an equity ETF?

1. The risk of share price movement (in this case the whole market movement such as FTSE100)
2. The risk of currency movement (if you are purchasing non-uk ETFs)

For example, if you are an UK investor and purchasing S&P 500 ETF (US market), you need to be aware that you are exposed to the movement of US$.

People tend to focus on the equity price movement only, but the currency movement plays a big role in your total fund performance.

Let’s say

1. S&P500 went up by 5% in the last year, but the US$ weakened by 3% against British pound….. your overall gain is only 2% (ignoring the cost you are paying to your broker/fund manager).
2. S&P 500 went up by 5% in the last year, and the US$ strengthened by 3% against British pounds… your overall gain is 8%

If your investment strategy is for a long term, the movement of the stock market or currency over the short period of time shouldn’t matter too much. However, you need to be aware that you are taking currency risk as well when you are buying a non-domestic product.

This concept leads you to decide your country allocation. Do you want to invest majority in UK or do you want to allocate more for non-UK investment etc…..

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Saying that, I’m sure that there are some non-UK ETFs with its currency being hedged. The concept of hedging is an another thing, which I will talk about it later.

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The most important thing is to make sure that you don’t forget about the currency exposure risk when you are buying ETFs of the overseas markets.

My happy samurai life in London💫

Hinata

Hello🌻

What is speculation?

Its definitions are:

1. the forming of a theory or conjecture without firm evidence
2. the act of conducting a financial transaction that has substantial risk of losing value but also holds the expectation of a significant gain or other major value

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For example, short term foreign currency trades are considered as speculation by many investors.

By looking at a chart, you think “it looks cheap, so should go up soon, maybe, most likely…”

But you have no firm evidence.

You may be able to make a good profit in a short term or lose a lot….

Definitely a speculation.

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So is speculation a bad thing to do?

It is risky, but not a bad thing.

High risk – High return…scary but attractive💕

You just need to be sure the maximum amount (or % out of the total) you are willing to put into speculation. And of course, you need to stick to it!

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When you are making a long term investment safely, you don’t need to worry much about short-term movement of the market. You need to check once in a while especially when there is a big movement, but that’s about it.

However, if you are speculating, you need to be at least aware of the market sentiments/direction.

If you can’t be bothered with that, DO NOT speculate.

If you like to study about the market (like me), a little speculation can be fun😉

You just need to know what works for you.

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For now, I’m planning to allocate about 10% of my savings into speculation. I like currency trading ! (I’m not a day trader though😅)

I’m aware that I could make a big loss for that portion, but I acknowledge the risk.

Once I pay off a bit more of my mortgage, maybe I can increase the %, but then I’ll need to think about the kids education, my age etc. So many things to consider.

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Rounding up….

If you are going to start investing (in this case mainly ETFs)

1. check the total amount of charges you need to pay to purchase the products & decide which broker/fund manager you are going to use.
2. Understand the difference between investment & speculation (your own understanding – not what the others tell you)
3. decide the % you will allocate for speculation (could be 0% depending on your circumstance & preference).

Let’s start investing!

My happy samurai life in London💫

Hello 🌻

Once you have researched into fees, you need to decide how you are going to make your investment. Is it bond, equity, commodity, ETFs, individual stocks etc??

Asset Allocation‼️

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Before you make this decision, it’s important to understand the difference between “investment & speculation”

I’m sure everyone has different opinion. Some people might say speculation is same as gambling etc.

The important thing is that you have your own understanding and definition of them.

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My idea of investment is

1. It is long term
2. Risk is diversified
3. Consider stable income such as dividends etc as well

If you consider these points, I still think ETFs are great way to invest in the market. For example, if you invest in S&P500ETF, your risk is already diversified among 500 companies (ignoring the USD currency risk for now)

You could, for example, buy some Apple or Microsoft shares considering the long term growth of the company. Since this is for a long-term & both companies are well established, it sounds like an investment.

However, I still think if I’m owning shares of one company, it starts to become more of a speculation as the risk is not diversified at all.

Who knows what will happen to one company in the future???

Even the professional research analysts often get their forecast wrong, so if you are just a private investor like me, how can you be so sure???

Whereas, if you purchase the shares of many different companies, you can be quite certain that not all of them are going to go bankrupt!

And most likely, the share prices of the market will go up over a very long period of time.

So this is an investment – my point of view😀

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I’ll finish here today.

It is important that you have your own idea about “investment & speculation” It doesn’t matter what other people say.

After all, it is your own money😉

My happy samurai life in London 💫

Hinata

Hello🌻

I’m planning to invest some money into ETF through my ISA account. I have been trying to understand the fee structure which turned out to be a little more complicated than I expected. https://samuraihinata.home.blog/2019/03/08/buying-etfs-why-is-it-so-hard-to-understand-the-fee-structure/

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If I decide to buy one of the Lyxor’s ETFs through Fidelity, I’ll pay…..

1. Annual management fee to Lyxor. This varies depending on the ETFs, but let’s say 0.07%/annum (their fees are very competitive!)
2. Transaction fee to Lyxor. Some of their ETFs don’t charge this fee, but some do. This is the cost associated with the daily trading activities within the fund (buying, selling of bonds etc) This fee again varies, but let’s say 0.02%/annum
3. Service fee to Fidlity. This is currently £45/annum if you are holding ETFs only.
4. Share dealing charges to Fidelity. This is currently £10. This is how much you pay every time you buy/sell ETFs through your ISA account. So more often you trade, more you pay.
5. These are the fees that I managed to find out, but I might have missed something….They really don’t make it clear for you. it is so hard to find out💦

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Why do I need to pay to both Lyxor & Fidelity??

Basically Lyxor is the ETF provider who creates this product, but they don’t sell this directly to a private investor. They sell this through a fund manager or a broker (in this case, Fidelity where you hold your ISA account with). That is why there are some fees that gets paid to Lyxor & some to fidelity.

If you see an advertisement saying something like….

“competitive management fee from Lyxor EFT. Only 0.07%/annun!!!”

You need to think, “What are the other fees then???”

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So if you are planning to buy ETFs through your ISA account, you will need to consider

1. The fee to the ETF provider
2. The fee to the fund manager/broker (where you hold your ISA account with)

If you can find an ETF that costs less than 1%/annum in total, that is a pretty good deal😉

So, I’m going to do more research now.

My happy samurai life in London💫

Hinanta