My sequoia monetary policy

Like it or not, our life is determined by the monetary policy of central banks around the world.

Someone change interest rates today and you will find yourself paying more or less for the house you stay, the food you can afford to eat and even when could you retire. Sometimes I want to scream, why-oh-why the bankers get 6-7 digit payroll to mess up with our lives.

Bubble and disruption
That is also how banks can create the fear in you so that you pay to take the "pain" away. Bubble are true and has caused some wide disruption in the past, but how harmful it's today? Today, information travels at the speed of light, and although that means bubbles are created faster, it also burst and recover faster. I call this ultrasonic bubbles. The multitudes tiny bubbles like a foam. Despite pockets of inefficiency in local areas, the financial market is getting more efficient than human able with robots trading and ETFs.

In theory, an efficient market will move to equilibrium when there is no external interference.It's possible that we have market disruption because we have monetary policies made out of thin air. If robots run our market we will not need bankers, right? Hmm.

Anyway, we will be forever funding the 6-7 digit payroll for the elite to decide if we are worth 3 or 4 digits. This fact will not change even if I get to move to mars.

So what is this big fuzz about monetary?

While we can’t do much about any policy, we can adjust the movement of our money – also known as M1, M2, and even M3. Economists use M1 and M2 as leading indicator of how equity price and inflation will move, it is also a measure of the sentiment of investors and public consumers.

Applying this concept* to our personal fund  *based on my ill understanding 

M1 is the cash and coins you have in hand.
M2 is the near cash investments you made like trust funds investment, shares, and FDs.
M3 is the illiquid assets and safeguards – like the compulsory pension fund, housing, insurance and precious metals.
If you have a pure rental real estate, I think could be considered as M2 at 50-80% of valuation.

Policy of the sequoia tree

My favorite policy – keep M1 minimal, M2 maximum and M3 just enough to balance life.

This is how my allocation looks like:
  • M1 – 2 months of living cost or less
  • M2 - 80% of net worth; including emergency funds
  • M3 - 20% of net worth; insurance, EPF, and metals. Metal is just me being nostalgic about shiny stuff.
In other words, it is a policy of the sequoia tree. Sequoia trees are amazing, they live longevity life and grow as tall as 300 feet with only 3 feet deep roots.

The tree is thick-skin and high in tannin (bacterial resistance).

When you have minimal M1, you will resist unnecessary purchase and be thick skin to say no. Credit cards are invisible M1,  a powerful contingency tool but also deadly. If you are not careful with the plastic, your assets can be infested by debt. To minimize the amount of M1 you need, consider adopting the economy of sharing, minimize lifestyle inflation, and use cost-saving tricks.

Sequoia grows as long as they live.  

M2 is where I get returns of investment to fund my M1. M2 can range from low to high performing investment assets depending on your risk appetite. You could choose to grow slowly or aggressively. The generic way to grow M2: Fixed deposits, Bonds, Equity, Mutual Funds, Private ventures, Landlord master.

They have complex intertwining roots that support the huge tree.

M3 sometimes imposes as M2 and is always more complicated than M2. Buying a house needs a lawyer, many papers, and tons of fees. Insurance has long fine prints and long claiming procedures. Precious metals need careful validation and storing. M3 is for the long term support, beyond retirement, even beyond your age. Sequoias are smart, they balance and intertwine the roots so they do not need deep roots (they are long).

You don’t need to have a lot of securities if you have balanced securities.
You don’t need to have a lot of insurance if you have balanced insurance.

How M1, M2, and M3 allocation affects your life?

If you have too much M1, you might overspend and people come borrow money from you.
If you hold too little M2, you can't retire early.
If you have too much M3, you miss out the pleasure of spending (M1) and growth (M2).

So what is your monetary policy?