Over the course of my 6 year financial advisory career, I've come to spot common behaviors that people do which damages their wealth building efforts. Today, I've decided to do an article on this just in case people are guilty of this without realizing the implications.

1. Investing when markets go up but staying out of the markets when markets go down

We all know that we should buy low and sell high. In fact, that's the only way you can make money if you aren't using derivatives or leveraged instruments. Seasoned investors love to invest during a crisis because they can pick up bargain buys at good valuations. Now, an interesting phenomenon I've witnessed is how retail investors behave in a market downturn. Most people who have invested before and have a positive experience with investing have no qualms doing top-ups during a bullish market. However, we all know that buying into the market in an uptrend will always mean buying at a premium. On the flip side, when you invest during a downturn, you get to buy when the market is at a discounted value relative to its previous high. Yet instead of investing, a good fraction of retail investors (we are talking about people with excess cash) choose to adopt a wait and see approach and usually will only enter the market when signs of recovery are evident usually missing out on the bulk of the discounted value.

Is there anything wrong with wanting to be sure before investing? Well, no. It ultimately depends on a person's comfort level. Having said that, it's important to be aware of the opportunity cost of succumbing to fear. Markets in general move in zigzag movements and thus people who only invests when recovery has more signs of certainty may miss out on the bulk of the falling prices. Take the above chart as reference, assuming market tanks 40% - 50% (in Dot Com & Subprime Crisis) and people only want to invests when markets have shown clear signs of recovery. It's highly likely that they may be investing near the previous highs thereby missing out on the bulk of the 120% - 170% gain in the Dot Com and Subprime Crisis. To be fair, buying high and selling higher is also a strategy. It's just that this way of investing may not maximize the opportunity that a recessionary crisis brings and frankly recessions doesn't happen all the time. Perhaps a wiser way to deal with this is to develop an investing strategy even before a crisis happens so that when the event does occur, you can simply follow your investing plan.

2. Putting Off Refinancing Your Mortgage

Don't get me wrong, if someone is putting off refinancing their mortgage because they have reasonable basis to believe that rates will fall further, it's fine. However, that's rarely the reason why people don't refinance. People typically choose to put off refinancing because of the sheer work it takes to check rates, fill out forms and get the process done. In doing so however, they end up paying more interests to the bank. As creatures of habit, as long as the extra interests is manageable, we tend to console ourselves that it's okay because this is the rate we originally agreed to anyway. However, if this payment does not contribute to our property value, why would we want to let the bank earn more?

Frankly, if we are feeling so rich, we should donate this surplus to a charity organisation of our choice instead. At least these NGOs really need the money unlike the bank. With the present rate cut measures in place, the savings can be pretty substantial! Surplus cash is always very useful during a recession. Rather than ignore the issue completely, it might be advisable to find out more about mortgage refinancing and evaluate whether it's worthwhile to do something about your mortgage loan.

3. Decide it is better to go without insurance coverage since the initial underwriting result was substandard

Whenever I encounter such behavior, it's really a face palm moment for me. I mean, common sense tells you that with a substandard underwriting result, it means that the person is of higher risk to claim insurance than a standard underwriting result. To take the verdict personally and go without coverage will not be helping the situation. I perfectly understand that what may seem like a potential health risk to underwriters may not be deemed the same way by a layperson. However, perceiving the verdict unfair and going without insurance really does not help the situation. Put it this way, if the insurance is deemed unimportant in the first place, you wouldn't buy it at all right?

The truth is this, if there is no claims, everyone will feel that insurance isn't worth the value (myself included). Having said that, I don't buy insurance with the intention to claim. If something does happen and it involves the portion which insurers exclude, then the insurer is right to exclude it because the known risk proved that it indeed had a higher chance of occurring. If something happen outside the scope of exclusion and you bought insurance, you would have successfully claimed and would be feeling much more relief than if you didn't get a payout. Rather than simply going without insurance, my suggestion is to do a preliminary underwriting with other insurers and then pick the one with the most favourable underwriting outcome.

4. Keeping all your money in a low interest savings account

Honestly I am extremely surprise at how many people still save all their money in a low interest savings account (0.05% - 0.25%). With the prevalence of technology, you'd think that most people would have ported over to bank accounts that offer better rates. Granted that some of these accounts require you to do a series of tasks to get the better rates, some of these tasks are fairly easy to do. Who doesn't credit their salary into a bank account for example?

The most common reason people don't bother is simply because they find it a hassle. "Need to change salary crediting account and fill so many forms..." I think it's fine to use a low interest bank account if you are actively managing your surplus in other wealth accumulation instruments. In fact, I'm like that. However, if you aren't doing anything towards beating inflation, then the least you might want to do is to keep your funds in an account that gives you more interest. If you don't want to fulfill a series of tasks, there're instruments like fixed deposits and Singapore Savings Bond that offers a decent amount of flexibility with higher interests. Of course, I don't want to give the impression that these low interests accounts can help you fight inflation. It's just better than 0.05%. If you truly want to preserve your wealth, the returns you should be considering should be closer to 2.5% - 3%.

Summary

To sum things up, these are the 4 common behaviors that sabotage your efforts to build wealth. While it may not appear significant, it goes a long way towards whether you can retire sooner or later and also the quality of your retirement lifestyle.

1. Markets presents more opportunities in a crisis than in a normal day.

2. See if your mortgage loan can save you money through refinancing.

3. Ensure your insurance coverage is done. If you have pre-existing conditions, you can always do a preliminary underwriting with multiple insurers to find the best terms.

4. There are high yielding savings accounts and short duration instruments that may be a better way to hold your cash.

If you decide to take action on the points mentioned above, please speak with a trusted advisor. Alternatively, you can drop me a message if you would like me to help you with it.

I can advise on mortgage refinancing too.

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Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.