Saturday, March 14, 2009

Safe Strategies for Financial Freedom

Title: Safe Strategies for Financial Freedom
Authors: Van K Tharp, D R Barton Jr, Steve Sjuggerud
Publisher: McGraw-Hill 2004

This is a book published back in 2004, teaching people how to get to financial freedom through some simple strategies, reveal the true face of mutual funds, and most important, how people should take FULL responsibilities for their own doing.

The book first introduces to you the financial freedom number. This number tells you how far away you are from financial freedom.

Financial freedom number is calculated as: your monthly passive income - your monthly expenses.

For example, if you have a passive income of $250 a month, be it interest from your savings account, or renting out of your spare room; and you have a monthly expenses of $2500, including your mortgage, insurance, kid's education, etc, then your financial freedom number is 250 - 2500 = -2250. What it means is that you need to get another $2250 a month passive income to become financially free!

Then the books continues to teach you how you should cut down your expenses and debt to immediately improve your financial freedom number.

The book dedicates its Part II & Part III on strategies that you can employ to increase your wealth. Many strategies may not actually apply in Singapore, as the law is different, the economic conditions are different. However, you can still get an idea of what you can do to achieve higher revenue.

The authors advocates a 15-year cycle theory. It says that markets go in 15-year big cycles. The current cycle is bear market cycle, and it started back in year 2000. This bear market is expected to end in 2015-2020. For stocks to be considered to be of great value, Dow Jones has to go down to 2700 points, S & P to 186 points, to achieve a P/E ratio of 7.

Next, the book introduces the concept of expectancy and position sizing, which are, in my opinion, very important in risk control.

The book further goes into the psychology side of investing, the key message is everybody must be responsible for his/her own actions. If you think you are a victim of other's doing, then you will never ever get out of the trap.

The book concludes with the emphasis on action! Nothing is going to happen if you don't act!

This is a very good book if you are serious to gain financial freedom. Highly recommended.

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