What to do when family gives 2 billion dong?

According to experts, you should set up a reserve fund, then consider buying gold, real estate, and stocks depending on your profit expectations and risk appetite.

Hello expert. My parents decided to retire and enjoy their old age. I did not choose to take over the family business like my brothers and sisters, so my parents gave me 2 billion VND to use as capital for my future life.

Currently, I still love my office job, and have no intention of starting my own business or starting my own business. My monthly income is enough to support myself (and a cat), save money, pay insurance, and occasionally travel... Therefore, the 2 billion VND that was given to me is money that I will not touch for at least 5 more years.

I would like to ask for expert advice on how to handle and allocate that amount of money safely, avoid depreciation and if possible generate average profit, that would be even better. Thank you!

Thanh Tan

Consultant:

You have a stable source of income, have a plan to protect your finances through life insurance, and currently have no financial dependents. Before allocating the 2 billion VND given to you and leaving it idle for the next 5 years, you should consider the two steps below.

First, set up an emergency fund (if you don't already have one). This fund will be used in unexpected situations such as a sudden decrease or loss of income, an urgent need to send money to parents...

An emergency fund is usually equivalent to 3 to 6 months of expenses. In your case (no financial dependents and life insurance), this fund should be set up at the equivalent of 3 months of expenses and kept in a savings account for one month.

Second, determine the relevant factors before allocating. You should consider your total portfolio (including current savings), rather than just considering how to allocate VND 2 billion. Because the allocation will be very different if you have VND 1 billion in savings, equivalent to 33.33% of the total asset portfolio (VND 3 billion) and if you have VND 500 million in savings, equivalent to 20% of the total asset portfolio (VND 2.5 billion).

You answer the question yourself: Will the total portfolio be allocated efficiently in terms of return (compatible with risk appetite)? You mentioned that you only want to earn "average" returns, but you did not specify what average is, which also needs to be clearly defined.

If your desired performance level is 6-8% per year, bank savings are still meeting this level, the risk is almost zero.

If your desired performance is 8-10% per year, you need to add asset classes with higher growth than bank savings such as bonds, apartments handed over for less than 6 years, or residential real estate. Although at the end of last year and the beginning of this year, savings interest rates have reached 11% per year, in the medium term, interest rates will be kept at 6-6.5% per year.

If the desired performance is about 12-15% per year, you must now have additional asset classes with strong growth such as stocks (fund certificates or direct investment), suburban real estate, and agricultural real estate.

Be mindful of your risk tolerance because the higher the growth rate of an asset, the higher the risk. If you expect your assets to grow by 12-15% a year, you need to accept that there will be times when high-growth assets such as stocks will lose 15%, or even 30%. If you cannot accept this level of risk, you should reconsider your desired performance.

In addition, you need to find answers to the questions: Is there enough diversity in the asset class in the portfolio? Is there a balance in asset liquidity or the ability to convert cash flow when necessary? Does your asset portfolio bring the desired return, and is it optimally risky?

Suggestions on asset classes

The first is bank savings . You should deposit for 1 month (for reserve funds), 6 or 12 months to optimize liquidity. The reason is that the interest rates for 1 and 3 months or 6 and 9 months are almost the same.

You can refer to gold . I recommend considering holding about 5% of the asset portfolio. This is still a suitable defensive channel to hold for the long term.

Regarding real estate , the frozen market combined with factors such as high lending interest rates and poor liquidity have put pressure on real estate investors. Therefore, this channel will see many assets with prices cheaper than market prices in the fourth quarter of 2023 or the first quarter of next year.

Finally, stocks . At the beginning of the year, the market was cheap compared to history. In the current period, the market has increased a lot and recently had strong declines and fluctuations since the beginning of the year. Investing in stocks at this time will have to accept short-term risks (accounts may decrease), but in the long term, the market is still attractive because indicators such as P/E and P/B have not exceeded the average level in the past 10 years. Stock accumulation still has a lot of potential.

Nguyen Thi Thuy Chi
Personal Financial Planning Expert
FIDT Investment Consulting and Asset Management Company

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