MONEY THOUGHTS: Trust two processes

New Straits Times

11-05-2025

I THINK it is unfortunate, yet understandable, that most responsible adults only get serious about financial planning after they turn 40.
Usually, by this point most people have gotten married, had children, stabilised their careers and begun waking up to their still distant yet fast-approaching retirement seasons.
If you fall in this category or have friends and family who do, then here are two distinct processes to propel you on this journey of steady economic uplift.
They are the six-step financial planning process and the three-part wealth building process.
THE SIX-STEP PROCESS
Financial planners worldwide distinguish themselves from product-centric intermediaries by first committing to a professional planning process.
My favourite definition of financial planning is an illuminating 17-word one I memorised decades ago, and which I have relied on almost every day since I began earning money directly from it 29 years ago, back in 1996 — I've done so from writing and consulting on financial planning and from portfolio construction and long-term management.
Here's the definition: "Financial planning is the process of meeting your life goals through the proper management of your finances."
So, identify those goals.
Also, focusing on the process makes it clear that just as an architect should create a blueprint before a skyscraper is safely erected skyward, the financial planning process involves blueprinting (or plan constructing) before financial products are bought.
In reality, though, many young adults start buying various disjointed products because of a procession of bankers, insurance agents, unit trust consultants and will-writers they encounter in random fashion as they mature, start work, earn money and begin to think about the future.
This usually means adults already have some financial products in place before they get serious about financial planning.
That's commonplace, and all practising licensed financial planners in Malaysia are familiar with this situation.
Individuals who are serious about moving forward may find understanding the six-step financial planning process used by professionals immensely helpful:
Step 1: Establish the client-planner relationship;
Step 2: Gather relevant data;
Step 3: Analyse the data;
Step 4: Develop several plans (with differing pros and cons) for client consideration;
Step 5: Implement the plan selected, through planner-guidance, by the client; and
Step 6: Monitor the plan.
A great resource for Malaysian residents is the Financial Planning Association of Malaysia (FPAM), which is celebrating its milestone of 25 years of service this year.
The second process you'll benefit from is the three-part wealth building process.
For any viable investment process to work well, it should be built from the ground up.
So, here's the process I use for my clients and myself. It hinges on a basic investment PRINCIPLE, a powerful investment STRATEGY, and an automated emotionless SYSTEM.
The investment principle is one that also works in business.
The "Father of Security Analysis", the late genius Benjamin Graham, who was the primary mentor of super-investor Warren Buffett, had firm opinion on the matter.
More than 75 years ago, Graham wrote in his bestselling book The Intelligent Investor: "Investment is most intelligent when it is most businesslike."
And the foundational principle which works equally well in business as in investing is "buy low, sell high".
A fabulous strategy that helps us put that principle to work is dollar-cost averaging or DCA.
For DCA to work well, five criteria must be met. They are:
1. Only buy high quality assets;
2. Only buy such assets that fluctuate in price;
3. Use equal amounts of money;
4. Injected into those investments at equal time intervals: and
5. Stay the course regardless of market conditions.
STABILISING OUR FINANCES
High quality assets that don't meet criterion No. 2 (Only buy such assets that fluctuate in price) might be bank savings and fixed deposits.
Such cash-saving instruments are very important and all of us should use them to build up savings liquidity that helps stabilise our finances and, thus, also our emotions.
But for the specific purposes of implementing a viable DCA strategy, we should focus on buying over the long-haul investments that fluctuate in price. Thankfully, there are many such investments that fit the bill, including stocks and equity unit trust funds.
I implement the DCA strategy through an automated system based on a facility all banks provide, a standing instruction or SI.
Here's how this powerful system — based on the DCA strategy — works.
A standing instruction (SI) is set up, ideally electronically, from your personal bank account to emotionlessly flow regular amounts of cash into your diversified SAP (or savings and investment portfolio).
Over the next three weeks, I will elaborate sequentially on the specifics of the buy-low-sell-high principle, the DCA strategy, and its bank SI-based system of wealth accumulation.
In the meantime, use this week to beef up your understanding of financial planning in general. You might choose to do so by reading some of the hundreds of Money Thoughts columns here: