Why flexible is best
Posted on February 11, 2017
Today I had yet another reminder why flexibility is best, when it comes to investing. Before we get to today, let’s go back to November last year.
It was a cold drizzly Shanghai day, the sort London is famous for, as I found my place upstairs at Element Fresh at the Shanghai center for a coffee. A friend invited me out to pick my brain about investing. It turns out he had been offered an investment in a property deal. Unlike most opinions I’m asked for, this actually was a good investment. Still I cautioned him against it. Even though he was a successful entrepreneur with 15 staff in two businesses in Shanghai that were quite profitable I wasn’t sure it was a good idea.
My reasoning was he would need more flexibility than he thought. Although profitable, the investment might take 5-8 years to be realized. That’s a long time when you are doing business in China. Several business waves have come and gone in that time. Even successful entrepreneurs need considerable cash reserves. He took my advice with a confident smile and said he had ample cash reserves. Despite my advice, he went ahead.
Flash forward barely 6 weeks and I get another phone call. Her business has a big partnership opportunity and she needs to help fund it, but she is a million RMB short, even after her accessing working cash. She was desperate. Was there anything I could do to help her get her investment back? Her broker couldn’t help her. Rarely have I been proven so right so quickly with without feeling the need to say “I told you so!”
Lock-ins are for brokers benefit.
Sadly, it’s not an uncommon story. You’d think that access to your investment would be a given in today’s globalized world for stock and mutual fund investing. I’m approached possibly dozens of times per year, with requests to help people “access their money”. Even now, most brokers in Asia who help expatriates with their money love to lock investors into for long periods. “This is for retirement, so you don’t need access, do you?” they ask with their leading sales questions.
Well, it’s possible you’ll use it for retirement. It is good, of course, to put money away. But that doesn’t mean you should put it on a desert island where it is untouchable by all, except those financial institutions who wish to charge fees. The stock market trades every day, Monday to Friday except for the odd public holiday. The assets are easily sold, so why have the lock-ups?
The bottom line is that locking your money up is not for your benefit. It’s for your brokers and the investment company. It allows them to charge fees and pay off the commissions paid to your broker paid at the beginning. Anything they say otherwise is just sales nonsense.
Does anyone know where they will be in 5 years time?
Very rarely have any clients or potential clients answered with confidence “where will you be in 3 years time?” So why invest like you plan to be a wage slave for your entire life? Will you be an entrepreneur? Will you be offered a ground floor investment chance in the next Google or Uber? Or a discounted property purchase from a distressed seller? Will you have to say no because you’ve safely put away your entire life savings in somewhere you can’t touch? The chance of missing the once-in-a-lifetime opportunity because of decisions such as these, happens more than you could imagine. In Asia, it happens literally every day.
Don’t miss your lucky chance.
So when investing in the stock market, as you should, there is no reason to lock up your money. Use a discount brokerage account that gives 100% access all the time. Either manage it yourself, or find someone like us to do it. But whatever you do, don’t sign a multi decade contract obligating your money to stay put like a sitting duck.
Not everyone will be as lucky as my friend – we have managed to find a buyer for his investment at short notice so they’ll still be able to go ahead with the partnership and expand. Not everyone has that sort of luck. Avoid the lock ups so you can take opportunities when they come.
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