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Thursday, June 17, 2010

Top 10 money advice

Top 10 money advice (to turn your situation around)

Take charge of your money. -Philippine Daily Inquirer/ANN

Thu, Jun 17, 2010
Philippine Daily Inquirer/Asia News Network

1. Find out how much you are worth.

Go ahead, put a price tag on yourself and find out just how much you are worth today.

Add up all your assets (cash, bank deposits, liquid investments, house, car, jewelry, and others), deduct all your liabilities (bills due, loan amount, credit card debt, long-term loan), and you will get your net worth.

A positive net worth shows you are on the right track, while a negative one will serve as a wake-up call for more financial discipline.

This 'snapshot' of your financial standing will also clue you in should you need to move your investment around or stop racking up new debt.

2. Save smarter, not just harder.

It's important to save for the future-when unexpected emergencies arise, there will be a fund to dip into.

It's also good to save so you can reach your financial goals, whether those include buying your own home, giving your children a good education up to college, or preparing for retirement.

But it's not enough to just save money and deposit it in a savings account, which will earn you a small amount of interest.

Other investments may possibly give you a higher rate of return.

Putting all your cash in a savings account will also allow inflation to erode the purchasing power of your cash. Go for investments that potentially offer rates of return higher than the prevailing inflation rate.

3. Plan for your future needs.

Whether it's for your dream wedding, children's college tuition, your car's annual comprehensive motor insurance, your summer vacation next year, or your Christmas gift budget for this year, plan ahead.

Find out how much this would cost, then aim to save for that amount monthly beginning today.

4. Make a budget.

It can be discouraging to find out toward the end of the month that you are running low on cash-again.

To banish this problem forever, discipline yourself into making a budget.

Write down your projected income, deduct your must-pay bills (including savings), then apportion the rest into expenses you can control (such as food, groceries, going out, etc.). These amounts will be your spending limit.

Try not to go over your spending limit or else you will find yourself in debt.

5. Take only as much debt as you can afford to pay.

This goes for housing loan, auto loan, credit card debt and the like.

That means, before you buy something on credit, ask yourself first if it is something you need and can afford to pay in full the next month, or in reasonable installments over the succeeding months.

As for other loans, review the terms carefully and make sure your budget can accommodate the regular amortizations.

6. Teach your children to handle money well.

That starts by not buying them right away anything their hearts desire, whether that's the hottest new toy, game console or gadget. There is nothing wrong with giving children rewards, but if you keep giving them material gifts, they may not learn the difference between wants and needs.

Prioritize needs, not wants.

Give your children an allowance which will help them learn firsthand what it is to spend, save or give. Teach kids how to budget.

Open a bank account in their name and let them see how their money grows. Your children need to know the importance of eight things: budgeting, saving, investing, record-keeping, being content, being good stewards, giving, and having a reward.

7. Build an emergency fund.

As the name implies, such a fund is to be used only for emergencies, such as when you suddenly lose your job, or a family member falls ill, or a calamity strikes.

Set a time frame on when to complete the fund. Start small and increase amounts as you are able. And consider it a "bill" you have to pay every month. Invest this fund in an account which will help it grow.

8. Be adequately insured.

If you are the head of the family or have people depending on you, it is a must that you take out life insurance, as well as health insurance.

You'll never know what may happen in the future. A death, illness, or disability will not only be an emotional blow, but a financial burden on loved ones.

Take out as much coverage that will help your family tide over the crucial months after the event until they can get back on their feet.

9. Diversify your investments.

The old adage, "Don't put all your eggs in one basket" holds true when it comes to investing.

Spread out your investment over different asset classes so that if one asset class is performing poorly at the moment, other assets' returns may make up for it.

Go for investments that will suit your appetite for risk, your time horizon for investing, and of course your available capital.

10. Live within your means.

You don't need to keep up with the neighbors whenever they buy something new.

Based on your income, spend only within your limits (as set forth in your budget).

Cut costs whenever possible: Take public transport instead of the car every day, make personalized gifts instead of giving out store-bought gifts, host simple instead of lavish parties, and hunt for bargains instead of buying the first thing that you see.

Little steps like these amount to a good amount of dollars saved at the end of the year, which you can add to your retirement fund.

This may all seem to be too much in one go, but if you truly wish to turn your situation around, you need to make a commitment for you and your families' financial future. We wish you financial independence and a life well lived. Cheers!

Monday, June 7, 2010

Five tips on investing despite the bear

A financial downturn presents opportunities for savvy investors who bear these pointers in mind. -ST

Mon, Jun 07, 2010
The Straits Times

By Gemma Tay

One does not require much money to start building up wealth. Each small step can take us a long way. What is most important is to remember the basics of wealth preservation and investing.

I run through a check-list of investment principles and review my investment portfolio annually to ensure I am effectively preserving and growing my wealth. Here are some investment tips.

Investing tip 1

It is better to remain focused and stay invested during volatile times

During volatile times, it is important to remember to stay focused and stick to your long-term investment strategy.

An investor who panics and sells his investments when markets are down is likely to incur losses.

In addition, he may also miss out on potential gains when markets recover. Historically, markets have rebounded and eventually returned to or even surpassed previous levels.

By investing over the long term, you can ride out the volatility.

Investing tip 2

The three Rs: Revisit goals, review portfolio and rebalance your investments

Over time, our financial goals and needs may change.

For example, you may want to set aside funds to cater to growing expenses when new members are added to the family. Your financial objectives will have to be reviewed to meet this need.

The components in your investment portfolio may also need to be readjusted to generate higher potential returns. You may do this by taking on more risks.

Even if your financial objectives or risk profile remain the same, market movements may tilt the weightage of each investment in the portfolio, exposing the overall portfolio to more risks than intended.

A rebalancing of the portfolio is required to bring it back to its original risk-return parameters.

Generally, you should review and rebalance your investment portfolio every eight to 12 months.

Investing tip 3

Spread out your risks, diversify

Diversification is important as most investors are not able to predict the performance or returns of one particular asset class.

Equities, bonds, different geographic regions, sectors or even various investment styles react differently to market events and cycles.

Hence, investing in multiple asset classes and types will help to buffer the impact of any non-performing investment in a portfolio.

Diversifying your portfolio can also help you weather the ups and downs of the market cycle.

Investing tip 4

Have a balanced portfolio

Invest in a balanced portfolio to better manage risks and returns.

A balanced portfolio is designed to achieve higher returns than debt securities or cash, but at a lower risk than a pure equities portfolio.

A fund offering a balanced approach should include both equity and fixed-income components, which can help to provide cushioning when either one of the asset classes is down.

Equities and bonds usually show low correlation to each other and behave in an opposite manner under the same market conditions.

Hence, when equity prices are down, bond prices usually rise, and vice versa.

Investing tip 5

Market corrections can mean opportunities; use dollar cost averaging to smoothen price swings

Market swings and volatility are part of stock market movements.

They present opportunities for investors to buy on dips or enter into dollar-cost averaging (DCA).

With DCA, a set amount of money is invested at regular intervals over a long period of time. It can lower an investor's cost of investment and reduce the risk of investing at a peak.

For example, when prices are high, the set amount can buy fewer investment units or shares. Likewise, when prices are low, more units or shares can be bought with the same amount. It helps to smoothen the ups and downs in market volatility.

Most importantly, bear in mind one golden rule: The chain is as strong as its weakest link.

Regardless of the size of your investments, be vigilant and disciplined when it comes to preserving, investing and growing your wealth.

The worst of the financial crisis may be over, but the global economy is not totally out of the woods yet. Lingering problems still exist, especially in the developed countries. However, opportunities exist even in the worst of times.

To stop investing is to allow your money to diminish in value as inflation will erode its purchasing power. Keep these basic investing principles in mind and let them underline your investment success.

The writer is the head of deposits, investment & insurance (Singapore) at United Overseas Bank

This article was first published in The Straits Times.

Friday, June 4, 2010

Investing in a volatile market

Financial experts offer advice on some of the safer options to choose from. -ST

Fri, Jun 04, 2010
The Straits Times

By Gabriel Chen

It is getting bumpy out there in investor land, and you may be wondering where to put your money now.

Asian stocks are at 10-month lows amid fears that tensions will keep escalating on the Korean peninsula.

There were reports last week that North Korea may be priming itself for combat, after South Korea officially blamed the regime for the March 26 sinking of one of its warships, which killed 46 sailors.

A Korean war is not the only downside risk to markets.

Before that, fears were festering that Europe's debt crisis could spread, and that China's real estate bubble could pop horribly and cause problems around the globe. Both these worries persist.

Another scare came when the Dow Jones Industrial Average plunged almost 1,000 points in less than 30 minutes earlier this month, for reasons yet to be fully explained.

The ups, as well as the downs, are also getting sharper - with the Dow often rising or falling 200 points or more in a single day.

It is natural to feel disheartened if all that volatility is wreaking havoc on your investment portfolio.

But it is important to take a long-term view and not panic and sell your stocks in a knee-jerk response to the market ripples.

'For long-term investors, they should not be reacting to the short-term volatility and be derailed from their long-term plans,' said Citibank Singapore's head of wealth management, Mr Shrikant Bhat.

'In times like these - while there can be an appropriate shift of risky assets to less risky assets - totally exiting from risky assets may not be the most advisable strategy.'

Fidelity International's managing director for Singapore and South-east Asia, Ms Madeline Ho, advised people to stay invested during these volatile times.

'If one is uncomfortable putting in a lump sum of money, regular investing is a disciplined approach and more palatable if you are uncertain about the market,' she said.

Still, the question for you, the investor, is whether this level of volatility is keeping you up at night.

If your main concern is limiting your losses and saving what cash you have, then you may want to put a lower percentage of your money into stocks and stock funds.

To be sure, you can put all your money in bank deposits just because they are very secure, but that is not wise as your purchasing power will be reduced by inflation - which exceeds bank deposit rates by a fair margin.

Experts say that a sensible combination of products with varying risk levels can provide good returns.

