Saving in 2016

At one point in my life, I used to save heavily.

Back in 2009, I used to save 50% of my monthly paycheck. When my pay came in, I took a bit more than half of it, wire transferred it to a savings account, and kept it there to accumulate as a lump sum. I was a single man living with at my parents’ place, making a solid salary for my ag ewith no appetite for copious amounts of alcohol. These factors made living on half a paycheck back then comfortably possible.

After a year or two of this, I saved up a decent pool of money; I could theoretically walk into the usual lineup of German high-end car dealerships and buy an entry level mid sized car with straight cash. I once did it just for kicks, but the salesperson somehow seemed to know that I didn’t have serious intentions and treated me with just a basic level of politeness. Even with no intentions to buy the car, it still felt good to know that I had the bullets if I wanted to pull the trigger. A few years later, I ended up buying a Kia SUV, which I still use today.

I have my mother to thank for this habit of saving because she practically strong-armed to me get this started. It’s easy to spend money as a late 20 year-old in Seoul. If you have an appetite for alcohol, Seoul can be quite accommodating to your drinking habits with its plethora of establishments that can serve alcohol 24–7. Luckily, my parents forced me to save a bit, and they also gave me the genetics that is averse to alcohol consumption. Most of my money went to eating out; unlike the savings part, ever since I was young my parents educated me to not scrimp too much on foodstuff.

Up to this point in my life, my finances were simple: monthly cash flow came from wages, half of that went into CD-type savings, and the rest I spent on myself. Some of my colleagues were interested in investing in stocks but I stayed away from them partly because I didn’t know much about them, or I didn’t believe in the asset class as sound investments. In hindsight, there were so many stocks that were of great value back then that, in theory, I could’ve just bought and held until now and made a decent fortune. Of course, I can suppose many other things in hindsight, much of which could’ve resulted in a wide spectrum of outcomes. Still, it’s human nature to look back and say “I should’ve done this and that”.

Fast forward to the present (August 2016), and now I find myself with most of my liquid assets invested in stocks. I’m happily married, with a beautiful 15-month old baby girl, a practical SUV, my own apt in the Gangnam District in Seoul, a bit of cash savings in a separate account, and an investment account that is purely focused on investing in stocks. Other than the house and the car, approximately 80% of my assets are devoted to stock investing.

What a drastic change in portfolio makeup in less than a decade! During this period, I’ve went from strictly cash hoarder to retail fund investor, to active stock trader, to long-term investor. Once again in hindsight, long-term investing was always the right way to go, but I guess it took me this much trial and error to get to my current mindset. Even so, I’m still struggling to hold onto stock investments for the long run. It’s very easy to get impulsive when dealing with stocks, as the trading part does give you a rush much akin to playing poker or other forms of gambling.

(Since my investment account is registered with the regulators due to my field of work, I’ve found that the trading limits and holding periods actually help me think of investments in longer terms, but I’ll discuss that further in a different post.)

The reason I now choose to hold most of my assets in stocks is because I believe saving in a bank account is a sure way of losing out on any possible capital gains. The low rates of recent years have created a totally different investing environment than 2009–2010, when some savings&loan banks offered 5–7% rates.

2 things about the cash in my portfolio:

  1. A designated percentage of my portfolio is always cash. This helps me deal with the ups and downs of the stock market, as I can tell myself that I have some extra ammo. This helps me be a bit more patient. For me, being fully invested at all times is a bit hard to deal with. The percentage itself is an arbitrary number that I personally decided on. It likely isn’t an efficient amount, but the peace of mind it provides me is invaluable. The cash by the way also accrues the risk free interest rate while it sits and waits.
  2. Cash is great when waiting for a better opportunity. Cash is valuable since it is the most liquid asset. That is it’s most important feature. Cash can be exchanged into almost anything in the modern world, and as such, sometime when I exit an investment, I hold it to enjoy the opportunities it gives me before I find another good investment idea that I can deploy my capital into. However, I do not hold cash because I prefer to sit on it.

While I still believe in the value of a young junior saving up their salary to make a meaningful nest egg, I try to advise any juniors who might listen that building the nest egg is simply a means to an end, not the end game itself. Saving up for a decent lump sum is only valuable because you decide to do something with that money; buy a house, invest in stocks, start a business, etc. Saving and saving non-stop with no end in sight in this environment is as simple and unnecessary as stashing your cash under your mattress. Once you build a nest egg, that is the beginning of your investment life, where one hopes to wisely manage that egg to further grow into USD 1 mil, 10 mil, and so on.

If I can give any advice to young people starting their careers wishing to increase their net worth, here are the few tips I can give them:

  1. Once you start your job and have a steady cash flow, save as much as you can for a couple of years. If you save 50% of your post-tax income for 2 years, you basically have one year of salary (post-tax) saved up. This is the seed you will need for the next step. You can do this continuous saving for as long as you want, but in this low rate environment, I suggest you do this for 3–4 years at the most. Meaningful capital appreciation will not be possible currently, and possible for many years to come.
  2. Start to look for places to deploy investments, but study as much as you can before making the decision for capital deployment. The internet allows you to study as much as you want on a mind-boggling amount of subjects, so take time to read and think things through. In the meantime, keep saving what you can, or be frugal and minimize your spending. Every little drop that adds to your seed helps it grow larger down the line. My investment route was stocks, but you might find some other asset class more attractive. Whatever asset class you choose, don’t think of getting rich quickly. If you rush to things, you’ll most likely end up paying for the haste and impatience that will inevitably fog your mind.
  3. Be patient. This overlaps a bit with advice #2, but make sure to take your time. In my experience, faster trading only ends up costing you in the long run. Imagine you are playing nolimit hold-em. Take as much as you want to think about things before making a decision, and if you believe the odds are in your favor, bet hard and strong. The stock market is better than NLHoldem, because in a poker game the opponent can simply fold, but in the stock market, unless you have a major fat-finger, the market will be able to absorb your bet most times. Now, this advice would obviously not apply once you have a huge amount of money, but the advice should suffice for most retail individuals.
  4. Keep a day job while you can. Having a steady cash flow is an amazing safety net when investing actively.
  5. Maintain an inquisitive mind, and ask for other’s opinions and advice. Two heads are normally better than one, so leverage the cumulative knowledge of you and your network. You will likely make a more informed decision this way.

I do realize my advice is not for everyone. I’m not even sure if I’m qualified to give out advice. But I guess there isn’t much harm in sharing my thoughts with others.

I welcome any feedback or constructive criticism! :)

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