Published on Apr 28, 2013
Global economy is growing but not so strongly as to trigger a turning point yet
By Lim Say Boon
Global equities have more than doubled since the lows of the global financial crisis and key US stock indexes have broken historical highs. Notwithstanding the market's predictable "fear of heights" and the likelihood of a correction, we are staying overweight on equities.
Conditions continue to favour risk asset markets:
The global economy is growing despite pockets of weakness;
Corporate earnings growth will likely sustain higher stock prices;
Valuations are still moderate;
Negative real interest rates and government bond yields and the yield gap between equities earnings and government securities favour stocks;
Continued growth in global excess liquidity;
Economic conditions are not robust enough yet for central bankers to tighten monetary conditions in developed economies; and
Central bankers have committed themselves as lenders of last resort in the US, euro area and Japan, hence containing periodic bouts of fear related to the twin dysfunctions of debt and deficit in these economies.
The preoccupation with US indexes trading above historical highs is superficial. It tells us nothing about the underlying index earnings and, therefore, valuations. And it says nothing about broader economic dynamics driving the global search for yields.
That the S&P 500 has broken its historical high is not surprising. The index's adjusted operating earnings per share broke its own historical high 18 months ago. (See chart) And because of this earnings growth, US equities' price-to-earnings valuations are still at the middle of its cyclical range despite prices more than doubling from early 2009.
Taking an even longer view, in January 2000 - when the S&P 500 was also trading at around the levels of today - the operating earnings per share was only about half what it is today. In short, the market is today only paying about the same nominal price for almost double the earnings of early 2000.
Monetary conditions are also very different today compared to the earlier peaks recorded in early 2000 and late 2007 - they are more supportive of even higher valuations than during those two earlier periods. In early 2000, the 10-year US Treasury yield peaked at 6.8 per cent and the Fed policy rate stood at 6.5 per cent. In late 2007, they were 5 per cent and 5.25 per cent respectively. These compare with only 1.85 per cent and 0.25 per cent today.
Indeed, monetary conditions continue to pressure investors out of cash and bonds. Fears of the US Federal Reserve staging an earlier-than-expected exit from quantitative easing have faded. There is insufficient evidence of strong, self-sustaining economic growth to justify the Fed pulling back on asset purchases any time over the course of this year, much less raising its policy rate.
Unemployment at 7.7 per cent is still a long way from the Fed's 6.5 per cent condition for an end to its "exceptionally low" policy rate. And inflation remains significantly below the 2.5 per cent that would cause the Fed concern. Meanwhile, given programmed government spending cuts and near zero interest rates, quantitative easing remains one of very few policy tools left. Ultra-low rates and quantitative easing are likely to continue through the course of this year.
Indeed, at the global level, excess liquidity - defined as the growth of money supply in excess of economic growth - is likely to pick up again as the Bank of Japan accelerates quantitative easing and as the European Central Bank activates its Outright Monetary Transactions programme.
At some point in the growth cycle, when inflation becomes a greater concern, the cyclical uptrend in equities will end. But we are not at that point yet. The global economy is growing but not so strongly as to trigger a turning point in global monetary conditions. The International Monetary Fund is forecasting 3.5 per cent GDP growth for the global economy, slightly firmer than 3.2 per cent for last year.
Meanwhile, moderately higher inflationary expectations have historically tended to support equities. It is not inflation that ends equities rallies but monetary tightening.
And so in Asia ex-Japan, it has been the fear of monetary tightening that has been driving the recent underperformance of equities in Greater China. But broad policy tightening is unlikely at this stage. The focus has been on administrative controls, particularly in the property sector.
In any event, the growth of instruments such as so-called "wealth management products" and "trust loans" should supplement bank credit, making loans growth ceilings less meaningful in China.
Meanwhile, the Chinese economy is likely to soon confirm that it is picking up the growth momentum from the fourth quarter of last year, with fixed asset investment likely to again lead growth.
Valuations for Chinese equities - both in Shanghai and Hong Kong - have dipped again after a brief upturn. They are now back at global financial crisis lows. At these levels, the downside is likely to be limited. We would be buying on the ongoing correction.
Bonds remain poor value relative to equities. And they are likely to continue their lacklustre performance from the start of the year. Total returns for the JP Morgan Global Aggregate Bond Index have been marginally negative for the year. Reflecting the gradual recovery in the US economy, the 10-year US Treasury yield has been edging up since the start of the year.
Meanwhile, for Asia ex-Japan credits, total returns year to date have been flat. And at current valuations, further spread tightening will likely be modest. Indeed, supply risk could result in some spread widening, particularly if there is another risk-off episode driving fund outflows.
But the "Great Rotation" out of fixed income into equities is still not imminent and a collapse of the bond market is unlikely as long as interest rates remain low and risk-averse liquidity stays flush.
Commodities should generally do better this quarter on firming global growth, a weaker US dollar, and easing fears surrounding China's economic transition.
The divergence between stronger equities indexes and stagnant-to- weaker commodity prices over the past quarter has been a disappointment.
Industrial metals corrected in the latter half of the quarter after a rally in January and early February. And much of this underperformance boils down to market concerns over China's new economic growth model and, more immediately, the possibility of broad monetary tightening. Longer-term, there are uncertainties over the extent to which Beijing's economic rebalancing from fixed asset investment towards consumption would slow its demand for commodities.
While there is some basis for these concerns, they appear exaggerated. Consumption expenditure accounts for little over a third of China's gross domestic product. The overwhelming driver of China's economy is fixed asset investment. Rebalancing towards consumption will be a multi-year project.
Meanwhile, the Chinese government cannot afford for economic and social reasons to crack down too hard on either credit or investment growth.
So it will apply administrative controls over the private property sector but, at the same time, it will expand social housing construction as an offset. The Chinese central bank will maintain vigilance over money supply and bank credit growth. But it will allow non-bank sources of credit - through instruments such as wealth management products and trust loans - to continue to fund investments.
The central bank will likely maintain a neutral stance over the coming months, as long as inflation remains below its tolerance threshold of 3.5 per cent.
Over the coming months, economic data coming out from China will likely confirm a GDP growth momentum of around 8.5 per cent year-on-year and over 20 per cent expansion in fixed asset investment. At current prices, industrial metals have likely exaggerated the risk to China's growth.
A likely correction in the US dollar index, DXY, in the second quarter of this year will also help commodities, given the negative correlation between the two.
The writer is chief investment officer, Group Wealth Management and Private Bank, DBS Bank
Sunday, April 28, 2013
For free investing tips, just go online
Published on Apr 28, 2013
Plenty of useful data available to help stock punters make informed decisions
By Aaron Low Assistant Money Editor
Every other weekend, hotel ballrooms and conference rooms are filled to the brim with people attending seminars to learn about the latest trading strategies.
Many of the trainers advertise in newspapers and on the Internet promising guaranteed returns, or at least promising to triple your monthly income.
Other property investing seminars purport to give you "lobang" or special deals on launches here and overseas.
These do not come cheap. A weekend spent learning about technical analysis, or how to study price charts, can set an investor back by as much as $1,500 or more.
I have not attended such "investment workshops", and I don't intend to.
As far as I am concerned, the only guarantee they can offer is that your wallet will feel considerably lighter after the experience.
Why bother paying through the nose when there is a wealth of free information online?
Just look at a new study by Britain's Warwick University.
Like those of us who are always on the lookout for free lunches, the university wanted to know if the all-powerful, but free Google could be a modern-day oracle for the stock market.
And from an initial study, the results seem promising.
Warwick Business School Associate Professor Tobias Preis, University College London's computational social scientist, Dr Helen Susannah Moat, and Dr Eugene Stanley from Boston University studied 98 terms related to the financial markets.
These included "revenue", "unemployment" and "credit".
They wanted to see if changes in the frequency of such terms could act as an early warning indicator of changes in the stock market.
They demonstrated that trading on the basis of the number of queries on Google using the keyword "debt" could have brought in returns of up to 326 per cent.
That's right. By simply tracking the word debt and trading to whether it appears more or less frequently, you can boost your returns by three times.
The team said that the research supports the idea that drops in the financial market may be preceded by periods of investor concern.
This means that investors may search for more information about the market before they are prepared to sell at lower prices.
Conversely, the researchers found that falls in interest in financial topics could be used as a signal for subsequent stock market rises.
"Analysis of Google Trends data may offer a new perspective on the decision-making processes of market participants during periods of large market movements," said Dr Moat.
In other words, there is a lot of information out there, for free, that investors can use to make better decisions about stock markets.
Even if you don't have time to set up a complex model running on a computer server tracking such financial terms 24 hours a day, there are still thousands of sites that can tell you about market trends and signals.
If you want to learn about how to value companies, there are tonnes of resources about the various valuation methods, from the discounted cash flow models to the discounted dividend one, all free online.
Many brokerages offer their analyses of company results and performance for free.
And although they are not always accurate, such reports provide a benchmark for thinking behind how they value the company's shares.
Investment online forums are also an excellent way to get in touch with active investors.
Many forum posters offer their own take on companies and it is always useful to watch and read what they have to say about market trends and data.
Some forums also have specific themes, such as foreign exchange trading strategies.
Some of this may not be the best advice, or even good advice.
I once read on a local forum that trend lines on a price chart for a company showed that its stock price was about to shoot through the roof.
Three days later the company's share price actually fell by 20 per cent.
No, these forums are not, by any means, oracles. Many of them are probably false prophets.
But at least they don't cost a dime and don't promise investors things they probably can't deliver.
aaronl@sph.com.sg
Plenty of useful data available to help stock punters make informed decisions
By Aaron Low Assistant Money Editor
Every other weekend, hotel ballrooms and conference rooms are filled to the brim with people attending seminars to learn about the latest trading strategies.
Many of the trainers advertise in newspapers and on the Internet promising guaranteed returns, or at least promising to triple your monthly income.
Other property investing seminars purport to give you "lobang" or special deals on launches here and overseas.
These do not come cheap. A weekend spent learning about technical analysis, or how to study price charts, can set an investor back by as much as $1,500 or more.
I have not attended such "investment workshops", and I don't intend to.
As far as I am concerned, the only guarantee they can offer is that your wallet will feel considerably lighter after the experience.
Why bother paying through the nose when there is a wealth of free information online?
Just look at a new study by Britain's Warwick University.
Like those of us who are always on the lookout for free lunches, the university wanted to know if the all-powerful, but free Google could be a modern-day oracle for the stock market.
And from an initial study, the results seem promising.
Warwick Business School Associate Professor Tobias Preis, University College London's computational social scientist, Dr Helen Susannah Moat, and Dr Eugene Stanley from Boston University studied 98 terms related to the financial markets.
These included "revenue", "unemployment" and "credit".
They wanted to see if changes in the frequency of such terms could act as an early warning indicator of changes in the stock market.
They demonstrated that trading on the basis of the number of queries on Google using the keyword "debt" could have brought in returns of up to 326 per cent.
That's right. By simply tracking the word debt and trading to whether it appears more or less frequently, you can boost your returns by three times.
The team said that the research supports the idea that drops in the financial market may be preceded by periods of investor concern.
This means that investors may search for more information about the market before they are prepared to sell at lower prices.
Conversely, the researchers found that falls in interest in financial topics could be used as a signal for subsequent stock market rises.
"Analysis of Google Trends data may offer a new perspective on the decision-making processes of market participants during periods of large market movements," said Dr Moat.
In other words, there is a lot of information out there, for free, that investors can use to make better decisions about stock markets.
Even if you don't have time to set up a complex model running on a computer server tracking such financial terms 24 hours a day, there are still thousands of sites that can tell you about market trends and signals.
If you want to learn about how to value companies, there are tonnes of resources about the various valuation methods, from the discounted cash flow models to the discounted dividend one, all free online.
Many brokerages offer their analyses of company results and performance for free.
And although they are not always accurate, such reports provide a benchmark for thinking behind how they value the company's shares.
Investment online forums are also an excellent way to get in touch with active investors.
Many forum posters offer their own take on companies and it is always useful to watch and read what they have to say about market trends and data.
Some forums also have specific themes, such as foreign exchange trading strategies.
Some of this may not be the best advice, or even good advice.
I once read on a local forum that trend lines on a price chart for a company showed that its stock price was about to shoot through the roof.
Three days later the company's share price actually fell by 20 per cent.
No, these forums are not, by any means, oracles. Many of them are probably false prophets.
But at least they don't cost a dime and don't promise investors things they probably can't deliver.
aaronl@sph.com.sg
Friday, April 26, 2013
More U.S. investors spanning the globe for real estate
By Ilaina Jonas and David Randall
NEW YORK | Fri Apr 26, 2013 1:22am EDT
(Reuters) - U.S. investors are rediscovering their appetite for foreign real estate. Attracted by potentially higher returns, they are putting more money into overseas funds that invest in offices, malls and apartment complexes than they have in six years.
Investors moved $2.6 billion into mutual funds and exchange-traded funds that primarily invest in office buildings, hotels, and other commercial properties abroad during the first quarter of 2013. That is the largest inflow since 2007's record first quarter of $5.3 billion in new investments, according to Lipper, a Thomson Reuters company.
Direct ownership of foreign real estate by Americans is on the upswing. In 2012, U.S. institutional investors put $38.71 billion into commercial properties abroad, up from $32.8 billion a year earlier. But that's still down from the record of $100 billion in 2007, just before the credit crisis, according to real estate research company Real Capital Analytics.
Real estate returns have been enticing investors lately. The FTSE NAREIT All Equity REIT Index, a benchmark of U.S. real estate investment trusts (REITs), rose 19.7 percent in 2012, while the FTSE EPRA/NAREIT Developed ex-US Index, a benchmark of REITs and REIT-like companies from developed countries other than the United States rose 38.6 percent.
"Should (investors) be looking at non-U.S, non-core investment opportunities? Our answer is yes, absolutely," said Catherine Polleys, a partner at investment consulting firm Hewitt EnnisKnupp, a unit of Aon Plc, provider of risk management and human resources services.
New Jersey's pension fund recently invested $500 million in a new $4 billion real estate portfolio that Blackstone Group is raising for real estate investments in Asia. The $72.8 billion pension fund has targeted 5.5 percent investment to real estate. Of that, 14 percent is allocated to international property investments.
"The big plus is diversification of your portfolio, number one. Number two, we actually think there's better returns going forward," said Timothy Walsh, chief investment officer for New Jersey's public pension funds. Net operating income tends to be higher oversees, Walsh said, and rates on mezzanine financing are also higher than in the United States because of the perceived risk of foreign investment.
UNTESTED DIVERSIFIER
Commercial real estate provides diversification away from stocks and bonds, and boost income while reducing overall risk because it acts differently than stocks and bonds over time. From 2001 through 2012, direct investments in real estate - buildings and other assets owned by non-publicly traded companies - had a negative 0.17 correlation to bonds and a 0.23 positive correlation to stocks, according to David Lynn, author of "Emerging Market Real Estate Investment: Investing in China, India and Brazil".
In other words, these assets tend not to move in the same direction as other assets at the same time. If an investment is negative correlated to another, it tends to gain in value while the other falls. Investments that tend to move in perfect lock step have a correlation of 1.0.
Still, investing in foreign markets is a relatively new game for most U.S. investors, so there is insufficient data to reliably show whether there is correlation or not, experts say.
"The basic assumption and belief, which is still untested, is they won't be super highly correlated with stocks and bonds in other countries," said Joseph Gyourko, a professor at the University of Pennsylvania's Wharton School of Business who specializes in real estate. "It's going to be different than owning equities on the German stock exchange."
In the United States, there were 104 global real estate mutual funds by the 2012, up from 50 at the end of 2007, according to S&P Capital IQ, the research arm of Standard & Poor's. About 5.5 percent of 401(k) retirement plans now offer a global real estate fund in their lineup, a 30 percent increase since 2007, according to Brightscope, a San Diego based firm that rates company retirement plans.
Pension funds, meanwhile, plan to raise the portion of their real estate allocation devoted to foreign investments to 6.2 percent on average this year, up from 3.5 percent in 2012, according to a yearly survey of 80 such funds by the publication Institutional Real Estate Inc.
