Investing in Index Funds

If you have enough cash to invest, and not sure what to do, you can listen to one of the richest man’s advice. His name is Warren Buffett. Buffett has long advised his followers to stick to low-cost, passive index funds, which can offer broad exposure to the stock market and cost a fraction of actively managed funds.  When actively managed funds do not perform well, you can blame the fund managers – but you still need to pay the MER (the embedded fee charged by the mutual fund).  For index fund, you only have Mr. Market to blame when your investments go bad. And the fee charged by those funds are much lower.

If you are curious about how index funds work, I recommend this article by Moneysense magazine. The portfolio you can make from the various index funds are called the couch potato portfolio and very easy to set it up.

You can automate the purchase every paycheque and utilize dollar-cost averaging too, so you won’t get hurt so much if there’s a sudden market downturn like my cartoon characters.

This cartoon is for sale here, perfect to use in presentations for financial concepts.


Banking Devil

Devil Banking

Aim to reach a high score – not just for tests and games, but the credit score. Having a bad credit score could cost you a lot of money.

Without a good credit score it will be harder for you to get:

  • a loan, mortgage, credit card
  • a good interest rate when you’re borrowing money
  • rental housing. A lot of landlords perform a credit check on applicants.

When you have a good credit score, you are telling the lender that you pay back money. You are responsible.

On the other hand, when you have a bad credit score, you are telling the lender that you don’t pay back fast enough, or worse, you don’t pay back at all. Even if you can convince them in interviews that you are responsible, the credit score tells the hard truth. That you’re not.

It’s important to build a good credit history. Start by obtaining a credit card and make sure you pay back the balance every month. That will be a good start to build a credit history and good credit score.

Cartoon available for sale here.

Personal Finance Cartoon Series: 5 Cs of Credit

5 Cs of Credit CartoonWhen you apply for credit (eg loan/mortage/line of credit/credit card) the bank wil measure your 5Cs of Credit.

5Cs of Credit in a nutshell (no, there is no “C”uteness)

  • Capacity
    Measures if you’re borrowing too much or not. It measures the amount of debt and income you have. Are you able to comfortably pay back all debts?
  • Capital
    Measures your savings, investments, and other assets that can help you pay back the loan.
  • Character
    Measures your track record with debt.  Your credit score is checked.  Your credit score is mainly determined by your credit history which show if there’s anything outstanding that went to collection or if you are slow at paying back or frequently skip payments. Check your credit history periodically to make sure you haven’t forgotten about anything.
  • Collateral
    This is like a backup if you end up failing to pay the loan – eg for a car loan your car is the security. The banks can take your car.
  • Conditions
    Lenders want to know why you are borrowing. A lender may be more likely to approve a loan with a specific purpose like for a house (mortgage) or a car, rather than for a loan that can be used for anything.

Personal Finance Cartoon Series: Year-End Bonus

First Year End Bonus Cartoon

After I graduated from university, I lived back home and luckily I didn’t have to pay rent or pay back a student loan. So I just saved bonuses as cash.  Looking back, I could’ve started investing in the stock market, but those concepts are new to me.

If I were a millennial now, with lots of student loan, if I get a lump sum cash (like a year end bonus), I would:

(1) Save it as cash if I don’t have any emergency savings
(2) Make a lump sum payment to a loan with a highest interest
(3) If there’s anything left over, invest
(4) Treat yourself with a cupcake

What did you do with your very first year end bonus?
I remember buying a very nice hat for my mom but she never wore it. I am the worst shopper.

Credit Card is Convenient

Credit Card is Convenient

I drew the cartoon above first but it didn’t make much sense (a homeless person can’t afford to be a credit card using merchant), so I rewrote it. Here’s the second version:
Credit Card Merchant fee Cartoon

Credit cards are convenient, but they can be very expensive. If you are a consumer, paying with credit card is convenient, but if you don’t pay off the balance every month, you will get charged outrageous interest fee to the bank (21%! That’s why banks love giving you credit cards. It’s a great investment for them.)

And, if you are getting a credit card for the first time, make sure you shop round, try to get the one that gives you some kind of reward. Look for the one that you will get the most out of, matching your spending pattern. For example, if you shop lot at a particular store, they might have a credit card that gives you lots of bonus point everytime you shop there.

If you are a merchant, you will get charged merchants transaction fees. Walmart recently stopped accepting Visa because the fees are too high.  And a lot or people tend to overspend using credit card than hard cold cash.  If you watch Gail Vaz-Oxlade’s show, “Money Moron” or “Til Debt Do Us Apart”, you see many couples spend way beyond their means and have excess credit card debt (interest rate on credit cards are outrageous). So the shock treatment Gail uses on them is to make them pay everything only by cash.

Holiday season is starting, watch out for maxing out on your credit card! Set a goal and budget and stick to it.