What are some safer investments you can choose from? The Straits Times investigates.


Just as people often need to borrow money, so do companies and governments.

One way for them to raise money is by issuing bonds to the public via the market.

You can think of a bond as an IOU given by a borrower (the issuer) to a lender (the investor).

Assume you buy a bond that has a face value of $10,000, a coupon - the annual interest payment - of 6 per cent, and a maturity term of five years.

You would earn a total of $600 (6 per cent of $10,000) in interest a year for the next five years. When the bond reaches maturity after five years, you would get your $10,000 back.

You can trade your bond before maturity, but you may receive more or less than you paid for it, depending on market conditions.

Bonds can be bought through most banks and brokerages.

Consider buying Asian bonds, said UBS Wealth Management's chief investment strategist in Singapore, Mr Kelvin Tay.

'On a risk-adjusted basis, due to the relative strength and strong fundamentals of the Asian economies and hence corporates, Asian bonds are a very attractive asset class to invest in,' he said.

It is worth mentioning that while bonds are generally safe bets, they are not risk-free either.

The bond issuer could default on its debt payments.

Investing directly in bonds does not come cheap. The average bond is usually sold in blocks of $50,000 to $1 million at a time, depending on the issue. For retail investors, opting for a unit trust or fund that invests in bonds may make more sense. It is easy, provides diversification, and if chosen properly can be cost efficient.

'For bond funds, the concentration risk is minimised because for the same amount of money invested, it is spread across many issuers,' Mr Bhat said. 'Hence, the impact of the issuer's default on the fund is more muted compared to direct investment in the issuer's bond.'

Mr Albert Lam, IPP Financial Advisers' investment director, suggested three bond funds that investors could consider given their decent performance over the last three years. They are Franklin Templeton Global Bond (8.8 per cent annualised return), Schroder ISF Emerging Market Debt (6.49 per cent annualised return), and DWS Lion Bond (2.8 per cent annualised return).

However, in terms of risk-adjusted returns - or returns adjusted for the amount of risk involved in producing that return - DWS posted the highest number, followed by Franklin Templeton and then Schroder ISF.

Money market funds

Money market funds invest in high-quality short-term instruments and debt securities. The latter are loans sold by firms and governments to borrow money.

These funds are a good alternative for investors who are looking for a stable, low-risk instrument with potentially higher returns - ranging between 1 per cent and 2 per cent - than banks' savings deposits.

'The (Prudential) Cash Fund, for example, invests primarily into Singapore dollar deposits which most investors are familiar with,' said online fund distributor Fundsupermart's analyst, Mr Cheong Chee Kin. 'Its three-year annualised return was 1.06 per cent, while banks' savings deposits return was 0.22 per cent.'

Not all money market funds are the same. Do your homework and read the fund's prospectus and annual reports. Check to see what kinds of debt instruments the fund invests in.

Multi-asset funds

The rationale for investing in such funds is straightforward.

No single asset class can be guaranteed to top the performance charts each year, so it makes sense to have exposure to a broad mix of investments, such as stocks, bonds and property. Multi-asset funds are riskier than fixed deposits, but they are usually less risky than a stock-only portfolio.

Mr Al Clark, regional head of multi-asset at Schroders, cited the recently re-launched Schroder Multi-Asset Revolution as such a fund, adding that it is designed to help investors maximise opportunities in any market environment.

'It has the ability and flexibility to invest in not just traditional asset classes like equities, bonds and cash, but also alternative asset classes like commodities and property,' he said. 'The fund also tactically moves into asset classes that are most appropriate for the prevailing market cycle.'


Many people invest in gold as a hedge against stock market declines, burgeoning national debt, currency failure, war and social unrest. In fact, there are a number of studies which show that gold prices generally move in the opposite direction from stock prices: Gold soars when stocks tank.

'Gold protects wealth as a safe haven in troubled and uncertain times. This appeal remains compelling for modern investors,' said Mr James Sim, president of the Financial Planning Association of Singapore. United Overseas Bank sells physical gold that can be bought from, and sold back to, the bank at its daily buy-sell market rate.

Perhaps the easiest way to buy physical gold is to walk into a goldsmith and buy 22-karat or 24-karat jewellery. You can also buy gold mining stocks, though they tend to be more volatile than the gold price, Mr Sim added.

Mr Rajiv Baruah, Royal Bank of Scotland's head of sales for private wealth management, expects the price of gold to rise 6 per cent by the first quarter of next year.

This is not an 'unreasonable return' for a six to nine-month investment, Mr Baruah said.

Fixed deposits

If your top priority is to have cash at hand, then fixed deposits are the usual place to park your money.

They let you save a fixed amount of money for a fixed period at a fixed interest rate.

DBS is offering 0.7 per cent a year for a 24-month term deposit. You will need to lodge a minimum of $1,000.

However, Mr Tay from UBS argues that even for conservative investors, staying in fixed deposits is not an option 'due to the increasingly negative real rate of return as a result of higher inflation in the near term'.

This means that people with fixed deposits in the bank are getting a rate of return that is too low to compensate them for the loss of their purchasing power.