Mega-money manager Pacific Investment Management Co, based in Newport Beach, California is getting into the game. The firm, which manages $2 trillion in assets, recently said it is targeting direct commercial real estate investments and non-securitized loans in foreign markets.
Yield-hungry investors see foreign real estate as an alternative to bonds because leases provide a higher rate of predictable income. A REIT owning top-tier office buildings in Hong Kong and Shanghai, for example, could yield 6.8 percent a year, while the benchmark Barclays International Corporate bond index yields approximately 2.5 percent.
Investors may also benefit from rising real estate prices, especially in the emerging markets of Asia and Latin America. They also are betting that like distressed U.S. real estate, much of which suffered from being over-valued or over leveraged, distressed European property will also recover.
"That's one of the reasons it fits nicely into a portfolio. If you have a specific view on different countries or different regions, buying the real estate is more direct to the local economy of that country, than just stocks of companies that have a global revenue base," said Jeremy Schwartz, director of research for WisdomTree Investments, which opened its WisdomTree Global ex-US Real Estate Fund ETF in 2007.
To be sure, there are risks in taking a big bet on foreign real estate. Investors open themselves up currency fluctuations, and if they are too concentrated in particular markets - especially emerging markets - they could be exposed to big political and economic risks.
The volatility of investing in real estate securities abroad can produce outsized returns, it can also magnify losses. In 2008, the year when the financial crisis hit, the average global real estate fund fell 44 percent, while diversified U.S. equity mutual funds were down 38 percent, according to S&P Capital IQ.
For those doing property deals rather than investing through specific funds, there are other dangers. Having a trusted local partner who knows how a market works is essential, experts say.
"If you land a bunch of Americans and say just go out...they're going to get slaughtered by the local guys," said Hamid Moghadam, chairman and chief executive of Prologis Inc, which builds and owns warehouses and distributions centers.
Foreign REITs that own top-notch property in many parts of the world tend to be cheaper than those in the United States. For example, the 83 U.S. REITs that Green Street Advisors tracks trade at 14 percent premium to the underlying value of their real estate, while the 29 European REITs it tracks, including the UK, trade at a 7 percent premium.
REITs usually trade at premiums to the value of the real estate they own because investors are willing to pay for the liquidity that REITs offer, and because the value that many REIT management teams can create through acquisitions, developments, and superior operations, Jim Sullivan Green Street managing director said.
"While the economic headlines coming out of Europe are still dour, the public market is looking ahead and sees REITs as an attractive way to capitalize on improving commercial real estate conditions a couple of years out," Sullivan said.
On top of that, some foreign companies offer larger dividend yields than their U.S. counterparts without carrying much greater risk. For example, on April 23, Simon Property Group Inc, the No. 1 owner of U.S. malls had a 2.6 percent yield. Its France-based peer, Unibail-Rodamco SE had a yield of 4.4 percent, Green Street Advisors said.
That's one of the reasons why Morgan Roberts, a wealth adviser with Vermont-based Manchester Capital Management Inc, suggests his clients, who have an average of $20 million in assets, invest in foreign real estate. He sees foreign real estate providing greater returns than U.S. real estate, which is also relatively more expensive.
"The U.S., it's a little stretched right now," Roberts said adding that U.S. yields are 4 percent or lower and price-to-earnings ratios (P/E) are 15 or higher.
"Yet in international, you still see yields 5 (percent) or higher and P/Es 15 or lower," he said. He suggests investors allocate 20 percent of investments to a broad category of real estate, which includes timber, agricultural land, commercial property and their own residence. Within that, he'll often suggest up to 6 percent be in U.S. REITs and up to 6 percent in foreign REITs.
U.S. REITs tend to move more in the same direction as the stock market because, while they may own real estate, they are still publicly traded equities. From 2001 through 2012 REITs were correlated at negative 0.02 to bonds but positive 0.71 to stocks, Lynn found.
Consequently they have had limited appeal to defined contribution plans, said Winfield Evens, director of investment strategy for Aon Hewitt's outsourcing business.
Only 20 percent of 546 U.S. plans surveyed in Aon Hewitt's 2011 Trends & Experience in Defined Contribution Plans DC plan sponsors offer any type of REIT fund. When a REIT fund is available, just 2 percent of those in the plan use the option. Aon Hewitt does not break out figures for global real estate funds.
(Editing by Lauren Young, Beth Pinsker and Leslie Gevirtz)
Thursday, April 25, 2013
Central Banks Load Up on Equities
By Sarah Jones - Apr 25, 2013
Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.
In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.
“In the last year or so, I have spoken with 103 central banks on diversification,” Gary Smith, London-based global head of official institutions at BNP Paribas Investment Partners, which oversees about $649 billion, said in a phone interview. “If reserves are growing, so are diversification pressures. Equities are not for every bank tomorrow, but more are continuing down this path.”
Managers of banks’ assets are looking for alternatives to holding government bonds after efforts to stimulate growth from the Federal Reserve, the Bank of Japan and the Bank of England helped send yields near to record lows. Central banks’ foreign- exchange holdings have increased by about $8.5 trillion globally in the past decade, exceeding levels needed for day-to-day currency administration.
Currency Moves
Central banks typically hold assets such as government debt that can be sold easily if funds are needed to counter a move in their currency. The reliance on fixed-income securities at a time when bond yields are below inflation in many countries risks allowing to the value of reserves to decline.
While consumer prices are rising at a 1.5 percent annual rate in the U.S. and 1.7 percent in the euro area, the average yield to maturity of securities in Bank of America Merrill Lynch’s Global Broad Market Sovereign Plus Index fell to an all- time low of 1.34 percent on April 23, according to data compiled by Bloomberg.
The SNB allocated 82 percent of its 438 billion Swiss francs ($463 billion) in reserves to government bonds in the fourth quarter, according to data on its website. Of those securities, 78 percent had the top, AAA credit grade and 17 percent were rated AA.
More Risk
The survey of 60 central bankers, overseeing a combined $6.7 trillion, found that low bond returns had prompted almost half to take on more risk. Fourteen said they had already invested in equities or would do so within five years. Those conducting the annual poll had never before asked that question.
“I definitely see other central banks doing or considering equities,” said Jan Schmidt, the executive director of risk management at the Czech National Bank in Prague, which has built up stocks to 10 percent of its $44.4 billion in reserves since 2008. Even so, the risks of owning shares are the same as ever, he said in e-mailed comments.
Currency reserves among the world’s central banks climbed by $734 billion in 2012 to a record $10.9 trillion, according to data from the Washington-based International Monetary Fund. That’s about 20 percent of the $55 trillion market value of global stocks, data compiled by Bloomberg show.
Central banks’ purchases of shares show how the “hunger for yield” is changing the behavior of even the most conservative investors, according to Matthew Beesley, head of equities at Henderson Global Investors Holding Ltd. in London, which oversees about $100 billion.
‘Logical Move’
“Equities are the last asset class standing,” Beesley said in a phone interview on April 18. “When you have dividend yields in excess of bond yields, it’s a very logical move.”
Companies in the Standard & Poor’s 500 Index pay 2.2 percent of their combined share price as dividends, compared with the 1.69 percent yield on 10-year Treasuries, according to data compiled by Bloomberg.
The S&P 500 (SPX) closed at an all-time high of 1,593.37 on April 11 and is up 11 percent this year though April 23. Investors have earned 0.7 percent owning U.S. government debt repayable in one year or more, according to Bank of America Corp. bond indexes.
Stocks are also cheap compared with government bonds using a valuation method favored by former Fed Chairman Alan Greenspan that compares earnings with interest payments. Companies in the S&P 500 (SPX) generate profit equal to 6.4 percent of their share prices, about 4.7 percentage points more than yields on 10-year Treasuries, Bloomberg data show.
Beyond Pale
Even so, 70 percent of the central bankers in the survey indicated that equities are “beyond the pale.”
The growth in reserves has slowed as a strengthening dollar puts less pressure on policy makers to intervene by selling their currencies, data compiled by Bloomberg show. Central-bank assets grew by 1 percent last quarter, the smallest gain since the same period of 2012, as Taiwan’s reserves fell by more than $1 billion to $402 billion and Singapore’s dropped by a similar amount to $258 billion.
Some central banks, including the Fed in Washington and the Bank of England in London, have no mandate to buy stocks directly. The Fed has $42.6 billion in reserves and the Bank of England controls $65.1 billion, data compiled by Bloomberg show.
Other banks are deterred by price swings in equities that can be larger than for other securities. The MSCI All-Country World Index (MXWD) fell 3.3 percent in five days after rising to a 4 1/2-year high on April 11 and tumbled 11 percent in the five weeks through June 12 last year. The gauge of global stocks rose 0.6 percent at 8:33 a.m. in New York today.
SNB, Israel
Among central banks that are buying shares, the SNB has allocated about 12 percent of assets to passive funds tracking equity indexes. The Bank of Israel has spent about 3 percent of its $77 billion reserves on U.S. stocks.
In Asia, the BOJ announced plans to put more of its $1.2 trillion of reserves into exchange-traded funds this month as it doubled its stimulus program to help reflate the economy. The Bank of Korea began buying Chinese shares last year, increasing its equity investments to about $18.6 billion, or 5.7 percent of the total, up from 5.4 percent in 2011. China’s foreign-exchange regulator said in January it has sought “innovative use” of its $3.4 trillion in assets, the world’s biggest reserves, without specifying a strategy for investing in shares.
‘Pursue Yield’
“Central banks are looking at assets that I wouldn’t have necessarily expected in times gone by,” said Paul Price, London-based head of international distribution and client relations at Morgan Stanley Investment Management, which oversees about $338 billion. Low yields and “movement in the ratings around certain sovereigns is forcing central banks to rethink how they pursue yield and how equities are viewed in that context,” he said.
The yield on the benchmark 10-year U.S. Treasury reached a record low of 1.38 percent in July. The same month, German government rates of similar maturity declined to 1.13 percent. France’s 10-year yield retreated to 1.7 percent on April 23, the lowest level since Bloomberg began tracking the data in 1990.
“Government bonds remain a fundamental pillar of central- bank asset allocation, but there is scope to go into other asset classes to help provide a higher return,” said Massimiliano Castelli, head of strategy at UBS Asset Management’s global sovereign markets unit in London. “We are in a lot of discussions with several or so institutions who are considering such a step.” - bloomberg
Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.
In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.
“In the last year or so, I have spoken with 103 central banks on diversification,” Gary Smith, London-based global head of official institutions at BNP Paribas Investment Partners, which oversees about $649 billion, said in a phone interview. “If reserves are growing, so are diversification pressures. Equities are not for every bank tomorrow, but more are continuing down this path.”
Managers of banks’ assets are looking for alternatives to holding government bonds after efforts to stimulate growth from the Federal Reserve, the Bank of Japan and the Bank of England helped send yields near to record lows. Central banks’ foreign- exchange holdings have increased by about $8.5 trillion globally in the past decade, exceeding levels needed for day-to-day currency administration.
Currency Moves
Central banks typically hold assets such as government debt that can be sold easily if funds are needed to counter a move in their currency. The reliance on fixed-income securities at a time when bond yields are below inflation in many countries risks allowing to the value of reserves to decline.
While consumer prices are rising at a 1.5 percent annual rate in the U.S. and 1.7 percent in the euro area, the average yield to maturity of securities in Bank of America Merrill Lynch’s Global Broad Market Sovereign Plus Index fell to an all- time low of 1.34 percent on April 23, according to data compiled by Bloomberg.
The SNB allocated 82 percent of its 438 billion Swiss francs ($463 billion) in reserves to government bonds in the fourth quarter, according to data on its website. Of those securities, 78 percent had the top, AAA credit grade and 17 percent were rated AA.
More Risk
The survey of 60 central bankers, overseeing a combined $6.7 trillion, found that low bond returns had prompted almost half to take on more risk. Fourteen said they had already invested in equities or would do so within five years. Those conducting the annual poll had never before asked that question.
“I definitely see other central banks doing or considering equities,” said Jan Schmidt, the executive director of risk management at the Czech National Bank in Prague, which has built up stocks to 10 percent of its $44.4 billion in reserves since 2008. Even so, the risks of owning shares are the same as ever, he said in e-mailed comments.
Currency reserves among the world’s central banks climbed by $734 billion in 2012 to a record $10.9 trillion, according to data from the Washington-based International Monetary Fund. That’s about 20 percent of the $55 trillion market value of global stocks, data compiled by Bloomberg show.
Central banks’ purchases of shares show how the “hunger for yield” is changing the behavior of even the most conservative investors, according to Matthew Beesley, head of equities at Henderson Global Investors Holding Ltd. in London, which oversees about $100 billion.
‘Logical Move’
“Equities are the last asset class standing,” Beesley said in a phone interview on April 18. “When you have dividend yields in excess of bond yields, it’s a very logical move.”
Companies in the Standard & Poor’s 500 Index pay 2.2 percent of their combined share price as dividends, compared with the 1.69 percent yield on 10-year Treasuries, according to data compiled by Bloomberg.
The S&P 500 (SPX) closed at an all-time high of 1,593.37 on April 11 and is up 11 percent this year though April 23. Investors have earned 0.7 percent owning U.S. government debt repayable in one year or more, according to Bank of America Corp. bond indexes.
Stocks are also cheap compared with government bonds using a valuation method favored by former Fed Chairman Alan Greenspan that compares earnings with interest payments. Companies in the S&P 500 (SPX) generate profit equal to 6.4 percent of their share prices, about 4.7 percentage points more than yields on 10-year Treasuries, Bloomberg data show.
Beyond Pale
Even so, 70 percent of the central bankers in the survey indicated that equities are “beyond the pale.”
The growth in reserves has slowed as a strengthening dollar puts less pressure on policy makers to intervene by selling their currencies, data compiled by Bloomberg show. Central-bank assets grew by 1 percent last quarter, the smallest gain since the same period of 2012, as Taiwan’s reserves fell by more than $1 billion to $402 billion and Singapore’s dropped by a similar amount to $258 billion.
Some central banks, including the Fed in Washington and the Bank of England in London, have no mandate to buy stocks directly. The Fed has $42.6 billion in reserves and the Bank of England controls $65.1 billion, data compiled by Bloomberg show.
Other banks are deterred by price swings in equities that can be larger than for other securities. The MSCI All-Country World Index (MXWD) fell 3.3 percent in five days after rising to a 4 1/2-year high on April 11 and tumbled 11 percent in the five weeks through June 12 last year. The gauge of global stocks rose 0.6 percent at 8:33 a.m. in New York today.
SNB, Israel
Among central banks that are buying shares, the SNB has allocated about 12 percent of assets to passive funds tracking equity indexes. The Bank of Israel has spent about 3 percent of its $77 billion reserves on U.S. stocks.
In Asia, the BOJ announced plans to put more of its $1.2 trillion of reserves into exchange-traded funds this month as it doubled its stimulus program to help reflate the economy. The Bank of Korea began buying Chinese shares last year, increasing its equity investments to about $18.6 billion, or 5.7 percent of the total, up from 5.4 percent in 2011. China’s foreign-exchange regulator said in January it has sought “innovative use” of its $3.4 trillion in assets, the world’s biggest reserves, without specifying a strategy for investing in shares.
‘Pursue Yield’
“Central banks are looking at assets that I wouldn’t have necessarily expected in times gone by,” said Paul Price, London-based head of international distribution and client relations at Morgan Stanley Investment Management, which oversees about $338 billion. Low yields and “movement in the ratings around certain sovereigns is forcing central banks to rethink how they pursue yield and how equities are viewed in that context,” he said.
The yield on the benchmark 10-year U.S. Treasury reached a record low of 1.38 percent in July. The same month, German government rates of similar maturity declined to 1.13 percent. France’s 10-year yield retreated to 1.7 percent on April 23, the lowest level since Bloomberg began tracking the data in 1990.
“Government bonds remain a fundamental pillar of central- bank asset allocation, but there is scope to go into other asset classes to help provide a higher return,” said Massimiliano Castelli, head of strategy at UBS Asset Management’s global sovereign markets unit in London. “We are in a lot of discussions with several or so institutions who are considering such a step.” - bloomberg
Tuesday, April 23, 2013
Growing wealthy without bubbles
Published on Apr 23, 2013
Singapore has moved from being a society where people grow rich from working hard to get higher incomes, to one where people grow rich from accumulating assets that rise in value. Is this move from an income-driven to a wealth-driven society what Singapore wants?
By Tan Chin Hwee, For The Straits Times
NOT since its founding has Singapore gone through such significant structural and social change. The next few years will be critical as Singapore considers different types of growth models.
Until the mid-2000s, Singapore's economy operated like an income-driven community. It was focused on generating income to increase savings and investment.
A few years ago, however, it shifted to a wealth-consumption model where the focus of the community became one of consumption and increasing asset-based wealth. The 2010 opening of two integrated resorts and the inaugural F1 race in 2008 are the more visible outcomes of the pursuit of the wealth-consumption model.
Societies are never entirely one or the other, of course. But this theoretical distinction can put things in perspective as we ponder the long-term alternatives.
Sweat and toil
AN INCOME-DRIVEN economic community strives for maximum employment and steady income growth. For any aspiring family, hard work and high savings are seen as the key to prosperity.
While economic well-being is measured in terms of the goods and services consumed, consumption is a by-product of consistent production and income-generating activities.
Sustainable income-driven growth requires a country to be very focused on cost competitiveness. Policymakers are required to proactively clip the excesses of business and price cycles to ensure a full employment-sustaining environment. Economic value is derived from the manufacture and sale of goods and services that are highly price-competitive.
The biggest indicator of whether a society is pursuing an income-driven model of growth is its willingness to disappoint asset owners and the markets when the economy or markets begin to rise fast.
Asset owners love higher asset prices. So any policy suppressing asset price surges are branded as needlessly painful, anti-market or the result of excessive interference in the economy. Yet this is what is required to maintain lower costs and competitive prices. Lower costs and prices in turn enhance consumption, lead to longer growth cycles and more happiness and stability, even if people do not feel super-wealthy.
A great policy example was when the Government in 1996 introduced stringent and innovative rules to curb rapidly rising property prices. Many rued the lack of excitement in Singapore asset prices compared with the runaway spikes in unhindered markets like Hong Kong.
The rest - in the form of the Asian financial crisis - is history. Singapore avoided the worst that befell so many others.
But such vindications from policy choices are a rarity. Income-driven growth models in reality require a policy of going for reasonably high, positive real interest rates.
Higher interest rates compensate society by producing higher yields on savings and other economic activities, compared to the possible gains to be made from asset flipping and capital appreciation.
An income-driven society is effectively a society trying to accumulate prosperity brick by brick while avoiding the allure of the get-rich-quick approach.
The joy ride
UNLIKE the sweat and toil required to build up a foundation brick by brick, the ride to riches from asset flipping is exhilarating and fast. Buy the right asset - a property, a piece of land, a chunk of commodity stocks - and sit tight while the value appreciates.
The trouble, of course, is that such a wealth-driven goal can end in tears when an unsustainable short-term rise in asset prices suddenly reverses direction.
Take the case of a society where the prices of some widely owned assets - like stocks or property - begin to rise sharply but consistently over many years on account of justifiable factors. These could include changes in regulations or the lower cost of capital. The wealthy do not just ramp up consumption. They also feel "smarter", concluding that they had made the correct choices.
But there are side effects to these easy gains.
Society as a whole becomes reluctant to tighten policies designed to limit these wealth gains. Pundits extol the death of business cycles and the need for ever lower interest rates and income yields.
Most people struggle to make ends meet as prices rise. Aspirations and expenses rise with the notional rise in wealth levels. Meanwhile, savings fall. This is partly due to slower-rising incomes, but is also linked to inflation. People may also save less due to higher perceived wealth.
While savings decline, investments in assets rise. So does faith in soaring asset prices. Society turns increasingly to debt.
The effects of wealth inequality tend to be far larger than income inequality. While the going is good, these inequalities are fine. But they become a source of friction as the wealth gains slow and the population feels the gap between income and costs.
Those who do not acquire assets during this period of asset price appreciation will find themselves far behind in the economic stakes.
Many economies have become far more wealth-driven. As a result, the widening wealth gap cannot be ignored.
A new United States Urban Institute study shows that Americans under 40 have accrued less wealth than their parents did at the same age. And this has happened despite the fact that the average wealth of Americans has doubled over the last quarter-century.
Rising unhappiness, debt, cash flow difficulties and inequality alongside rising wealth may appear counter-intuitive, but these possibilities are built into the nature of such growth.
Weaning off wealth
AT WHAT point does asset accumulation become unhealthy for a society? Here are a few warning signs:
Low or negative real interest rates, even when the economy is doing well. This is the gap between interest rates on deposits or loans and general inflation.
Falling savings among median households during times of good economic growth.
Growing interest from non-residents in owning the country's assets rather than productive, income- or employment-generating businesses.
How can these effects be countered?
Belatedly jacking up interest rates would prove excruciatingly painful given high debt levels and tight cash flows.
A far better approach would be to find ways of stabilising asset prices. Policymakers must consider measures that apportion greater pain on those who are investing exclusively for financial gain.
A wealth tax on non-owner-occupied high value property would create the right precedent for the future while generating funds to ease the pain of the poor.
It is good to remember that GDP growth is not the only measure of success. The United Nations Human Development Index (HDI) takes account of other factors such as education, health and income. The most recent data shows that countries that have improved the most do not necessarily have the highest GDP growth.
In South Korea, per capita income rose by only 4.5 per cent between 1990 and last year.
But its standing on the HDI improved much faster than China's, where incomes grew by 9 per cent over the same period. By contrast, the US ranks 16th after adjusting for internal inequality.
Singapore faces a choice: to encourage a society built on rising incomes, or one built on rising wealth. To be sure, the two are not mutually exclusive. But it is vital for us as a society to know what kind of activity we want to encourage. This will ensure that policies are consistent in delivering the right message, and that, as a society, we understand and support these policies.
stopinion@sph.com.sg
The writer, a fund manager, is currently president of CFA Society Singapore, a society of Chartered Financial Analysts.
Singapore has moved from being a society where people grow rich from working hard to get higher incomes, to one where people grow rich from accumulating assets that rise in value. Is this move from an income-driven to a wealth-driven society what Singapore wants?
By Tan Chin Hwee, For The Straits Times
NOT since its founding has Singapore gone through such significant structural and social change. The next few years will be critical as Singapore considers different types of growth models.
Until the mid-2000s, Singapore's economy operated like an income-driven community. It was focused on generating income to increase savings and investment.
A few years ago, however, it shifted to a wealth-consumption model where the focus of the community became one of consumption and increasing asset-based wealth. The 2010 opening of two integrated resorts and the inaugural F1 race in 2008 are the more visible outcomes of the pursuit of the wealth-consumption model.
Societies are never entirely one or the other, of course. But this theoretical distinction can put things in perspective as we ponder the long-term alternatives.
Sweat and toil
AN INCOME-DRIVEN economic community strives for maximum employment and steady income growth. For any aspiring family, hard work and high savings are seen as the key to prosperity.
While economic well-being is measured in terms of the goods and services consumed, consumption is a by-product of consistent production and income-generating activities.
Sustainable income-driven growth requires a country to be very focused on cost competitiveness. Policymakers are required to proactively clip the excesses of business and price cycles to ensure a full employment-sustaining environment. Economic value is derived from the manufacture and sale of goods and services that are highly price-competitive.
The biggest indicator of whether a society is pursuing an income-driven model of growth is its willingness to disappoint asset owners and the markets when the economy or markets begin to rise fast.
Asset owners love higher asset prices. So any policy suppressing asset price surges are branded as needlessly painful, anti-market or the result of excessive interference in the economy. Yet this is what is required to maintain lower costs and competitive prices. Lower costs and prices in turn enhance consumption, lead to longer growth cycles and more happiness and stability, even if people do not feel super-wealthy.
A great policy example was when the Government in 1996 introduced stringent and innovative rules to curb rapidly rising property prices. Many rued the lack of excitement in Singapore asset prices compared with the runaway spikes in unhindered markets like Hong Kong.
The rest - in the form of the Asian financial crisis - is history. Singapore avoided the worst that befell so many others.
But such vindications from policy choices are a rarity. Income-driven growth models in reality require a policy of going for reasonably high, positive real interest rates.
Higher interest rates compensate society by producing higher yields on savings and other economic activities, compared to the possible gains to be made from asset flipping and capital appreciation.
An income-driven society is effectively a society trying to accumulate prosperity brick by brick while avoiding the allure of the get-rich-quick approach.
The joy ride
UNLIKE the sweat and toil required to build up a foundation brick by brick, the ride to riches from asset flipping is exhilarating and fast. Buy the right asset - a property, a piece of land, a chunk of commodity stocks - and sit tight while the value appreciates.
The trouble, of course, is that such a wealth-driven goal can end in tears when an unsustainable short-term rise in asset prices suddenly reverses direction.
Take the case of a society where the prices of some widely owned assets - like stocks or property - begin to rise sharply but consistently over many years on account of justifiable factors. These could include changes in regulations or the lower cost of capital. The wealthy do not just ramp up consumption. They also feel "smarter", concluding that they had made the correct choices.
But there are side effects to these easy gains.
Society as a whole becomes reluctant to tighten policies designed to limit these wealth gains. Pundits extol the death of business cycles and the need for ever lower interest rates and income yields.
Most people struggle to make ends meet as prices rise. Aspirations and expenses rise with the notional rise in wealth levels. Meanwhile, savings fall. This is partly due to slower-rising incomes, but is also linked to inflation. People may also save less due to higher perceived wealth.
While savings decline, investments in assets rise. So does faith in soaring asset prices. Society turns increasingly to debt.
The effects of wealth inequality tend to be far larger than income inequality. While the going is good, these inequalities are fine. But they become a source of friction as the wealth gains slow and the population feels the gap between income and costs.
Those who do not acquire assets during this period of asset price appreciation will find themselves far behind in the economic stakes.
Many economies have become far more wealth-driven. As a result, the widening wealth gap cannot be ignored.
A new United States Urban Institute study shows that Americans under 40 have accrued less wealth than their parents did at the same age. And this has happened despite the fact that the average wealth of Americans has doubled over the last quarter-century.
Rising unhappiness, debt, cash flow difficulties and inequality alongside rising wealth may appear counter-intuitive, but these possibilities are built into the nature of such growth.
Weaning off wealth
AT WHAT point does asset accumulation become unhealthy for a society? Here are a few warning signs:
Low or negative real interest rates, even when the economy is doing well. This is the gap between interest rates on deposits or loans and general inflation.
Falling savings among median households during times of good economic growth.
Growing interest from non-residents in owning the country's assets rather than productive, income- or employment-generating businesses.
How can these effects be countered?
Belatedly jacking up interest rates would prove excruciatingly painful given high debt levels and tight cash flows.
A far better approach would be to find ways of stabilising asset prices. Policymakers must consider measures that apportion greater pain on those who are investing exclusively for financial gain.
A wealth tax on non-owner-occupied high value property would create the right precedent for the future while generating funds to ease the pain of the poor.
It is good to remember that GDP growth is not the only measure of success. The United Nations Human Development Index (HDI) takes account of other factors such as education, health and income. The most recent data shows that countries that have improved the most do not necessarily have the highest GDP growth.
In South Korea, per capita income rose by only 4.5 per cent between 1990 and last year.
But its standing on the HDI improved much faster than China's, where incomes grew by 9 per cent over the same period. By contrast, the US ranks 16th after adjusting for internal inequality.
Singapore faces a choice: to encourage a society built on rising incomes, or one built on rising wealth. To be sure, the two are not mutually exclusive. But it is vital for us as a society to know what kind of activity we want to encourage. This will ensure that policies are consistent in delivering the right message, and that, as a society, we understand and support these policies.
stopinion@sph.com.sg
The writer, a fund manager, is currently president of CFA Society Singapore, a society of Chartered Financial Analysts.
Retirement: What's missing from your plan
Magdalen Ng
Tuesday, Apr 23, 2013
The Straits Times
Some folks who contemplate retirement make the mistake of thinking it's all about the money and nothing else.
Sure, financial planning for your golden years is vital. You want to continue living in much the same style to which you've become accustomed.
But there are other important issues that should not be overlooked.
For instance, it is crucial to write a will, and also to nominate who should receive your Central Provident Fund (CPF) savings when you die.
Both these steps prevent unnecessary hassle for others when the time comes.
It is also important to think about giving someone a lasting power of attorney in the event that you lose your mental capacity.
Also, even though you would have stopped working, your insurance policy needs to continue and becomes even more important with the loss of income.
Lastly, retirees tend to find themselves with a lot of time on their hands and uncertain about what to do with it. Or the lack of routine in their lives may leave them at a loss.
Many organisations, such as the Council for Third Age (C3A), run events and activities for seniors. C3A promotes active living, with a focus on life-long learning and promoting senior employability.
Here are some of the big issues that those facing retirement should address:
1. Insurance
Ms Joanne Yeo, head of product and funds development at AIA Singapore, says that it is never too late to start protecting yourself. "We recommend making this a priority, especially if you do not have any insurance," she says.
This ensures if you fall ill or anything unforeseen happens, your family will be financially prepared.
Mr Gerard Ee, chairman of C3A, says Medisave and MediShield are national health-care saving schemes designed to help Singaporeans with the burden of hospitalisation expenses and selected outpatient treatment.
He adds: "Seniors who would like additional and better coverage for better financial security should speak to financial consultants to understand their options, and get a family member's opinion when making an investment in insurance products."
Ms Cindy Huang, master financial consultant and wealth manager at Prudential Singapore, says that depending on each individual's needs, buying short-term term insurance may be more suitable than a long-term plan.
For those who already have insurance plans, it is also important to regularly review their insurance portfolio to ensure they are still relevant to their needs.
However, as you get older, the likelihood of poor health increases, which means premiums for protection plans are typically higher for those buying them at an older age.
And as an older person, you may also already have pre-existing health conditions. Depending on the type of coverage, insurers may either increase the premiums in exchange for full coverage or they may choose to exclude coverage on certain conditions.
An Aviva spokesman says: "Having some coverage is better than none at all. If you are reconsidering insurance because you feel the premiums quoted are too high, we urge you to consider how you might pay $5,000, $10,000 or even $50,000 in medical bills - and this can happen any time and recur at unpredictable frequencies.
"Ultimately, the cost of insurance premiums is far more manageable and predictable than unexpected expenses you would face in the event of hospitalisation, major illnesses or disability."
For those who are concerned about minor pre-existing conditions, Aviva Singapore offers moratorium underwriting, which means that no health declaration is required and certain pre-existing conditions will be covered after an absence of symptoms, treatments or medication for five years.
While certain conditions apply and not every pre-existing condition is eligible, this can still be beneficial for those with less serious pre-existing conditions trying to obtain full coverage.
2. Making a will
A will is a legal document where personal wishes are set out.
Prudential's Ms Huang says that writing a will is important as part of holistic planning.
She adds: "This ensures that your property and other personal possessions will be passed on to your loved ones in a manner of your wish or choice. It also provides one with peace of mind and reduces any undue worry, stress or arguments among the people you may have left behind."
There is a common myth that only a lawyer can help you write a will. Actually, anyone can do it and register it with the Insolvency and Public Trustee's Office.
The will should spell out the names of the people you entrust with the responsibility of taking charge of your assets and the proper distribution to the beneficiaries.
Those who do not have a will run the risk of their savings or estate not going to the people they would have wanted them to go to.
3. CPF nomination
However, monies in the CPF cannot be included in a will. To direct your CPF savings to the beneficiary of your choice, you will have to make a nomination.
If you do not do so, your money will be distributed to your family according to intestacy laws.
For example, if you leave a spouse and three children, half of your savings will go to your spouse, and the other half will be split equally among your children.
For singles who have not made any nomination, the money will be shared equally between their surviving parents.
Your CPF monies will go to the Government in the absence of a spouse, children, siblings, grandparents, an uncle or an aunt.
However, if you make a nomination, you can choose to leave everything to your spouse, or to your children, and even include your parents.
For Muslims, however, with no nomination made, CPF funds will be distributed differently, in accordance with the Inheritance Certificate, which can be obtained from the Syariah Court.
If Muslim CPF members make a nomination, the nominees are fully entitled to the savings bequeathed to them.
4 Lasting power of attorney
Unlike a will, which comes into effect only after you die, a lasting power of attorney (LPA) allows you to appoint a proxy decision-maker to act on your behalf if you lose mental capacity.
The LPA will be revoked upon death and the will, if made, will come into effect.
LPAs can be made to appoint proxy decision-makers for personal welfare matters, which include where you should live and day-to-day care decisions.
You can also appoint a decision-maker for property and affairs matters, which relate to decisions about property and insurance.
According to the Office of the Public Guardian, there are 3,200 applications to register LPAs as at January this year.
It costs $50 for Singaporeans and permanent residents to register a standard LPA. The standard LPA gives broad powers to your proxy decision-maker or donee. This form can be self-completed.
To register an LPA that allows you to specify restrictions and instructions on the powers of your appointed decision-maker will cost $200. You will also require the services of a lawyer to help you indicate your requirements.
C3A's Mr Ee says: "One can lose one's mental capacity at any time and at any age. The risk increases as one grows older. The LPA allows one to protect one's interests by indicating his personal, considered choice of a proxy decision-maker - someone he trusts to be reliable, competent and capable to act and make decisions on his behalf should he lose the mental capacity.
"The LPA can only be executed when one still has mental capacity to act. By planning ahead, it alleviates the stress and difficulties faced by their loved ones."
Similarly, Mr Richard Magnus, chairman of the Public Guardian Board, notes that Singaporeans have responded positively to the LPA as a planning instrument.
He says: "We also acknowledge that making an LPA is a personal choice, involving careful considerations in appointing someone they trust to decide and act on their behalf if they should lose their mental capacity."
songyuan@sph.com.sg
Link:
http://business.asiaone.com/news/retirement-whats-missing-your-plan
Tuesday, Apr 23, 2013
The Straits Times
Some folks who contemplate retirement make the mistake of thinking it's all about the money and nothing else.
Sure, financial planning for your golden years is vital. You want to continue living in much the same style to which you've become accustomed.
But there are other important issues that should not be overlooked.
For instance, it is crucial to write a will, and also to nominate who should receive your Central Provident Fund (CPF) savings when you die.
Both these steps prevent unnecessary hassle for others when the time comes.
It is also important to think about giving someone a lasting power of attorney in the event that you lose your mental capacity.
Also, even though you would have stopped working, your insurance policy needs to continue and becomes even more important with the loss of income.
Lastly, retirees tend to find themselves with a lot of time on their hands and uncertain about what to do with it. Or the lack of routine in their lives may leave them at a loss.
Many organisations, such as the Council for Third Age (C3A), run events and activities for seniors. C3A promotes active living, with a focus on life-long learning and promoting senior employability.
Here are some of the big issues that those facing retirement should address:
1. Insurance
Ms Joanne Yeo, head of product and funds development at AIA Singapore, says that it is never too late to start protecting yourself. "We recommend making this a priority, especially if you do not have any insurance," she says.
This ensures if you fall ill or anything unforeseen happens, your family will be financially prepared.
Mr Gerard Ee, chairman of C3A, says Medisave and MediShield are national health-care saving schemes designed to help Singaporeans with the burden of hospitalisation expenses and selected outpatient treatment.
He adds: "Seniors who would like additional and better coverage for better financial security should speak to financial consultants to understand their options, and get a family member's opinion when making an investment in insurance products."
Ms Cindy Huang, master financial consultant and wealth manager at Prudential Singapore, says that depending on each individual's needs, buying short-term term insurance may be more suitable than a long-term plan.
For those who already have insurance plans, it is also important to regularly review their insurance portfolio to ensure they are still relevant to their needs.
However, as you get older, the likelihood of poor health increases, which means premiums for protection plans are typically higher for those buying them at an older age.
And as an older person, you may also already have pre-existing health conditions. Depending on the type of coverage, insurers may either increase the premiums in exchange for full coverage or they may choose to exclude coverage on certain conditions.
An Aviva spokesman says: "Having some coverage is better than none at all. If you are reconsidering insurance because you feel the premiums quoted are too high, we urge you to consider how you might pay $5,000, $10,000 or even $50,000 in medical bills - and this can happen any time and recur at unpredictable frequencies.
"Ultimately, the cost of insurance premiums is far more manageable and predictable than unexpected expenses you would face in the event of hospitalisation, major illnesses or disability."
For those who are concerned about minor pre-existing conditions, Aviva Singapore offers moratorium underwriting, which means that no health declaration is required and certain pre-existing conditions will be covered after an absence of symptoms, treatments or medication for five years.
While certain conditions apply and not every pre-existing condition is eligible, this can still be beneficial for those with less serious pre-existing conditions trying to obtain full coverage.
2. Making a will
A will is a legal document where personal wishes are set out.
Prudential's Ms Huang says that writing a will is important as part of holistic planning.
She adds: "This ensures that your property and other personal possessions will be passed on to your loved ones in a manner of your wish or choice. It also provides one with peace of mind and reduces any undue worry, stress or arguments among the people you may have left behind."
There is a common myth that only a lawyer can help you write a will. Actually, anyone can do it and register it with the Insolvency and Public Trustee's Office.
The will should spell out the names of the people you entrust with the responsibility of taking charge of your assets and the proper distribution to the beneficiaries.
Those who do not have a will run the risk of their savings or estate not going to the people they would have wanted them to go to.
3. CPF nomination
However, monies in the CPF cannot be included in a will. To direct your CPF savings to the beneficiary of your choice, you will have to make a nomination.
If you do not do so, your money will be distributed to your family according to intestacy laws.
For example, if you leave a spouse and three children, half of your savings will go to your spouse, and the other half will be split equally among your children.
For singles who have not made any nomination, the money will be shared equally between their surviving parents.
Your CPF monies will go to the Government in the absence of a spouse, children, siblings, grandparents, an uncle or an aunt.
However, if you make a nomination, you can choose to leave everything to your spouse, or to your children, and even include your parents.
For Muslims, however, with no nomination made, CPF funds will be distributed differently, in accordance with the Inheritance Certificate, which can be obtained from the Syariah Court.
If Muslim CPF members make a nomination, the nominees are fully entitled to the savings bequeathed to them.
4 Lasting power of attorney
Unlike a will, which comes into effect only after you die, a lasting power of attorney (LPA) allows you to appoint a proxy decision-maker to act on your behalf if you lose mental capacity.
The LPA will be revoked upon death and the will, if made, will come into effect.
LPAs can be made to appoint proxy decision-makers for personal welfare matters, which include where you should live and day-to-day care decisions.
You can also appoint a decision-maker for property and affairs matters, which relate to decisions about property and insurance.
According to the Office of the Public Guardian, there are 3,200 applications to register LPAs as at January this year.
It costs $50 for Singaporeans and permanent residents to register a standard LPA. The standard LPA gives broad powers to your proxy decision-maker or donee. This form can be self-completed.
To register an LPA that allows you to specify restrictions and instructions on the powers of your appointed decision-maker will cost $200. You will also require the services of a lawyer to help you indicate your requirements.
C3A's Mr Ee says: "One can lose one's mental capacity at any time and at any age. The risk increases as one grows older. The LPA allows one to protect one's interests by indicating his personal, considered choice of a proxy decision-maker - someone he trusts to be reliable, competent and capable to act and make decisions on his behalf should he lose the mental capacity.
"The LPA can only be executed when one still has mental capacity to act. By planning ahead, it alleviates the stress and difficulties faced by their loved ones."
Similarly, Mr Richard Magnus, chairman of the Public Guardian Board, notes that Singaporeans have responded positively to the LPA as a planning instrument.
He says: "We also acknowledge that making an LPA is a personal choice, involving careful considerations in appointing someone they trust to decide and act on their behalf if they should lose their mental capacity."
songyuan@sph.com.sg
Link:
http://business.asiaone.com/news/retirement-whats-missing-your-plan
Sunday, April 21, 2013
What's missing from your plan?
Published on Apr 21, 2013
Retirement
To-do list: Make a will, get insured, appoint proxy decision-maker, name CPF beneficiaries
By Magdalen Ng
Some folks who contemplate retirement make the mistake of thinking it's all about the money and nothing else.
Sure, financial planning for your golden years is vital. You want to continue living in much the same style to which you've become accustomed.
But there are other important issues that should not be overlooked.
For instance, it is crucial to write a will, and also to nominate who should receive your Central Provident Fund (CPF) savings when you die.
Both these steps prevent unnecessary hassle for others when the time comes.
It is also important to think about giving someone a lasting power of attorney in the event that you lose your mental capacity.
Also, even though you would have stopped working, your insurance policy needs to continue and becomes even more important with the loss of income.
Lastly, retirees tend to find themselves with a lot of time on their hands and uncertain about what to do with it. Or the lack of routine in their lives may leave them at a loss.
Many organisations, such as the Council for Third Age (C3A), run events and activities for seniors. C3A promotes active living, with a focus on life-long learning and promoting senior employability.
Here are some of the big issues that those facing retirement should address:
Just saving money is not enough
1 Insurance
Ms Joanne Yeo, head of product and funds development at AIA Singapore, says that it is never too late to start protecting yourself.
"We recommend making this a priority, especially if you do not have any insurance," she says. This ensures if you fall ill or anything unforeseen happens, your family will be financially prepared.
Mr Gerard Ee, chairman of C3A, says Medisave and MediShield are national health-care saving schemes designed to help Singaporeans with the burden of hospitalisation expenses and selected outpatient treatment.
He adds: "Seniors who would like additional and better coverage for better financial security should speak to financial consultants to understand their options, and get a family member's opinion when making an investment in insurance products."
Ms Cindy Huang, master financial consultant and wealth manager at Prudential Singapore, says that depending on each individual's needs, buying short-term term insurance may be more suitable than a long-term plan.
For those who already have insurance plans, it is also important to regularly review their insurance portfolio to ensure they are still relevant to their needs.
However, as you get older, the likelihood of poor health increases, which means premiums for protection plans are typically higher for those buying them at an older age.
And as an older person, you may also already have pre-existing health conditions. Depending on the type of coverage, insurers may either increase the premiums in exchange for full coverage or they may choose to exclude coverage on certain conditions.
An Aviva spokesman says: "Having some coverage is better than none at all. If you are reconsidering insurance because you feel the premiums quoted are too high, we urge you to consider how you might pay $5,000, $10,000 or even $50,000 in medical bills - and this can happen any time and recur at unpredictable frequencies.
"Ultimately, the cost of insurance premiums is far more manageable and predictable than unexpected expenses you would face in the event of hospitalisation, major illnesses or disability."
For those who are concerned about minor pre-existing conditions, Aviva Singapore offers moratorium underwriting, which means that no health declaration is required and certain pre-existing conditions will be covered after an absence of symptoms, treatments or medication for five years.
While certain conditions apply and not every pre-existing condition is eligible, this can still be beneficial for those with less serious pre-existing conditions trying to obtain full coverage.
2 Making a will
A will is a legal document where personal wishes are set out.
Prudential's Ms Huang says that writing a will is important as part of holistic planning.
She adds: "This ensures that your property and other personal possessions will be passed on to your loved ones in a manner of your wish or choice. It also provides one with peace of mind and reduces any undue worry, stress or arguments among the people you may have left behind."
There is a common myth that only a lawyer can help you write a will. Actually, anyone can do it and register it with the Insolvency and Public Trustee's Office.
The will should spell out the names of the people you entrust with the responsibility of taking charge of your assets and the proper distribution to the beneficiaries.
Those who do not have a will run the risk of their savings or estate not going to the people they would have wanted them to go to.
3 CPF nomination
However, monies in the CPF cannot be included in a will. To direct your CPF savings to the beneficiary of your choice, you will have to make a nomination.
If you do not do so, your money will be distributed to your family according to intestacy laws.
For example, if you leave a spouse and three children, half of your savings will go to your spouse, and the other half will be split equally among your children.
For singles who have not made any nomination, the money will be shared equally between their surviving parents.
Your CPF monies will go to the Government in the absence of a spouse, children, siblings, grandparents, an uncle or an aunt.
However, if you make a nomination, you can choose to leave everything to your spouse, or to your children, and even include your parents.
For Muslims, however, with no nomination made, CPF funds will be distributed differently, in accordance with the Inheritance Certificate, which can be obtained from the Syariah Court.
If Muslim CPF members make a nomination, the nominees are fully entitled to the savings bequeathed to them.
4 Lasting power of attorney
Unlike a will, which comes into effect only after you die, a lasting power of attorney (LPA) allows you to appoint a proxy decision-maker to act on your behalf if you lose mental capacity. The LPA will be revoked upon death and the will, if made, will come into effect.
LPAs can be made to appoint proxy decision-makers for personal welfare matters, which include where you should live and day-to-day care decisions. You can also appoint a decision-maker for property and affairs matters, which relate to decisions about property and insurance.
According to the Office of the Public Guardian, there are 3,200 applications to register LPAs as at January this year.
It costs $50 for Singaporeans and permanent residents to register a standard LPA. The standard LPA gives broad powers to your proxy decision-maker or donee. This form can be self-completed.
To register an LPA that allows you to specify restrictions and instructions on the powers of your appointed decision-maker will cost $200. You will also require the services of a lawyer to help you indicate your requirements.
C3A's Mr Ee says: "One can lose one's mental capacity at any time and at any age. The risk increases as one grows older. The LPA allows one to protect one's interests by indicating his personal, considered choice of a proxy decision-maker - someone he trusts to be reliable, competent and capable to act and make decisions on his behalf should he lose the mental capacity.
"The LPA can only be executed when one still has mental capacity to act. By planning ahead, it alleviates the stress and difficulties faced by their loved ones."
Similarly, Mr Richard Magnus, chairman of the Public Guardian Board, notes that Singaporeans have responded positively to the LPA as a planning instrument.
He says: "We also acknowledge that making an LPA is a personal choice, involving careful considerations in appointing someone they trust to decide and act on their behalf if they should lose their mental capacity."
songyuan@sph.com.sg
Retirement
To-do list: Make a will, get insured, appoint proxy decision-maker, name CPF beneficiaries
By Magdalen Ng
Some folks who contemplate retirement make the mistake of thinking it's all about the money and nothing else.
Sure, financial planning for your golden years is vital. You want to continue living in much the same style to which you've become accustomed.
But there are other important issues that should not be overlooked.
For instance, it is crucial to write a will, and also to nominate who should receive your Central Provident Fund (CPF) savings when you die.
Both these steps prevent unnecessary hassle for others when the time comes.
It is also important to think about giving someone a lasting power of attorney in the event that you lose your mental capacity.
Also, even though you would have stopped working, your insurance policy needs to continue and becomes even more important with the loss of income.
Lastly, retirees tend to find themselves with a lot of time on their hands and uncertain about what to do with it. Or the lack of routine in their lives may leave them at a loss.
Many organisations, such as the Council for Third Age (C3A), run events and activities for seniors. C3A promotes active living, with a focus on life-long learning and promoting senior employability.
Here are some of the big issues that those facing retirement should address:
Just saving money is not enough
1 Insurance
Ms Joanne Yeo, head of product and funds development at AIA Singapore, says that it is never too late to start protecting yourself.
"We recommend making this a priority, especially if you do not have any insurance," she says. This ensures if you fall ill or anything unforeseen happens, your family will be financially prepared.
Mr Gerard Ee, chairman of C3A, says Medisave and MediShield are national health-care saving schemes designed to help Singaporeans with the burden of hospitalisation expenses and selected outpatient treatment.
He adds: "Seniors who would like additional and better coverage for better financial security should speak to financial consultants to understand their options, and get a family member's opinion when making an investment in insurance products."
Ms Cindy Huang, master financial consultant and wealth manager at Prudential Singapore, says that depending on each individual's needs, buying short-term term insurance may be more suitable than a long-term plan.
For those who already have insurance plans, it is also important to regularly review their insurance portfolio to ensure they are still relevant to their needs.
However, as you get older, the likelihood of poor health increases, which means premiums for protection plans are typically higher for those buying them at an older age.
And as an older person, you may also already have pre-existing health conditions. Depending on the type of coverage, insurers may either increase the premiums in exchange for full coverage or they may choose to exclude coverage on certain conditions.
An Aviva spokesman says: "Having some coverage is better than none at all. If you are reconsidering insurance because you feel the premiums quoted are too high, we urge you to consider how you might pay $5,000, $10,000 or even $50,000 in medical bills - and this can happen any time and recur at unpredictable frequencies.
"Ultimately, the cost of insurance premiums is far more manageable and predictable than unexpected expenses you would face in the event of hospitalisation, major illnesses or disability."
For those who are concerned about minor pre-existing conditions, Aviva Singapore offers moratorium underwriting, which means that no health declaration is required and certain pre-existing conditions will be covered after an absence of symptoms, treatments or medication for five years.
While certain conditions apply and not every pre-existing condition is eligible, this can still be beneficial for those with less serious pre-existing conditions trying to obtain full coverage.
2 Making a will
A will is a legal document where personal wishes are set out.
Prudential's Ms Huang says that writing a will is important as part of holistic planning.
She adds: "This ensures that your property and other personal possessions will be passed on to your loved ones in a manner of your wish or choice. It also provides one with peace of mind and reduces any undue worry, stress or arguments among the people you may have left behind."
There is a common myth that only a lawyer can help you write a will. Actually, anyone can do it and register it with the Insolvency and Public Trustee's Office.
The will should spell out the names of the people you entrust with the responsibility of taking charge of your assets and the proper distribution to the beneficiaries.
Those who do not have a will run the risk of their savings or estate not going to the people they would have wanted them to go to.
3 CPF nomination
However, monies in the CPF cannot be included in a will. To direct your CPF savings to the beneficiary of your choice, you will have to make a nomination.
If you do not do so, your money will be distributed to your family according to intestacy laws.
For example, if you leave a spouse and three children, half of your savings will go to your spouse, and the other half will be split equally among your children.
For singles who have not made any nomination, the money will be shared equally between their surviving parents.
Your CPF monies will go to the Government in the absence of a spouse, children, siblings, grandparents, an uncle or an aunt.
However, if you make a nomination, you can choose to leave everything to your spouse, or to your children, and even include your parents.
For Muslims, however, with no nomination made, CPF funds will be distributed differently, in accordance with the Inheritance Certificate, which can be obtained from the Syariah Court.
If Muslim CPF members make a nomination, the nominees are fully entitled to the savings bequeathed to them.
4 Lasting power of attorney
Unlike a will, which comes into effect only after you die, a lasting power of attorney (LPA) allows you to appoint a proxy decision-maker to act on your behalf if you lose mental capacity. The LPA will be revoked upon death and the will, if made, will come into effect.
LPAs can be made to appoint proxy decision-makers for personal welfare matters, which include where you should live and day-to-day care decisions. You can also appoint a decision-maker for property and affairs matters, which relate to decisions about property and insurance.
According to the Office of the Public Guardian, there are 3,200 applications to register LPAs as at January this year.
It costs $50 for Singaporeans and permanent residents to register a standard LPA. The standard LPA gives broad powers to your proxy decision-maker or donee. This form can be self-completed.
To register an LPA that allows you to specify restrictions and instructions on the powers of your appointed decision-maker will cost $200. You will also require the services of a lawyer to help you indicate your requirements.
C3A's Mr Ee says: "One can lose one's mental capacity at any time and at any age. The risk increases as one grows older. The LPA allows one to protect one's interests by indicating his personal, considered choice of a proxy decision-maker - someone he trusts to be reliable, competent and capable to act and make decisions on his behalf should he lose the mental capacity.
"The LPA can only be executed when one still has mental capacity to act. By planning ahead, it alleviates the stress and difficulties faced by their loved ones."
Similarly, Mr Richard Magnus, chairman of the Public Guardian Board, notes that Singaporeans have responded positively to the LPA as a planning instrument.
He says: "We also acknowledge that making an LPA is a personal choice, involving careful considerations in appointing someone they trust to decide and act on their behalf if they should lose their mental capacity."
songyuan@sph.com.sg
Saturday, April 20, 2013
Invest sensibly amid all the noise
Knowing oneself, long-term horizons, diversification and avoiding free lunch promotions are some of the key rules to observe if investors want to be in good monetary health
20 Apr 2013 10:34 by BY SHANE OLIVER AMP CAPITAL INVESTORS
TURN DOWN THE NOISE The key is to recognise that getting some view right is not what it's about. Don't get hung up on extreme views about where markets are going. - PHOTO: AP
THE last five years have been difficult for investors. The global financial crisis and its aftermath of private-sector deleveraging, public-sector debt problems and household, business and investor caution have led to poor and volatile returns from shares.
Just like The Rolling Stones single last year All I hear is doom and gloom, it seems we are constantly on edge with prognostications of doom getting constant replay with every twitch in markets. Methods of investing that seemed to work well for years have seemingly broken down, or at least many have lost faith in them.
So what should investors do? The following is a list of things that are critical for investors to know and do. Obviously when it comes to investing everything is debatable to some degree, but I hope you find this list to be of value.
There are four key things to bear in mind about investment markets.
1. There is always a cycle. The historical experience of investment markets - be they bonds, shares, property, infrastructure, whatever - constantly reminds us they go through cyclical phases of good times and bad. Some are short term, such as those that relate to the three- to five-year business cycle.
Some are longer, such as the secular swings seen over 10- to 20-year periods in shares. But all eventually contain the seeds of their own reversal. Ultimately, there is no such thing as new eras, new paradigms and new normals.
Such jingles - as wheeled out through the tech boom and more recently through the post-GFC gloom - make good marketing spin. But markets tell us there is nothing new under the sun.
In fact, when someone tells you about a new whatever, it's probably already run its course.
2. It's a mad, mad, mad world. It's well known that investment markets are prone to bouts of irrationality which take them well away from levels that may be justified on a long-term basis.
This is rooted in investor psychology, which is far from rational and flows from a range of behavioural biases investors suffer from. These include the tendency to overreact to the current state of the world, the tendency to look for evidence that confirms your views, overconfidence (particularly among males!), an erroneous feeling of safety in numbers and a lower tolerance for losses than gains.
While shifts in fundamentals may be at the core of cyclical swings in markets, they are usually magnified by investor psychology if enough people suffer from the same irrational biases at the same time.
This in turn creates opportunities for investors who can take a longer-term approach and look through extremes of market madness either on the upside or the downside.
3. Starting point valuations matter, a lot. It stands to reason that the cheaper you buy an asset the higher its prospective return will be and vice versa.
Good guides to this are price/earnings ratios (the lower the better) and yields, ie the ratio of dividends, rents or interest payments to the value of the asset (the higher the better).
But while this seems obvious, the reality is that many find it easier to buy after shares have had a strong run because confidence is high, and sell when they have had a strong fall because confidence is low.
4. Remember the power of compound interest. Although the average annual return on Australian shares (11.9 per cent per annum) is just double that on Australian bonds (6 per cent per annum) over the last 113 years, $1 invested in bonds in 1900 would today be worth $704 whereas $1 invested in shares would now be worth $350,356. Yes, there were lots of rough periods along the way for shares just like the last few years (eg the 1930s, 1970s, 1987-96), but the impact of compounding at a higher long-term return is huge over long periods of time.
What should investors do?
So given these market realities what should investors do.
•Know yourself. Now I know we all like to think that everyone is mad except you and me, but the reality is that we all suffer from the psychological weaknesses referred to earlier. But smart investors have an awareness of their weaknesses and seek to manage them. One way to do this is to take a long-term approach to investing.
But this is also about knowing what you want to do. If you want to take a day-to-day role in managing your investments, then regular trading and/or a self-managed super fund (SMSF) may work, but you need to recognise that investing is not easy.
If you are going to trade or run your own investments with, for example, an SMSF, then recognise that this requires a lot of effort to get right and will need a rigorous process.
If you don't have the time and would rather do other things like sailing, working at your day job, or having fun with the kids, then it may be best to use managed funds
•Seek advice. Flowing on from the last point, given the psychological traps we fall into as investors and the fact that it is not easy, a good approach is to simply seek the advice of a coach such as a financial adviser, in much the same way you might use a specialist to look after other aspects of your life like fixing the plumbing, your medical needs or helping you get fit. Even I've got one.
•Invest for the long term. In the 1970s, a US investment professional named Charles Ellis observed that for most of us investing is a loser's game. A loser's game is a game where bad play by the loser determines the victor.
Amateur tennis is an example, where the trick is to avoid stupid mistakes and thereby win by not losing. The best way to avoid losing at investments is to invest for the long term. Get a long-term plan that suits your level of wealth, age, tolerance of volatility, etc, and stick to it.
This may involve a high exposure to shares and property when you are young or a focus on funds targeting a particular return outcome or level of cash flows when you are close to or in retirement.
•Diversify. This is another no brainer. Don't put all your eggs in one basket as the old saying goes. But plenty do. It seems that common approaches in SMSF funds are to have one or two high-yielding and popular shares and a term deposit.
This could potentially leave an investor very exposed to either a very low return or to a scenario when something goes wrong in the high-yield share they are invested in.
•Turn down the noise. Once you have worked out a strategy that is right for you, it's important to turn down the noise on the information flow surrounding investment markets.
The past couple of decades have seen an explosion in the volume and ease of access to information surrounding economies, investment markets and individual investments.
This is great in a way. But there is little evidence that it's helping investors make better decisions and hence earn better returns. We seem to lurch from worrying about one crisis to another.
Just think about this year: already we have seen a long list of worries starting with the US fiscal cliff, then worries that the Fed may exit monetary easing too early, then the Italian election, the US budget sequester, Cyprus, bird flu, North Korea, China, etc.
In fact, the combination of too much information has turned investing into a daily soap opera - as we lurch from worrying about one thing to another. You'd be better off turning the financial soap opera off and watching
Days of Our Lives or Home and Away!
•Avoid short-termism. Flowing from the last point, the ease with which information on returns can be accessed is likely to reinforce ever shorter investment horizons. An end result of taking a shorter investment horizon is an ever higher allocation to perceived safe assets, such as bonds and cash/term deposits.
This may have been fine through the GFC and its aftermath, but will ultimately mean locking into ever lower returns given the low yields now prevailing for bonds and bank deposits. Well, you might say, at least I won't lose money on term deposits. But the point is that low-yielding deposits will lock in low returns, making it hard to meet long-term financial goals.
•Focus on investments offering sustainable cash flow. This is very important. There have been lots of investments over the decades that have been sold on promises of high returns or low risk but were underpinned by hope based on hot air (eg, many dotcom stocks in the 1990s, resources stocks periodically) or financial alchemy where rubbish was supposedly turned into AAA yield generators (the sub-prime CDOs of last decade).
But the key is that if it looks dodgy, hard to understand or has to be based on obscure valuation measures to stack up, then it's best to stay away. By contrast, assets that generate sustainable cash flows (profits, rents, interest payments) and don't rely on excessive gearing or financial engineering are more likely to deliver.
•Recognise there is no free lunch. Related to the last point, if an investment looks too good to be true in terms of the return and/or riskiness on offer, then it probably is.
•Buy low, sell high. If you do have to trade or move your investments around, then remember to buy when markets are down and sell when they are up. This seems like a no-brainer, but most people do the opposite.
There's an old saying in investment markets: "flows follow returns"! In other words, inflows are strongest after periods of strong returns and outflows are strongest after weak returns. It should be the other way around.
•Don't fret about the small stuff. It's easy to spend lots of time worrying about an individual share investment or whether to use this fund manager over that one.
But the reality is that the key driver of your return is the assets (shares, bonds, cash, property, infrastructure, listed/unlisted, onshore/offshore, hedged/unhedged) that you are exposed to. In other words, asset allocation is paramount and it's very hard to avoid this.
•Don't over rely on expert forecasts. The well-known economist J.K. Galbraith once observed that there are two types of economists - "those who don't know and those who know they don't know".
While that may be a bit harsh - I would say that being an economist - the reality is that point forecasts as to where the share market will be at a particular time or as to its short-term return have a dismal track record.
Hence all the bad jokes about economists! Good experts will help illuminate and point you in the right direction, but this is what they should be used for.
•Recognise the aim is to make money, not to be right. Many investors miss this. Lots of people have lost money doggedly following some assessment that they were sure would be right.
But the key is to recognise that getting some view right is not what it's about. What it's about is making money. Don't get hung up on extreme views about where markets are going.
•Beware the crowd at extremes. For periods of time the crowd can be right and safety in numbers provides a degree of comfort.
However, at extremes the crowd is invariably wrong. Whether it's lemmings running off a cliff, or investors piling into Japanese shares at the end of the 1980s, Asian shares into the mid-1990s, IT stocks in the late 1990s, US housing and dodgy credit in the mid 2000s.
The problem with crowds is that eventually everyone who wants to buy will do so and then the only way is down (and vice-versa during crowd panics). As Warren Buffet once said, the key is to "be fearful when others are greedy and greedy when others are fearful".
•Finally, if you have the right long-term strategy, never despair. Things normally turn out ok eventually. Fortunes are invariably made out of tough times.
•The writer is head of investment strategy and chief economist, AMP Capital Investors
'Gold is insurance, not an investment'
Published April 20, 2013
Gold is insurance, not an investment
Mauldin says if prices go down, he gets to buy more of the metal
By cai haoxiang
One reason investors hold gold is to have a store of value in case people lose faith in printed money due to rampant inflation. - PHOTO: REUTERS
JOHN Mauldin buys some gold coins every month as "central bank insurance", and gold comprises about 5 to 10 per cent of his assets, he said.
If prices go down, that just means he gets to buy more, he said, in response to a question about gold's sudden price plunge in the past week.
"I never intend to sell my gold. Gold's not an investment, gold is central bank insurance. I have health insurance, I never want to use my health insurance. . . At the end of the day I hope that gold goes back to US$200 (an ounce). I hope that my gold becomes worthless," he said.
"And 100 years from now I give to my great grandkids and they say, papa John, why did you go buy gold coins? And I can just say well I was silly back then, we always grew worried about our central banks. But I buy today because I don't trust them. And I don't think I will ever need that gold but just in case."
Gold is insurance, not an investment
Mauldin says if prices go down, he gets to buy more of the metal
By cai haoxiang
One reason investors hold gold is to have a store of value in case people lose faith in printed money due to rampant inflation. - PHOTO: REUTERS
JOHN Mauldin buys some gold coins every month as "central bank insurance", and gold comprises about 5 to 10 per cent of his assets, he said.
If prices go down, that just means he gets to buy more, he said, in response to a question about gold's sudden price plunge in the past week.
"I never intend to sell my gold. Gold's not an investment, gold is central bank insurance. I have health insurance, I never want to use my health insurance. . . At the end of the day I hope that gold goes back to US$200 (an ounce). I hope that my gold becomes worthless," he said.
"And 100 years from now I give to my great grandkids and they say, papa John, why did you go buy gold coins? And I can just say well I was silly back then, we always grew worried about our central banks. But I buy today because I don't trust them. And I don't think I will ever need that gold but just in case."
Tuesday, April 16, 2013
Gold has worst two-day loss in 30 years
16 Apr 2013
NEW YORK — Investors yesterday dumped commodities and stocks in a broad sell-off that gave gold its worst two-day loss in 30 years after weak demand figures from China fanned concerns the world economy is stumbling.
Gold dragged other metals lower as its price plunged to a more than two-year low, while on Wall Street, stocks dropped more than 2 per cent for the S&P 500’s worst day since Nov 7. Spot gold dropped as much as 9 per cent yesterday alone, falling as low as US$1,336.04 an ounce.
In the last two sessions, gold has fallen over 13 per cent, for the worst two days since late February 1983. Gold was recently at US$1,346.26.
