Personal Finance and Investing

There are numerous things that you invest in your daily lives. You invest your time with working on your job. You invest your energy with your hobbies and interests. You invest your feelings and love for your loved ones and you invest your money to where you feel will give you good returns.

When we invest something, we expect a certain amount of return to it. You work to have your salary and therefore when you invest your money, you hope to be rewarded with a decent amount of returns.

However, before we invest our money, it is imperative that we review our objectives first. I am not a fund manager who is going to tell you where to put your money but I am here just to make sure that you make an informed decision before you invest your money. After all, that’s the main purpose of this blog. These are the few pointers you should take note of before investing.

• Have the proper mindset to investing

If you are investing just to make a quick buck based on peer recommendations, you are actually gambling your money away. Research thoroughly or seek consultation from those who are familiar with your mode of investing.

• Have a price target-(knowing when to get out)

Many people who invest are only concerned on the entry but few thought of the exit. The entry does not determine the return, the exit does. Exit too early and you might lose potential returns, exit too late and you might dive into negative territory.

• Have an exit plan

Ask yourself what would you do if things are not going to plan. Stick to it. Do not hesitate to cut losses early if the future is unclear. If you wish to hold the investment, decide on a suitable time frame that you are willing to allow the investment to run before switching to something else.

• Do not attempt to time the market

Many a time, investors attempt to time the market. There are several different approaches to timing the market. One of the most popular one is to wait till the economy has fully recovered. A point to always remember, the economy is the economy. The market is the market. They anticipate each other. Therefore you might be buying at the peak should you get your timing wrong. Less room for error. When everyone is in it, you are buying at a high price.

• Review your Investments

Do a review for your investments at least once a month. Too often, and you will be greatly affected by the short term fluctuations of the market. If you want good returns from your investments, you’ve got to spend some time reviewing it. Most will let their investments dwindle and turn into an irrecoverable loss.

• Do not involve yourself with crowd behaviour.

Warren Buffett once said “be greedy when others are fearful and be fearful when others are greedy”. Doing that and he turn himself into the world’s richest investor.

• Educate yourself

Nothing beats a solid foundation in your investment education. Read more books on investing. Join seminars on financial planning, most of them are free. I’ve been to some of them and they proved to be fruitful. You always learn something knew. Plus, you get to make new friends!

I cannot emphasise more on having your objectives right before investing. Do not for once invest with borrowed money no matter how sure you know you’re going to be profitable. There is no sure thing in investing or else every one of us would be millionaires. Risk always exist, but it’s what you do to minimise it that will prove beneficial for your investments in the long run.

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Whether you are applying directly to your lender or claiming eligibility under HAMP, the practical decisions are all to be made by the lender. You do whatever you can to set out your side of the proposed bargain with a clear set of accounts showing money in and money out. The need is to demonstrate a guaranteed slice of your monthly income that can be devoted to paying a reduced instalment. So list everything you are obliged to pay to keep body and soul together, from food to utilities to transport to health insurance, and so on.

Without the modification, this is going to be negative, i.e. on paper, you are spending more than you earn. The “trick” is to show enough to cover a modified instalment, perhaps with a tiny slice of money left over for the inevitable emergencies. If the modified instalment you prove can be paid is enough to keep the lender less unhappy, the modification will be agreed on a trial basis. But if the minimum instalment the lender requires will leave you in negative territory, your offer to modify will be rejected. Why reject a good faith offer? Because people who have to juggle monthly payments to fit into the available money almost always default again. Your income must cover all outgoings.

If the modification is agreed in principle, it moves on to a formal trial basis. In theory, this is a three-month trial, but the reality is that the lenders usually drag their feet and are very slow to convert the trial into a permanent modification. This ought not to affect you. After all, you are paying the agreed amount. But there is a problem. Until the modification is made permanent, the lender will report you to the credit rating agencies as still delinquent. This is grossly unfair.

You are paying what is agreed. But, as the law stands, the unpaid balance each month will be reported as late. Thus, the longer the trial period is allowed to drift the worse your credit score will become. This requires action. You should contact the three major agencies, Experian, Equifax and TransUnion, and ask that details of the trial be added to your credit file. That way, even though your score will continue to decline, all other lenders will be able to see what is going on.

So what is happening during the trial other than you proving your ability to pay the reduced instalments on time? The answer is slightly disheartening. It is always in the lender’s interest to collect as much money from you as possible on your mortgage. But, while you stay in default, the lender is entitled to foreclose at any time. If the lender judges it will make more money by foreclosing rather than accepting the reduced payments over the rest of the term, it will always foreclose.

It is simply collecting as much cash from you as possible before triggering your eviction. No-one said the home loan industry had to work fairly, and it does not. The only time the lender will accept a permanent modification is when the accounts clearly show more profit in keeping the mortgage alive. While the housing market remains depressed, the odds are in your favor. But if resale prices start to rise, the odds will swing against you.

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