I just added $1,500 into the DBS Enhanced Income Fund. Is this because I am cautious about markets, given the shifting of some hot money from Asia markets back to US markets? No, it’s for a very different reason. I am using the DBS Enhanced Income fund as a savings fund for a relatively short term goal. I will be shifting at the end of the year to my new home. It’s a condominium in Bishan that has been under construction. Its expected to TOP sometime this year (rumors say end of 3rd quarter). We will likely make our big move near end of this year.
So, I have got one year (or slightly) less as a time horizon, and I need to set aside some money for it. Now, I could do two things. I can either invest whatever I save as per normal, hope that markets are to shoot up by the end of the year, and liquidate whatever I have to only at the end of the year, at the time I need money for stuff like renovation, furniture and things like that. Or I can setup a fund which is low risk, very stable, but at least still delivers a return better than the 0.1% that savings accounts gives right now.
I choose the latter. Not because I don’t believe this year is a bull run year (I do). But nothing is for certain or guaranteed where investments are concerned, and the problem is, the timing of my move is more or less fixed. There could be any number of factors which delay a full blown bull run this year. Sometimes, an unforeseen crisis crops up, and it could keep markets down for a couple of months. For most of my portfolio, it’s not an issue. If fundamentals haven’t changed, then I won’t shift anything at all. But for this case, the goal is not a movable one (not unless the developer runs into significant delays in completing the condominium). I can’t very well tell my family.
“Sorry, markets are still down, I am waiting for that best time when they have surged up, before I sell some of my holdings, and in the meantime, we are staying put!”
Well, I could say that, and then end up being consigned to sleeping on the sofa for the next 3 months, not to mention having my family all lose respect with me. So, generally, it’s not an option.
Taking the risk and just selling out of market regardless of how they are at that point is not very advisable either. I learnt a harsh lesson about this myself back in 2008. It was May 2008, markets were falling, but haven’t quite crashed through the floor yet. We were then already looking out for a home purchase in Bishan area, but hadn’t committed ourselves to any one particular property. I was in the process of trying to convince my wife that we should just wait until 2011, the year before our son goes to primary 1, and just buy a resale property then.
But we came across a new condominium launch in Bishan (which was so rare, we absolutely had to check it out). And they loved it, and one thing led to another, and suddenly, I found myself putting in a deposit on the property. And buying a property is supposed to be one of the biggest financial decisions that most people make in their lifetimes. (At least the amount of money it involves would make it so).
Once you make your deposit, the subsequent payments soon follow. And so, I found myself selling out of many of my funds at exactly a time when markets were falling, and I was actually quite unwilling to do so. In hindsight, it turned out alright, because after I sold out over $90,000 worth, the market crashed even more. But who knew then? In any case, now I know that if I am going to make a big capital commitment sometime in near future, then it’s safer to put it in a low risk type of fund that isn’t going to crash 40% in a global market meltdown.
I could probably be forgiven about the house purchase thing, since I didn’t know my family was going to fall in love with that condominium and we would end up buying a property 3 years before we actually planned on moving. But now, with the property nearing completion, if I make the same mistake one more time, then I deserve to sleep on the couch for the next 3 months!
So, I will likely be putting all future contributions this year into the DBS Enhanced Income fund, which is only just slightly higher risk than a savings account, but with a return that is more than 10 times higher. Up till the point when I need to use it for renovation, moving, furniture, etc. If the market goes up, like I believe it would, would I be sorry? No! Because I already have monies invested. So, let’s remember not be too greedy here. And if things turn out differently, at least I wouldn’t need to sell my existing holdings. The DBS Enhanced Income fund won’t be affected one bit by how markets are doing, and I can safely sell that at the end of the year with no qualms what so ever.
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