Strategists have cited various reasons for gold’s slump, including plans by Cyprus to sell excess gold reserves and feared selling from other central banks. The already sharp correction has caused short-term investors to flee the asset — the SPDR Gold Trust hit its highest daily volume with 92.44 million shares traded, while the ETF lost 8.8 per cent.
China’s recovery unexpectedly stumbled in the first three months of the year, as it reported its annual growth rate eased to 7.7 per cent from 7.9 per cent in the final quarter of last year. Economists had forecast 8 per cent growth.
Industrial output in China last month also undershot expectations and added to investor sensitivity after recent disappointing economic data out of the US.
Mr Nic Brown, head of commodities research at Natixis in London, said: “China makes up 40 per cent of demand for base metals and all the growth in demand for oil is coming from the developing world. So to see weakness in China is bad for commodities, generally.” REUTERS
Monday, April 15, 2013
A fundamental look at value
The Business Times
Cai Haoxiang
15/4/2013
HOW do you judge whether a stock is a good buy? Newbie investors usually come across two schools of thought: technical analysis and fundamental analysis. Technical analysis tries to forecast the future direction of prices through past market data trends in share prices and volume traded. A technical analyst does not care what business a company is in, or what a company is worth.
Fundamental analysts do, however. They assume that stock prices do not necessarily reflect the true value of a company. They buy what they perceive to be undervalued stocks in the hope that one day, the market will recognise their true values and price them accordingly.
To analyse a company, a fundamental analyst tries to understand a company's business model, competitive advantages, strength of management, market share in the industry, and the industry's own growth and prospects.
A company's financial statements and other economic indicators also need to be examined.
Various models are used to determine what price the company should be trading at. This is known as a company's intrinsic value.
If the company is operating in an attractive industry that has a potential for high profit margins, is financially healthy, has a competitive edge over its peers and is well regarded by customers and suppliers, shows consistent profit and dividend growth, and if the company's traded price on the market is significantly lower than its intrinsic value, a "buy" recommendation is typically made.
Fundamental analysis is one of the most influential schools of thought on how to determine if a stock is a "buy" or a "sell".
This article will examine some financial ratios used to analyse financial statements in the process of fundamental analysis.
Financial statements
A company's financial statements contain a treasure trove of information from which financial ratios can be calculated.
There are three main items in financial statements: the income statement, the balance sheet and the cash flow statement.
In a previous article, I introduced the income statement. This is otherwise known as the profit and loss statement, and records whether the company is making a profit, and whether costs are rising faster than revenue.
The balance sheet gives an idea of what assets and liabilities a company owns and owes at any given point in time. Assets can be cash, inventory held, factory equipment, or property. Liabilities consist of debt either owed to banks or to suppliers.
The cash flow statement shows how cash comes in and goes out of a company over time, in three areas: operating activities, investing activities and financing activities.
The Singapore Exchange (SGX)'s "An Investor's Guide to Reading Annual Reports", available on the SGX My Gateway information portal, includes a guide to reading financial statements for investors who have no time.
It said that investors should check if:
1. net profits are positive, rising or falling;
2. sales (revenue) are rising or falling;
3. operating cash flow after working capital adjustments is positive or negative;
4. net debt is rising or falling;
5. dividends are rising or falling, as a percentage of net profits.
Investors who want to be able to understand a company more precisely will also want to calculate some ratios to evaluate the financial health of a company.
Profitability ratios
Profitability ratios measure how profitable a company is relative to its peers, or relative to its own history. The numerator is the amount of profit.
•Gross profit margin is calculated by dividing gross profit by revenue. This ratio can be compared over time to see if material costs are increasing faster than the value of goods sold, indicating difficulties in managing rising costs.
The higher this figure, the better.
•Return on assets (ROA) is calculated by dividing net profit by total assets. One can use an average of total assets in the latest year and in the previous year. This represents the percentage of profit generated by the assets in use by the company over the past year.
The higher this figure, the better.
However, a low ROA can be because a company has lots of cash, which piles up on the denominator side of the equation. In this case, a low ROA is not because a company is inefficient at using its assets.
•Return on equity (ROE) is calculated by dividing net profit by total equity. Average total equity can be used, calculated in the same way as average total assets. This represents the percentage of profit generated by the money that is due to shareholders, known as equity.
The higher this figure, the better - with an important caveat.
Equity is calculated by deducting liabilities from assets. The ROE ratio thus already includes debt. Companies that use a lot of debt will have relatively lower equity. The lower denominator will cause ROE to be much higher than ROA.
ROE, if funded by lots of debt, can be deceptively high and gives an inaccurate picture of how a company's assets are being put to work. ROE should thus be used together with ROA to judge how effectively a company generates profits.
ROE can be used to compare companies with similar capital structures, such as real estate investment trusts (Reits), which have to keep debt levels low due to regulation.
Liquidity and solvency ratios
A company might be profitable, but its profits might be generated on shaky ground.
If banks stop lending it money on concerns that the company's profits are not enough to repay interest payments, the company may go bankrupt.
If a market downturn hits and the company cannot sell enough assets to pay creditors and suppliers, the company will go bankrupt, too.
Liquidity ratios measure how easily a company can meet its short-term commitments, known as current liabilities, using its available cash and assets.
•The current ratio is calculated by dividing current assets by current liabilities.
The higher this ratio, the more liquidity a company has and the easier it will be able to meet short-term credit challenges.
•The quick ratio, or acid test, is calculated by a company's cash, short-term marketable investments and receivables, divided by current liabilities. Another way to calculate this is to take current assets minus inventories and divide that by current liabilities.
The higher this ratio, the more liquidity a company has. A quick ratio that is below one might not be healthy, indicating that the company might be forced to sell some inventory to meet current liabilities.
By not including inventory, the quick ratio is considered a more conservative measure of the short-term liquidity situation of a company. Inventory is the raw materials and goods a company has that have not been sold.
In an emergency, a company might not be able to sell off all its inventory for cash.
Even if it can, the inventory will likely be sold at a discounted price. Solvency ratios measure the risk that a company might not be able to pay its debts.
•The debt-to-equity ratio is calculated by adding short-term and long-term debt together, and dividing that by shareholders' equity.
The lower the ratio, the less risky the company. Another variation of the debt-to-equity ratio deducts a company's cash from total debt, before dividing it by equity.
•Similarly, the debt-to-assets ratio is calculated by dividing total debt by total assets.
The lower the ratio, the lower the proportion of assets that are financed by debt, and hence the less risky the company.
Free cash flow
Finally, investors will want to scrutinise the company's cash flow statement to calculate a metric known as free cash flow.
This represents the cash that is left over after investments in factories and fixed assets are made.
Free cash flow is calculated by deducting purchases of property, plant and equipment (capital expenditure) from net cashflow from operating activities.
Alternatively, you can take net profit, add back depreciation, deduct changes in working capital as well as capital expenditure.
Free cash flow tracks the actual movement of cash of a company over a period of time. It is harder to fudge compared to revenue and net profit.
Revenue, for example, can be manipulated by booking revenue through lax sales policies, before payments actually come in. Expenses can be counted as investments and spread out over several years, making profit seem higher than it actually is.
Increasing free cash flow every year is a sign of a healthy business. If free cash flow is constantly negative for many years and the company is borrowing even more money to invest without giving a firm date as to when a positive cashflow situation will arise, warning bells should go off.
The above ratios and calculations are just the tip of the iceberg. Ratios will vary widely between industries.
There are no hard and fast rules about which ratios are ideal to use. However, a basic understanding can give investors a better sense of a company's value. Compare with care.
Cai Haoxiang
15/4/2013
HOW do you judge whether a stock is a good buy? Newbie investors usually come across two schools of thought: technical analysis and fundamental analysis. Technical analysis tries to forecast the future direction of prices through past market data trends in share prices and volume traded. A technical analyst does not care what business a company is in, or what a company is worth.
Fundamental analysts do, however. They assume that stock prices do not necessarily reflect the true value of a company. They buy what they perceive to be undervalued stocks in the hope that one day, the market will recognise their true values and price them accordingly.
To analyse a company, a fundamental analyst tries to understand a company's business model, competitive advantages, strength of management, market share in the industry, and the industry's own growth and prospects.
A company's financial statements and other economic indicators also need to be examined.
Various models are used to determine what price the company should be trading at. This is known as a company's intrinsic value.
If the company is operating in an attractive industry that has a potential for high profit margins, is financially healthy, has a competitive edge over its peers and is well regarded by customers and suppliers, shows consistent profit and dividend growth, and if the company's traded price on the market is significantly lower than its intrinsic value, a "buy" recommendation is typically made.
Fundamental analysis is one of the most influential schools of thought on how to determine if a stock is a "buy" or a "sell".
This article will examine some financial ratios used to analyse financial statements in the process of fundamental analysis.
Financial statements
A company's financial statements contain a treasure trove of information from which financial ratios can be calculated.
There are three main items in financial statements: the income statement, the balance sheet and the cash flow statement.
In a previous article, I introduced the income statement. This is otherwise known as the profit and loss statement, and records whether the company is making a profit, and whether costs are rising faster than revenue.
The balance sheet gives an idea of what assets and liabilities a company owns and owes at any given point in time. Assets can be cash, inventory held, factory equipment, or property. Liabilities consist of debt either owed to banks or to suppliers.
The cash flow statement shows how cash comes in and goes out of a company over time, in three areas: operating activities, investing activities and financing activities.
The Singapore Exchange (SGX)'s "An Investor's Guide to Reading Annual Reports", available on the SGX My Gateway information portal, includes a guide to reading financial statements for investors who have no time.
It said that investors should check if:
1. net profits are positive, rising or falling;
2. sales (revenue) are rising or falling;
3. operating cash flow after working capital adjustments is positive or negative;
4. net debt is rising or falling;
5. dividends are rising or falling, as a percentage of net profits.
Investors who want to be able to understand a company more precisely will also want to calculate some ratios to evaluate the financial health of a company.
Profitability ratios
Profitability ratios measure how profitable a company is relative to its peers, or relative to its own history. The numerator is the amount of profit.
•Gross profit margin is calculated by dividing gross profit by revenue. This ratio can be compared over time to see if material costs are increasing faster than the value of goods sold, indicating difficulties in managing rising costs.
The higher this figure, the better.
•Return on assets (ROA) is calculated by dividing net profit by total assets. One can use an average of total assets in the latest year and in the previous year. This represents the percentage of profit generated by the assets in use by the company over the past year.
The higher this figure, the better.
However, a low ROA can be because a company has lots of cash, which piles up on the denominator side of the equation. In this case, a low ROA is not because a company is inefficient at using its assets.
•Return on equity (ROE) is calculated by dividing net profit by total equity. Average total equity can be used, calculated in the same way as average total assets. This represents the percentage of profit generated by the money that is due to shareholders, known as equity.
The higher this figure, the better - with an important caveat.
Equity is calculated by deducting liabilities from assets. The ROE ratio thus already includes debt. Companies that use a lot of debt will have relatively lower equity. The lower denominator will cause ROE to be much higher than ROA.
ROE, if funded by lots of debt, can be deceptively high and gives an inaccurate picture of how a company's assets are being put to work. ROE should thus be used together with ROA to judge how effectively a company generates profits.
ROE can be used to compare companies with similar capital structures, such as real estate investment trusts (Reits), which have to keep debt levels low due to regulation.
Liquidity and solvency ratios
A company might be profitable, but its profits might be generated on shaky ground.
If banks stop lending it money on concerns that the company's profits are not enough to repay interest payments, the company may go bankrupt.
If a market downturn hits and the company cannot sell enough assets to pay creditors and suppliers, the company will go bankrupt, too.
Liquidity ratios measure how easily a company can meet its short-term commitments, known as current liabilities, using its available cash and assets.
•The current ratio is calculated by dividing current assets by current liabilities.
The higher this ratio, the more liquidity a company has and the easier it will be able to meet short-term credit challenges.
•The quick ratio, or acid test, is calculated by a company's cash, short-term marketable investments and receivables, divided by current liabilities. Another way to calculate this is to take current assets minus inventories and divide that by current liabilities.
The higher this ratio, the more liquidity a company has. A quick ratio that is below one might not be healthy, indicating that the company might be forced to sell some inventory to meet current liabilities.
By not including inventory, the quick ratio is considered a more conservative measure of the short-term liquidity situation of a company. Inventory is the raw materials and goods a company has that have not been sold.
In an emergency, a company might not be able to sell off all its inventory for cash.
Even if it can, the inventory will likely be sold at a discounted price. Solvency ratios measure the risk that a company might not be able to pay its debts.
•The debt-to-equity ratio is calculated by adding short-term and long-term debt together, and dividing that by shareholders' equity.
The lower the ratio, the less risky the company. Another variation of the debt-to-equity ratio deducts a company's cash from total debt, before dividing it by equity.
•Similarly, the debt-to-assets ratio is calculated by dividing total debt by total assets.
The lower the ratio, the lower the proportion of assets that are financed by debt, and hence the less risky the company.
Free cash flow
Finally, investors will want to scrutinise the company's cash flow statement to calculate a metric known as free cash flow.
This represents the cash that is left over after investments in factories and fixed assets are made.
Free cash flow is calculated by deducting purchases of property, plant and equipment (capital expenditure) from net cashflow from operating activities.
Alternatively, you can take net profit, add back depreciation, deduct changes in working capital as well as capital expenditure.
Free cash flow tracks the actual movement of cash of a company over a period of time. It is harder to fudge compared to revenue and net profit.
Revenue, for example, can be manipulated by booking revenue through lax sales policies, before payments actually come in. Expenses can be counted as investments and spread out over several years, making profit seem higher than it actually is.
Increasing free cash flow every year is a sign of a healthy business. If free cash flow is constantly negative for many years and the company is borrowing even more money to invest without giving a firm date as to when a positive cashflow situation will arise, warning bells should go off.
The above ratios and calculations are just the tip of the iceberg. Ratios will vary widely between industries.
There are no hard and fast rules about which ratios are ideal to use. However, a basic understanding can give investors a better sense of a company's value. Compare with care.
Sunday, April 14, 2013
Growth-led inflation a boon to Reits: Expert
Published on Apr 14, 2013
Fund manager: Their popularity reflects strong property market fundamentals
By Chia Yan Min
Real estate investment trusts (Reits) in Singapore and the region will keep doing well in an environment of growth-led inflation.
The recent popularity of Reits here reflects strong property market fundamentals, said Mr Patrick Sumner, head of property equities at Henderson Global Investors, in an interview with The Sunday Times.
He expects this positive picture to continue.
"Reits tend to do pretty well during periods of inflation, and will continue to do well in a growing economy where inflation is led by growth," he said.
Reits are funds that operate in a similar manner to unit trusts. But unlike unit trusts, which invest in shares, Reits specialise in income-generating real estate assets such as shopping malls, offices and industrial buildings.
They have become a sought-after investment in the current low-interest rate environment, with the additional lure of high dividend payouts.
While Singapore is "quite a volatile market" for Reits, Mr Sumner said the average dividend yield of 5.5 per cent "fairly reflects the underlying risk in real estate, and the prospective growth".
The veteran fund manager, whose team has US$2.3 billion (S$2.9 billion) in assets under management globally, added that Singapore Reits are still valuable relative to other asset classes.
"The spread of as much as 4.5 percentage points versus government bonds is an all-time high, and this gives investors quite a lot of comfort," he said.
He offered a bullish outlook for global property markets.
Low interest rates - a result of central bank policymaking - have fuelled the residential property boom in markets such as Singapore, Hong Kong and mainland China, he noted.
Property cooling measures introduced in these markets have had limited success given rising incomes and strong economic growth, he said.
"In China, there will continue to be very strong demand... most of the transactions are real ones, that is, first homes or trading up," said Mr Sumner.
He added that until the market cools, more property curbs are likely to be on the way for the Chinese market.
The United States market also appears to be staging a comeback, with strong rates of growth in apartment rentals, he said.
Retail sales have been boosted by a recovering housing market, and "the consumer environment remains healthy" for larger retailers.
"The US is in many respects our favourite market, and Reits are in good shape," he said.
Mr Sumner, who is based in London, was in Singapore last week for the launch of Henderson Global Investors' new property fund, targeted at retail investors.
