It was a very unfortunate event that investors lost their hard-earned money and retirement funds with Six Capital (Read the story here: Angry investors file police reports against FinTech firm Six Capital).
I am rather concerned with this statement in the Straits Times article on Six Capital: A few retirees indicated that they had poured in significant retirement sums. One lady was the age of my mother. She said that she was going to the temple to pray.
What can we learn – as retail investors – from this incident?
Let’s use the SABO model to analyse this incident. By the way, this SABO is NOT the Singlish word for “sabotage”.
SABO stands for Suitability, Affordability, Benefit and Objective.
Before we invest, we need to have a very clear objective in mind on why we need to invest, how long is our investment horizon, what is our risk profile, how much time we can allocate to monitor our investment portfolio, etc. Setting the right objective is very important because it serves as our foundation to identify, select and understand the right asset classes that meet our objective.
Once we are clear with the objective, the next step is to select the asset classes which are suitable to our risk appetite, lifestyle, availability of time to do our homework, and investment horizon.
Here are examples of how one’s lifestyle, personality and risk appetite are wrongly matched with asset classes and investment strategy:
- a busy executive scalps forex every night after work;
- a retiree invests the majority of his / her retirement fund in land banking;
- a person who dislikes numbers trades Option; and
- a housewife who does not have computer knowledge trades cryptocurrency
Due to the mismatches, the above examples are all headed for disaster.
If you are struggling with your current investment, you should immediately do a review on your current investment portfolio or your trading strategy before you commit more time and more money doing something which may not be suitable for you.
The following are questions investors have to ask themselves to see whether the investment is suitable for them:
- How will the investment strategy yield 18% per year?
- What are the risks in this investment?
- What is the worst-case scenario?
- How volatile is this investment?
- How quickly can the investors redeem their investment? Is there a lock-in period? Are there any early redemption charges and other charges?
Next, the investor ought to ask:
- Can we afford to lose our entire investment capital if we make a mistake investing in the wrong asset classes or instruments?
- Can we afford to ride through the market volatility if there is a big correction or black swan event?
- Can we afford to take more risk for higher return?
- Can we afford to be ignorant, to DIY and listen to tips when it comes to investing?
- Can we afford to get professional advice to help build a diversified portfolio that matches our needs and risk appetite?
Finally, the investors should have these questions:
- Does the investment return meet our expectations?
- Are our expectations realistic?
- Is it worth it to take more risk for additional return?
- Are our investments liquid and can we sell any time when we need the money?
- Can the investment give us a peace of mind and offer us a “Sleep Well” factor?
My recommendation to retirees on their retirement fund planning:
The first priority is Capital Preservation, not Chase for Return, because you can’t afford to lose your retirement fund unless you can replenish your capital easily if you lose all of it.
Look for investments which are less volatile and pay consistent dividend, such as Bonds or REITs.
Nothing is guaranteed in this investment world. Please don’t believe in marketing materials that indicate “Guaranteed Return”, etc. Countries, banks, insurance companies can all go bankrupt, so, where does the guarantee come from?
Do have a diversified investment portfolio and manage the risk. Don’t put all your eggs into one basket. You cannot afford to make any costly mistake at retirement age. One big mistake may wipe out your entire retirement fund.
Stay up to date with the latest news and tips on wealth & finances by liking us on our Facebook page!
Important: The information and opinions in this article are for general information purposes only. They should not be relied on as professional financial advice. Readers should seek independent financial advice that is customised to their specific financial objectives, situations & needs.