Trauma from setback can outweigh impact 'Society is now wealthier than ever, providing an array of choices that were not available to our parents, let alone our grandparents. Yet it's evident that, beyond the most basic level of income, as society grows richer we're not becoming any happier.' Arun Abey, How Much Is Enough Ask any financial planner and they will tell you that smart money management is only a means to an end - retirement. But while others debate over how much one actually needs for a comfortable retirement, Arun Abey, co-founder and executive chairman of lifestyle financial- planning firm ipac Securities, actually gives those planning for retirement a rule of thumb. 'Most people find they need something like 75 per cent of their final income to sustain a good lifestyle after retirement,' he says in his book How Much Is Enough, which explains investor behaviour from a scientific perspective. Mr Abey believes the difference between success and failure does not depend on how markets perform, but on how we, as investors, behave. 'It appears the emotional impact of a loss, in particular the sense of regret, may have an equal or greater effect than the financial loss itself,' he said. Whatever toll the crisis has taken on an individual's savings, he suggests investors keep perspective and try not to be affected by daily news of companies going under, as the current turmoil will most likely pass. Starting out as an economic researcher, Mr Abey founded ipac Securities in 1983. After ipac was sold to AXA Asia Pacific in 2002, he remained as ipac's executive chairman and took on the role of head of strategy at AXA. Ipac provides fee-based investment advice and manages more than US$13 billion in assets for more than 30,000 individuals in Australia, Hong Kong, Singapore, Taiwan, New Zealand and South Africa. In the past 25 years, you have seen six major downturns in the stock market. When will investors see the light at the end of the tunnel for the current financial crisis? It is impossible to predict that kind of thing when it comes to the stock market. But in terms of the intensity, the financial crisis is over. By saying so, I mean the financial system is not going to collapse. Governments will keep on putting money into the system. Some individual banks may collapse but the financial system is not going to fail. How should investors devise a sound investment strategy? There are four key rules to follow: quality, value, diversity and time. Investing in a diverse range of quality investments at prices that represent good value, and investing for sufficient time, will bring you the rewards you seek. How would you define a quality company? A quality company comes up with a business that people can understand. Always apply the KISS principle - keep it simple, stupid. Don't make it too sophisticated. A quality company is also associated with good and reliable products. It has capable management, which is neither too greedy nor too fearful. These are people who don't take tens of millions out of the companies in the short term, but whose rewards are based on the longer term. Should investors stay away from the once-profitable financial sectors now reeling under the financial storm? It's still a good time to invest in some financial institutions. But don't invest in ones that are too sophisticated. Invest in ones in mainstream business. One of the big mistakes Americans made was to allow retail banks go into investment banking. Having said that, there are still a lot of banks doing simple business that are fairly safe. Banks that survive the financial crisis will come out as really big winners because a lot of competitors have been destroyed and margins are becoming much bigger. Lloyds Bank in the UK is a very good example. It can increase its market share and reduce its costs by taking over HBOS. What are your suggestions for investors who are nearing their retirement age and may not have a long period of investment horizon? People nearing their retirement age should set out their investment strategy in three main brackets. The most important thing is to have at least two years of cash buffer - figure out how much you will spend every year, multiply by two and always keep that in cash. Other than that, one also needs to have a medium-term (three to five years) portfolio in fixed-interest bonds and a longer-term (above five years) portfolio investing in shares. What are the common mistakes made by investors in times of stock-market turbulence? Most people who are approaching their retirement are not taking enough risks. They want to have as much cash on hand as possible. But doing so only results in guaranteed failure, since the return is not enough to guard against inflation. Others have ended up in taking the wrong risks, or taking risks without knowing it. A good example is Lehman's minibonds, which bankers claimed would generate high returns without any risks. What will be the lesson to learn for Hong Kong investors from the minibonds debacle? Free advice can prove costly for people looking for financial planning. There're no such things as high returns with low risks. They don't exist. Even if it is a guaranteed and big name, if the return looks too high, then it is too good to be true. What is the level of risk-taking of Hong Kong investors compared with in other developed economies? Compared with places like Australia, wealth created in Hong Kong is quite new. Hongkongers are still learning wealth-management skills. Remember, the same hard work and patience that are necessary for success in education and work are necessary in other aspects of life as well. How should people prepare for the worst crises in the financial market? Diversification. This is important because it provides access to a wide range of investment opportunities rather than one or two. It also provides insurance against inevitable mistakes we make in assessing value.