The Henderson Global Property Income Fund, domiciled in Singapore, aims to deliver a return of 10 to 12 per cent a year, half of that from dividends and the other half from capital gains.
The fund will primarily comprise Reits, but will also include a range of listed property securities from around the world. Singapore Reits will make up about a quarter of the fund.
"We want to give Singaporean investors something they are familiar with," he said.
Henderson is working with AIA Singapore and GYC Financial Advisory as its anchor distributors.
"People want investment income that they can't get from cash and bond yields... if they want a diversified portfolio, Reits are, in our view, one of the most efficient ways of doing it."
chiaym@sph.com.sg
Fund manager: Their popularity reflects strong property market fundamentals
By Chia Yan Min
Real estate investment trusts (Reits) in Singapore and the region will keep doing well in an environment of growth-led inflation.
The recent popularity of Reits here reflects strong property market fundamentals, said Mr Patrick Sumner, head of property equities at Henderson Global Investors, in an interview with The Sunday Times.
He expects this positive picture to continue.
"Reits tend to do pretty well during periods of inflation, and will continue to do well in a growing economy where inflation is led by growth," he said.
Reits are funds that operate in a similar manner to unit trusts. But unlike unit trusts, which invest in shares, Reits specialise in income-generating real estate assets such as shopping malls, offices and industrial buildings.
They have become a sought-after investment in the current low-interest rate environment, with the additional lure of high dividend payouts.
While Singapore is "quite a volatile market" for Reits, Mr Sumner said the average dividend yield of 5.5 per cent "fairly reflects the underlying risk in real estate, and the prospective growth".
The veteran fund manager, whose team has US$2.3 billion (S$2.9 billion) in assets under management globally, added that Singapore Reits are still valuable relative to other asset classes.
"The spread of as much as 4.5 percentage points versus government bonds is an all-time high, and this gives investors quite a lot of comfort," he said.
He offered a bullish outlook for global property markets.
Low interest rates - a result of central bank policymaking - have fuelled the residential property boom in markets such as Singapore, Hong Kong and mainland China, he noted.
Property cooling measures introduced in these markets have had limited success given rising incomes and strong economic growth, he said.
"In China, there will continue to be very strong demand... most of the transactions are real ones, that is, first homes or trading up," said Mr Sumner.
He added that until the market cools, more property curbs are likely to be on the way for the Chinese market.
The United States market also appears to be staging a comeback, with strong rates of growth in apartment rentals, he said.
Retail sales have been boosted by a recovering housing market, and "the consumer environment remains healthy" for larger retailers.
"The US is in many respects our favourite market, and Reits are in good shape," he said.
Mr Sumner, who is based in London, was in Singapore last week for the launch of Henderson Global Investors' new property fund, targeted at retail investors.
The Henderson Global Property Income Fund, domiciled in Singapore, aims to deliver a return of 10 to 12 per cent a year, half of that from dividends and the other half from capital gains.
The fund will primarily comprise Reits, but will also include a range of listed property securities from around the world. Singapore Reits will make up about a quarter of the fund.
"We want to give Singaporean investors something they are familiar with," he said.
Henderson is working with AIA Singapore and GYC Financial Advisory as its anchor distributors.
"People want investment income that they can't get from cash and bond yields... if they want a diversified portfolio, Reits are, in our view, one of the most efficient ways of doing it."
chiaym@sph.com.sg
Friday, April 12, 2013
Gold losing lustre as investors shift to equities
Aaron Low And Rachel Scully
12/4/2013
RETIREE Penny Wee had been eyeing a gold necklace to buy for her daughter-in-law since September last year.
But she held off as she felt the necklace was too expensive.
So last week, when she saw that the price had fallen by about 10 per cent to $1,200, the 66-year-old went straight to the shop to make the purchase.
"I told the shop to call me if someone else made an offer, but no one did. So when I saw the price drop, I bought it," she said.
Mrs Wee is a beneficiary of a recent sharp reversal in gold's value on commodity markets.
For the past decade, gold has been one of the best investments to hold, having shot up more than six times between 1999 and 2011.
But since late last year, the price of the yellow metal has slumped by 17 per cent, as investors pour money back into other asset classes, such as stocks.
Gold per troy ounce was trading at US$1,560 yesterday.
Even the US investment bank Goldman Sachs, a long-time bull on gold, is reversing its call, advising clients to sell instead of buy.
"We see risks to current prices as skewed to the downside as we move through 2013," Goldman analysts Damien Courvalin and Jeffrey Currie wrote in a note.
In mid-2011, it had predicted gold would hit US$1,830, but it now expects gold to fall to US$1,270 by next year.
"In fact, should our expectation for lower gold prices continue to prove correct, the fall in prices could end up being faster and larger than our forecast," it said.
Gold is traditionally seen as a safe haven amid economic instability, and a hedge against inflation.
Despite massive inflows of cash into the global system from central banks in the United States, Europe and Japan - which would tend to raise inflation - gold has still performed weakly.
Ms Joyce Liu, an analyst at Philip Futures, noted that its safe haven status is closely tied to the health of the US economy.
"Despite last week's disappointing jobs data, the overwhelming sentiment is still that of optimism in US economic recovery.
"The implications are first, less need for safe haven investments among investors, and second, greater confidence among consumers for long-term spending and among corporations for long- term investments."
As a result, stock markets soared as gold fell. The US Dow Jones Industrial Average hit record highs on Tuesday, while the local Straits Times Index is up 22 per cent from June last year.
Still, not all analysts believe that the gold rush is over.
HSBC analyst James Steel says large liquidity flows from Japan, as well as political tensions in North Asia, could support prices.
As investors flee, consumers are moving in. The manager of the gold department at Mustafa Centre, Mr Mohammed Ishrep, said he has seen a 10 to 20 per cent increase in demand for jewellery and gold bars.
Ms Daphne Chin, who works at the Ang Mo Kio branch of Poh Heng jewellery, said the number of customers buying gold has risen by more than 20 per cent.
"Locals in their 50s and 60s make up the bulk of these customers and they often buy thick gold chains and gold bars," she said.
"These customers usually buy pure gold or 24K gold when the price drops, and hope to sell it at a better price in future," she said.
But Mrs Wee was not motivated by profit. "I think every woman should own a piece of gold. It's got good value, it's real and it looks nice with a dress."
aaronl@sph.com.sg
rjscully@sph.com.sg
12/4/2013
RETIREE Penny Wee had been eyeing a gold necklace to buy for her daughter-in-law since September last year.
But she held off as she felt the necklace was too expensive.
So last week, when she saw that the price had fallen by about 10 per cent to $1,200, the 66-year-old went straight to the shop to make the purchase.
"I told the shop to call me if someone else made an offer, but no one did. So when I saw the price drop, I bought it," she said.
Mrs Wee is a beneficiary of a recent sharp reversal in gold's value on commodity markets.
For the past decade, gold has been one of the best investments to hold, having shot up more than six times between 1999 and 2011.
But since late last year, the price of the yellow metal has slumped by 17 per cent, as investors pour money back into other asset classes, such as stocks.
Gold per troy ounce was trading at US$1,560 yesterday.
Even the US investment bank Goldman Sachs, a long-time bull on gold, is reversing its call, advising clients to sell instead of buy.
"We see risks to current prices as skewed to the downside as we move through 2013," Goldman analysts Damien Courvalin and Jeffrey Currie wrote in a note.
In mid-2011, it had predicted gold would hit US$1,830, but it now expects gold to fall to US$1,270 by next year.
"In fact, should our expectation for lower gold prices continue to prove correct, the fall in prices could end up being faster and larger than our forecast," it said.
Gold is traditionally seen as a safe haven amid economic instability, and a hedge against inflation.
Despite massive inflows of cash into the global system from central banks in the United States, Europe and Japan - which would tend to raise inflation - gold has still performed weakly.
Ms Joyce Liu, an analyst at Philip Futures, noted that its safe haven status is closely tied to the health of the US economy.
"Despite last week's disappointing jobs data, the overwhelming sentiment is still that of optimism in US economic recovery.
"The implications are first, less need for safe haven investments among investors, and second, greater confidence among consumers for long-term spending and among corporations for long- term investments."
As a result, stock markets soared as gold fell. The US Dow Jones Industrial Average hit record highs on Tuesday, while the local Straits Times Index is up 22 per cent from June last year.
Still, not all analysts believe that the gold rush is over.
HSBC analyst James Steel says large liquidity flows from Japan, as well as political tensions in North Asia, could support prices.
As investors flee, consumers are moving in. The manager of the gold department at Mustafa Centre, Mr Mohammed Ishrep, said he has seen a 10 to 20 per cent increase in demand for jewellery and gold bars.
Ms Daphne Chin, who works at the Ang Mo Kio branch of Poh Heng jewellery, said the number of customers buying gold has risen by more than 20 per cent.
"Locals in their 50s and 60s make up the bulk of these customers and they often buy thick gold chains and gold bars," she said.
"These customers usually buy pure gold or 24K gold when the price drops, and hope to sell it at a better price in future," she said.
But Mrs Wee was not motivated by profit. "I think every woman should own a piece of gold. It's got good value, it's real and it looks nice with a dress."
aaronl@sph.com.sg
rjscully@sph.com.sg
Wednesday, April 10, 2013
Hot Singapore REITs Still Seen Offering Attractive Yields
10 Apr 2013 15:17
WSJ BLOG: Hot Singapore REITs Still Seen Offering Attractive Yields
(This story has been posted on The Wall Street Journal Online's Market Beat blog at http://blogs.wsj.com/marketbeat.)
By Leslie Shaffer
If dividend stocks are sexy, Singapore's real-estate investment trusts just might be Ryan Gosling.
But while Singapore-listed REITs may seem expensive after a rally over the past year or so, they aren't when compared with equities and bonds, says Tim Gibson, head of Asian property equities at Henderson Global Investors, which manages US$106.7 billion. "They should sit somewhere between the two."
The FTSE ST REIT index tacked on 5.1% in the first quarter and was up 30.7% for the year ending March 31.
REITs are generally required to pay out much of the income from their underlying properties as dividends. Mr. Gibson says S-REITs offer the highest yields, both on an absolute basis and compared with the country's five-year government bonds. While Australian REITs' yields come close, the country's bond yields are higher than Singapore's, he says.
The yield on the FTSE ST REIT Index is around 5.17%, while the five-year Singapore bond yields around 0.5% and the STI's dividend yield is around 2.8%.
"As long as interest rates remain under control, S-REITs are in the sweet spot to continue their strong performance," Mr. Gibson says.
Henderson's new Global Property Income Fund will invest around 25% of its assets in Singapore-listed REITs, compared with 44% in the U.S., 9.5% in continental Europe and 5.0% in Japan.
S-REITs' income is growing despite Singapore's slowing economic growth, he says, partly because many are trading above their net asset values, meaning they can issue equity to finance acquisitions. Meanwhile, leases signed during the global financial crisis are now being renewed at higher rates and many S-REITs have begun buying assets outside the land-starved city-state, he says.
Mr. Gibson likes the office markets, citing the relatively low supply in Singapore and the length of time needed to create new supply. He tips Suntec REIT as one of the cheapest plays, offering a 5.5% dividend yield and an ongoing asset enhancement which should increase asset yield and cash flow. Henderson also holds CDL Hospitality Trusts.
Mr. Gibson says he is also positive on Singapore's industrial REITs, whose offerings are sophisticated and multi-story.
WSJ BLOG: Hot Singapore REITs Still Seen Offering Attractive Yields
(This story has been posted on The Wall Street Journal Online's Market Beat blog at http://blogs.wsj.com/marketbeat.)
By Leslie Shaffer
If dividend stocks are sexy, Singapore's real-estate investment trusts just might be Ryan Gosling.
But while Singapore-listed REITs may seem expensive after a rally over the past year or so, they aren't when compared with equities and bonds, says Tim Gibson, head of Asian property equities at Henderson Global Investors, which manages US$106.7 billion. "They should sit somewhere between the two."
The FTSE ST REIT index tacked on 5.1% in the first quarter and was up 30.7% for the year ending March 31.
REITs are generally required to pay out much of the income from their underlying properties as dividends. Mr. Gibson says S-REITs offer the highest yields, both on an absolute basis and compared with the country's five-year government bonds. While Australian REITs' yields come close, the country's bond yields are higher than Singapore's, he says.
The yield on the FTSE ST REIT Index is around 5.17%, while the five-year Singapore bond yields around 0.5% and the STI's dividend yield is around 2.8%.
"As long as interest rates remain under control, S-REITs are in the sweet spot to continue their strong performance," Mr. Gibson says.
Henderson's new Global Property Income Fund will invest around 25% of its assets in Singapore-listed REITs, compared with 44% in the U.S., 9.5% in continental Europe and 5.0% in Japan.
S-REITs' income is growing despite Singapore's slowing economic growth, he says, partly because many are trading above their net asset values, meaning they can issue equity to finance acquisitions. Meanwhile, leases signed during the global financial crisis are now being renewed at higher rates and many S-REITs have begun buying assets outside the land-starved city-state, he says.
Mr. Gibson likes the office markets, citing the relatively low supply in Singapore and the length of time needed to create new supply. He tips Suntec REIT as one of the cheapest plays, offering a 5.5% dividend yield and an ongoing asset enhancement which should increase asset yield and cash flow. Henderson also holds CDL Hospitality Trusts.
Mr. Gibson says he is also positive on Singapore's industrial REITs, whose offerings are sophisticated and multi-story.
Monday, April 8, 2013
Cyber criminals targeting your cellphone: Experts
Published on Apr 08, 2013
Personal data is susceptible to theft, but few users here take precautions
By Derrick Ho
Rik Ferguson looks like someone not to be messed with.
The humorous IT security expert, who sports numerous tattoos and has a penchant for heavy metal music, can hack into your mobile phone with a single SMS.
He can then remotely listen to your calls, read text messages and even access the password to your online bank account.
"It's creepy, isn't it?" said Mr Ferguson, who is global vice-president for security research for IT firm Trend Micro, as he demonstrated the hack. Yet, many users still refuse to believe how vulnerable they are when they use mobile devices, he added.
Technology experts are warning that mobile devices have become the next lock to pick for cyber criminals.
One in three mobile users globally has been exposed to some form of mobile cyber crime, according to a 2012 report by anti- virus firm Norton by Symantec.
In Singapore, one in five adults has been a victim of either social or mobile cyber crime, such as scams. Victims suffered an estimated US$944 million (S$1.2 billion) in losses, the report said.
As mobile devices become smarter, they have become more susceptible to hacking. They are almost always connected and are often loaded with much more personal information. For hackers, these devices are easy targets and a treasure trove of intimate data that they can obtain and sell.
"Criminals follow consumer behaviour. The more we move from traditional to mobile devices, the more they will too," said Mr Ferguson.
Currently, the most common threats are what is known as premium-rate billing scams - apps secretly running software in the background to inflate phone bills.
Then there are data stealers who snitch on information such as addresses, said Mr Joseph Gan, chief technology officer of local mobile security firm V-Key.
Using the app, a sophisticated hacker can instruct the phone to record audio or snap photos, all without the user ever knowing.
In 2011, Trend Micro projected that there would be some 130,000 malicious apps that year, most of which were for Android devices.
By the end of 2011, more than 350,000 malicious Android apps were circulating online.
"That's when we first saw the first uptick of malware," Mr Ferguson said. By the end of this year, the firm expects to see more than a million. "We are seeing an exponential growth in the number of bad apps out there," he added.
Yet surveys by tech firms show that Singaporeans are still complacent when it comes to mobile security. Out of 500 Singaporeans surveyed by Symantec, three in 10 "choose not to" use any mobile security software.
Mr Ferguson admits that the IT security industry is partly to blame for this complacency.
Even before 2011, it has been crying wolf, warning mobile users to be prepared for large-scale attacks. "But it never appeared. Now that it really has become a problem, there's that fatigue of people hearing that warning over and over again," he said.
Mobile users can protect themselves by buying apps only from trusted vendors such as Google or Apple. It's also a good idea to read the "permissions" that apps require before downloading them.
