Reply

(Reply letter of Warren is, as always, instrumental and instructive.)

Dear XX,

I can see that you are a well-planned and disciplined person and this is the most important character of a successful investor!

You have a relatively short to intermediate investment goal (compared to the other goals such as retirement, education fund of the next generation, etc.). In order to have guaranteed return in such a short period, you can only make investment with more predictable return.

You would expect a period of high inflation in the coming years and the inflation rate is so high that the profit-making ability of many companies may be undermined (because of high cost and rents, etc.). The fear is now being reflected as a low valuation of the stock market currently. Because of the lack of confidence in company's profitability yet the saving interest rate is so low, people opt to park their money on bricks, which is reflected as over-valued real property market.

For a long term investment plan, I am sure you will know that you should accumulate stocks during this period because of its low valuation, which will normalize in the long run. And you should avoid the over-valued real property, which will be down-rated in the long run. But you need to strike a balance for short-intermediate investment plan.

I would therefore suggest:

1. Try to lengthen the period of debt payback (if this is feasible).
2. Build up a cash reserve for 3-month urgent extra expenditure on top of your usual expenditure during your internship (e.g. if you need $60K for this, you need to save $5000 each month).
3. No car please.
4. Live with your parents, don’t buy or rent a separate apartment before getting married (if this is also agreed by your parents and boyfriend, but their preference should be on higher priority).
5. Put all your surplus money to monthly fixed-amount investment on stock markets (this is known as “dollar cost averaging, 平均買入法”).

(To be continued.)