[Financial Planning for the 100-Year Life] Manage Financial Assets by Purpose

원본보기 아이콘

It is concerning that domestic individual investors seem to be increasingly exhibiting short-term, concentrated investment tendencies. Products designed to borrow money and invest in highly volatile stocks are popular. There have been media reports of investors disappointed with the domestic market who invested in U.S. stock leverage and virtual assets, only to suffer significant losses. The number of domestic virtual asset investors is approaching 10 million, and the proportion of virtual asset transactions relative to the population ranks first in the world. It almost seems as if people are engaging in direct trading by merely watching market movements without considering information or the future.

It is not appropriate to casually judge individual investors who study and invest in their own way based on their own thoughts and experiences. However, based on my over 50 years of experience in the financial investment industry, I want to strongly emphasize that cases of individuals achieving long-term success by frequently trading highly volatile products are extremely rare.

"I read about 5,000 pages of materials a year. Even then, I think and think again before making investment decisions." This was stated in a recent media interview by the CEO of a financial investment group who has built numerous investment records over the past 40 years. Even CEOs who receive help from top investment experts study diligently and make decisions cautiously.

Of course, studying investment requires time. Therefore, it is necessary to first develop the habit of managing one’s financial assets by dividing them into three pockets according to their purpose. These are the savings pocket, the trading pocket, and the asset formation pocket.

The first, the savings pocket, is where you put living expenses to be spent within a few months, children’s education funds, and emergency funds for unexpected situations. Since this type of fund must be available for withdrawal whenever needed, it should be placed in savings products such as deposits or CMAs. Because it contains funds necessary for daily life, it can also be called the livelihood pocket.

The second pocket is the trading pocket. This pocket manages funds intended to buy and sell individual stocks, bonds, futures, options, virtual assets, and other instruments over a short period to generate profits. Trading carries the meaning of taking risks and "betting on the short term," so it is also called the "speculation pocket" or "jackpot pocket." The problem is that the trading pocket does not significantly help in building wealth for retirement. Success in short-term trading depends more on luck than skill. Therefore, it is best to consider it an "entertainment pocket" and keep it under 20% of your total financial assets. Moreover, not everyone needs to have one, and it is almost impossible for ordinary investors with a main job to achieve consistent success in short-term trading. Until now, most investors in Korea have only had the savings and trading pockets, but now it is time to change the approach to asset management.

Among the three pockets, the most important is the "asset formation pocket." This pocket is for funds to realize one’s dreams, raise children, pay for weddings, purchase homes, and cover living expenses after retirement. Especially in today’s low-interest, aging society, the way this pocket is managed from a young age determines the standard of living in old age. Since it involves managing investment products with risks, it is also called the investment pocket. The basic strategy should focus on long-term investment and diversification.

A representative fund for the asset formation pocket is the DC (Defined Contribution) type retirement pension. The DC-type retirement pension involves long-term installment investments in high-quality funds over 30 to 40 years. It is a pocket that steadily builds retirement funds by adhering to the principles of long-term investment, time diversification, and stock diversification. The knowledge gained from long-term and diversified investment in this process can also be applied to managing other assets. Now, office workers should shift the passion they have poured into the trading pocket to the asset formation pocket and make efforts to build stable retirement funds.

Kang Changhee, Representative of the Happy 100-Year Asset Management Research Association

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.