Wednesday, July 14, 2010

What fresh grads should or should not do?

I read with interest the following from the CPF IMSAVVY blog on what Fresh Grads and Young People should and should not do:


In view of the above, the following is what the young person should do:

1. Save up a war chest of at least 6 months to two years (depending on the stability of the job) of cash.

2. Get the basic insurance because you don’t have money to pay your medical bills for yourself if you are sick.

The following are things that a young people should NOT do (which unfortunately almost all my clients did it all):

1. Do NOT invest a single cent in stocks and unit trusts. Your priority is to build up cash. Unit trusts and stocks are meant for long-term. You should not have the mentality of cashing out these investments for short-term.

2. Similarly do NOT buy regular premium ILP which has high investments component.

3. Do NOT buy regular premium endowment or anticipated endowment (those that you get X% every Y years).


While the writer is writing his beliefs and is sincere in sharing what fresh grads should or should not do, there are two points that I don't really share my beliefs.

"Save up a war chest of at least 6 months to two years (depending on the stability of the job) of cash."
"Do NOT invest a single cent in stocks and unit trusts."

The writer is CFA certified, so perhaps I might be wrong or less professional in my personal understanding. So how would I do it differently from what he says then? Instead of saving up such a strong war chest of emergency funds and NOT invest a single cent in stocks........ I would:

i) Save up a war chest of about 1 to 2 months only, while spending the energy to generate alternative income sources (in my case, giving tuition). There's no point letting the additional money rot in the bank with current interest rates.

ii) INVEST into dividend paying stocks, but of course, with prudence. Why I chose dividend paying stocks is because that will greatly assist in our personal cashflow, resulting in a more stable stream of money/income.

(i) will ensure income continues to flow if one was unlucky enough to lose the job. Doing (i) and (ii) will allow a young fresh grad to supplement his income, and over time, build up a substantial portfolio of dividend stocks via prudent expenditures coupled with prudent investing of savings and dividends.

I'm not a financial planner or guru, nor am I CFA trained, but these are my views, and it has worked wonderfully well for me so far. Am I doing it wrong? Or is it just that my way is more unorthodox? Or maybe I was just lucky that nothing bad happened with my "risky" ways. Hmmm..... Perhaps sometimes, we really need to do things that buck generally accepted norms?

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