"If a game wants permission to access the telephone, you got to ask yourself why would a game want to be doing that," said Mr Ferguson.
Mr Gan also advises Android users to install a mobile security software, many of which are free.
derrickh@sph.com.sg
Personal data is susceptible to theft, but few users here take precautions
By Derrick Ho
Rik Ferguson looks like someone not to be messed with.
The humorous IT security expert, who sports numerous tattoos and has a penchant for heavy metal music, can hack into your mobile phone with a single SMS.
He can then remotely listen to your calls, read text messages and even access the password to your online bank account.
"It's creepy, isn't it?" said Mr Ferguson, who is global vice-president for security research for IT firm Trend Micro, as he demonstrated the hack. Yet, many users still refuse to believe how vulnerable they are when they use mobile devices, he added.
Technology experts are warning that mobile devices have become the next lock to pick for cyber criminals.
One in three mobile users globally has been exposed to some form of mobile cyber crime, according to a 2012 report by anti- virus firm Norton by Symantec.
In Singapore, one in five adults has been a victim of either social or mobile cyber crime, such as scams. Victims suffered an estimated US$944 million (S$1.2 billion) in losses, the report said.
As mobile devices become smarter, they have become more susceptible to hacking. They are almost always connected and are often loaded with much more personal information. For hackers, these devices are easy targets and a treasure trove of intimate data that they can obtain and sell.
"Criminals follow consumer behaviour. The more we move from traditional to mobile devices, the more they will too," said Mr Ferguson.
Currently, the most common threats are what is known as premium-rate billing scams - apps secretly running software in the background to inflate phone bills.
Then there are data stealers who snitch on information such as addresses, said Mr Joseph Gan, chief technology officer of local mobile security firm V-Key.
Using the app, a sophisticated hacker can instruct the phone to record audio or snap photos, all without the user ever knowing.
In 2011, Trend Micro projected that there would be some 130,000 malicious apps that year, most of which were for Android devices.
By the end of 2011, more than 350,000 malicious Android apps were circulating online.
"That's when we first saw the first uptick of malware," Mr Ferguson said. By the end of this year, the firm expects to see more than a million. "We are seeing an exponential growth in the number of bad apps out there," he added.
Yet surveys by tech firms show that Singaporeans are still complacent when it comes to mobile security. Out of 500 Singaporeans surveyed by Symantec, three in 10 "choose not to" use any mobile security software.
Mr Ferguson admits that the IT security industry is partly to blame for this complacency.
Even before 2011, it has been crying wolf, warning mobile users to be prepared for large-scale attacks. "But it never appeared. Now that it really has become a problem, there's that fatigue of people hearing that warning over and over again," he said.
Mobile users can protect themselves by buying apps only from trusted vendors such as Google or Apple. It's also a good idea to read the "permissions" that apps require before downloading them.
"If a game wants permission to access the telephone, you got to ask yourself why would a game want to be doing that," said Mr Ferguson.
Mr Gan also advises Android users to install a mobile security software, many of which are free.
derrickh@sph.com.sg
Sunday, April 7, 2013
Beware of making these money mistakes
Published on Apr 07, 2013
The top regret for many people is not saving enough money for their retirement, a recent survey of financial mistakes conducted in the United States showed.
"The biggest thing we found from almost all age brackets is folks are not saving enough for retirement," says Mr Scott Thoma, investment strategist for Edward Jones, according to a Fox Business report.
Here are ways to get finances back on track, Fox Business says.
Mistake No.1: Not tracking spending
Thirty-five per cent of survey respondents in the 18-to-34-year-old bracket cited not paying enough attention to their spending as their biggest money mistake.
Most people view each purchase in isolation as they go throughout their day, says Mr Thoma, not realising their purchases are adding up to a hefty tab.
To help get a better picture of your spending habits and identify any unnecessary spending, track every purchase for two weeks.
"If you were saving an extra US$100 a month, that could mean an extra US$100,000 for retirement," says Mr Thoma. "It's as simple as a cup of coffee a day."
Mistake No. 2: Carrying too much debt
While there are acceptable debts like a mortgage or car payment, many consumers are overspending on credit cards and carrying a balance and end up paying a lot more than they owe with high interest rates.
To get out from under that debt, Mr Thoma advises tracking spending and creating a budget that includes paying down debt - starting with the credit cards with the highest interest rate.
"If you are paying 18 per cent on a credit card, that's the first place that needs to be addressed because your are not earning an 18 per cent return on an investment," he explains.
Mistake No. 3: Bad investments
Everyone likes to think they are savvy investors, but most of us are too emotionally involved to be effective investors.
Mr Thoma says: "Whenever the market is up, they feel good, and whenever risk rises, they want to get out."
He advises people to avoid reacting to every market gyration.
"You can't let the outside environment dictate every single change you make," he says.
The top regret for many people is not saving enough money for their retirement, a recent survey of financial mistakes conducted in the United States showed.
"The biggest thing we found from almost all age brackets is folks are not saving enough for retirement," says Mr Scott Thoma, investment strategist for Edward Jones, according to a Fox Business report.
Here are ways to get finances back on track, Fox Business says.
Mistake No.1: Not tracking spending
Thirty-five per cent of survey respondents in the 18-to-34-year-old bracket cited not paying enough attention to their spending as their biggest money mistake.
Most people view each purchase in isolation as they go throughout their day, says Mr Thoma, not realising their purchases are adding up to a hefty tab.
To help get a better picture of your spending habits and identify any unnecessary spending, track every purchase for two weeks.
"If you were saving an extra US$100 a month, that could mean an extra US$100,000 for retirement," says Mr Thoma. "It's as simple as a cup of coffee a day."
Mistake No. 2: Carrying too much debt
While there are acceptable debts like a mortgage or car payment, many consumers are overspending on credit cards and carrying a balance and end up paying a lot more than they owe with high interest rates.
To get out from under that debt, Mr Thoma advises tracking spending and creating a budget that includes paying down debt - starting with the credit cards with the highest interest rate.
"If you are paying 18 per cent on a credit card, that's the first place that needs to be addressed because your are not earning an 18 per cent return on an investment," he explains.
Mistake No. 3: Bad investments
Everyone likes to think they are savvy investors, but most of us are too emotionally involved to be effective investors.
Mr Thoma says: "Whenever the market is up, they feel good, and whenever risk rises, they want to get out."
He advises people to avoid reacting to every market gyration.
"You can't let the outside environment dictate every single change you make," he says.
Start early so your nest egg can grow
Published on Apr 07, 2013
About 40 per cent of S'poreans have yet to do so, but experts say it's never too late
By Magdalen Ng
Whether it's a morbid fear of death or just the unpleasant acknowledgement that we are all getting old, many of us just do not want to think about retirement, much less plan for it.
Survey after survey points to the fact that many Singaporeans are inadequately prepared for their silver years.
The same surveys often show that we actually know full well how important it is to build up a retirement nest egg, yet many people have yet to start doing so. About 40 per cent of Singaporeans to be exact, according to an HSBC Insurance study.
Experts have long extolled the merits of starting your saving early.
Mr Christopher Tan, chief executive of financial advisory firm Providend, tells The Sunday Times: "If one is accumulating towards retirement, you should give yourself at least 10 years to accumulate.
"Anything less, I would say it is very difficult. In fact, 10 years is already very tough. The more time you have, the less pressure on getting returns and the lower risks you need to take."
Fortunately, it is never too late to start, although those who are very near retirement age will likely have to set aside a larger sum each month and stick to relatively conservative investment tools.
Mr Daniel Lum, director of product and marketing at Aviva Singapore, notes: "With a short time horizon, you should focus on capital preservation as there is less time to rebound from large losses.
"While there isn't one magic formula that would be suitable for everybody, there is a wide range of investment, savings and insurance options available in Singapore to cater to different needs."
Assessing your needs
Deciding when you intend to retire governs how many years you have left to save.
And what you will need will be determined by lifestyle choices such as whether you plan to own a car, travel yearly and how often you plan to eat out.
Also take into account continuing liabilities like insurance premiums.
How long you will live is in the lap of the gods but statistics show that 50 per cent of Singaporeans aged 65 today are expected to live beyond 85, and a third beyond 90. It might be advisable to add a few years to that for good measure.
AIA Singapore and Aviva Singapore, for instance, have online retirement calculators to help you with the maths.
Getting started
Mr Ong Lean Wan, director and chief executive at research-driven and fee-based financial consultancy Life Planning Associates (LPA), says the first step in retirement planning is to top up Central Provident Fund (CPF) accounts.
For most Singaporeans, the basic source of retirement income will be the monthly payout from their CPF accounts. If at age 55, the CPF member has the full Minimum Sum of $131,000, it works out to be an approximate monthly income of $1,100 for life from age 65 under the CPF Life annuity scheme.
CPF savings earn a guaranteed minimum interest rate of 2.5 per cent per annum, as legislated under the CPF Act. Mr Ong says this kind of guarantee is hard to find in any other investment option.
There is also a tax relief of up to $7,000 per calendar year if you top up your CPF account with cash. The top-up for members under 55 will be made to their Special Accounts. Additions will be made to the Retirement Account for those aged 55 and more.
Top-ups for Special Accounts are capped at the Minimum Sum of $139,000 but less the amount of cash already in the account plus any of the savings that may have been used for investments.
As an example, if you have $39,000 cash in the account, and have not made any investments, you can top up your account by $100,000.
Retirement Account top-ups can be made up to the prevailing Minimum Sum but minus the cash balance already in the account.
Similarly, if you have $100,000 in your Retirement Account, you can add a maximum of $39,000.
However, Deputy Prime Minister Tharman Shanmugaratnam said that the CPF Life scheme is not designed to meet the needs of higher-income earners but to help a two-member, lower-middle income household or those that fall between the 20th and 40th percentile by income.
Manulife Singapore chief executive Annette King notes that one downside might be that the money in the CPF accounts will be locked in, and that some liquidity is still necessary to deal with any emergencies or unforeseen circumstances.
She adds that people who can afford a better lifestyle after retirement could consider using the many plans offered by insurers to supplement their income on top of the CPF Life payouts.
Different ways to plant your retirement savings
Private plans
Typically, consumers can make a one-time single-premium payment or pay the premiums yearly or monthly over a fixed number of years.
However, before committing to any such plans, you should review your finances and see if you can afford the premiums for the next 10 years if your liabilities or expenses might increase.
Mr Eddy Lim, head of protection and savings propositions at AXA Singapore, acknowledges that younger people especially may have difficulty working out how much they will be able to afford, especially if they intend to get married and buy their first property.
"It doesn't mean that to plan for retirement, you will have to fork out large sums of money. If you can take out maybe $200 or $300 a month, it will still add up over the long run," he says.
You can also choose the age at which you start to receive your money.
Given the wide array of plans in the market, it may be difficult to pick and choose, but Ms Viviena Chin, chief executive of Eternal Financial Advisory, says her clients tend to prefer plans that have lifetime payouts and guaranteed capital returns.
Few private plans offer lifetime payouts, but Tokio Marine's TM Retirement Life and Manulife's Manulife 3G do offer this.
The other plans usually have options on the payout mode, either lump sum or annual or monthly payments over a fixed period of time.
LPA's Mr Ong cautions against just taking the advertised investment returns wholesale, or at face value.
"Usually only a part of that is guaranteed, and the rest are projected rates, which depend on the economy. In recent years, many insurers have cut their terminal bonus rates because of the financial crisis, so only the guaranteed part matters."
Newer retirement plans
AXA Retire Happy has a unique feature - it offers a guaranteed rising retirement payment at 3.5 per cent a year, although there is also an option for level payouts. The increasing payout will help ease the problem of inflation during retirement.
The guaranteed returns can be up to 2.75 per cent per annum, and there is a non-guaranteed terminal bonus at the plan's maturity. This is largely dependent on how well the participating fund performs
AIA Retirement Saver dishes out a guaranteed bonus worth 24 times the guaranteed monthly retirement income payout at the age of 65, to "celebrate retirement".
It is capital guaranteed, and also has a non-guaranteed annual cash dividend feature to help cope with inflation but this is dependent on the performance of its underlying participating fund.
Manulife's ManuRetire Secure, unlike the other retirement products, is not a participating fund-based solution, but rather is an equity-based fund. As such, the returns can be as high as the market achieves.
It uses the Citi Octave SGD Index as its underlying investment strategy.
There is no capital guarantee, but the downside risk is capped at 80 per cent of the highest historical unit price. Customers make a single premium payment, and can continue to invest as and when. In the event that there is a need to cash out, surrenders in the first three years are subject to charges but there are no charges from the fourth year.
Aviva MyRetirement has guaranteed returns of up to 2.38 per cent per year and customers can choose whether to receive their payment in a lump sum or over 10 years.
Payment can be made over eight years or up to five years before the preselected retirement age. There is also a capital guarantee when the selected retirement age is attained, which means that all the premiums paid up to that age will be returned to the policyholder in full.
Other options
Great Eastern's Family 3 gives out non-guaranteed cash bonuses yearly from the end of policy's second year. From the 10th year, there will be a lifelong yearly payout comprising guaranteed and non-guaranteed cash benefits. In the event of death, the sum assured will constitute a legacy for the family.
One feature of this plan is that the ownership of the policy can be transferred to your child when he or she turns 22. It will continue to pay annual cash benefits, and the eventual death benefits can be accrued to the third generation.
NTUC Income's Classic Annuity is a single-premium product that can be bought with funds in the Supplementary Retirement Scheme. It provides lifetime income after you retire. The fund is expected to earn a non-guaranteed long-term average return of 5.25 per cent per annum.
Endowment plans, such as Prudential's PruSave or PruFlexiCash, can also be used in retirement planning as they provide a lump sum or regular payout on maturity.
Other than these plans, if you still have additional disposable income, Aviva's Mr Lim says it is wiser to have a diversified portfolio to avoid over-exposure in any one asset.
Providend's Mr Tan adds: "You can either buy (additional products) directly from the stock markets or bond markets but a more practical way to do it is through unit trusts or ETFs (exchange-traded funds), where you can be better diversified without needing a large sum of money."
Even after all this preparation has been done and policies put in place, it is important to review your financial needs and retirement plans regularly. Ms Chin does so for her clients yearly to ensure that any potential gaps are plugged early.
Ms Chin takes into account any changes in financial situation, such as a pay increment or an additional mortgage payment.
"For example, if they have a windfall, or expect to be able to collect rent because they have bought an investment property, then maybe some of the funds can be channelled to other areas to make their money work harder for them," she says.
songyuan@sph.com.sg
About 40 per cent of S'poreans have yet to do so, but experts say it's never too late
By Magdalen Ng
Whether it's a morbid fear of death or just the unpleasant acknowledgement that we are all getting old, many of us just do not want to think about retirement, much less plan for it.
Survey after survey points to the fact that many Singaporeans are inadequately prepared for their silver years.
The same surveys often show that we actually know full well how important it is to build up a retirement nest egg, yet many people have yet to start doing so. About 40 per cent of Singaporeans to be exact, according to an HSBC Insurance study.
Experts have long extolled the merits of starting your saving early.
Mr Christopher Tan, chief executive of financial advisory firm Providend, tells The Sunday Times: "If one is accumulating towards retirement, you should give yourself at least 10 years to accumulate.
"Anything less, I would say it is very difficult. In fact, 10 years is already very tough. The more time you have, the less pressure on getting returns and the lower risks you need to take."
Fortunately, it is never too late to start, although those who are very near retirement age will likely have to set aside a larger sum each month and stick to relatively conservative investment tools.
Mr Daniel Lum, director of product and marketing at Aviva Singapore, notes: "With a short time horizon, you should focus on capital preservation as there is less time to rebound from large losses.
"While there isn't one magic formula that would be suitable for everybody, there is a wide range of investment, savings and insurance options available in Singapore to cater to different needs."
Assessing your needs
Deciding when you intend to retire governs how many years you have left to save.
And what you will need will be determined by lifestyle choices such as whether you plan to own a car, travel yearly and how often you plan to eat out.
Also take into account continuing liabilities like insurance premiums.
How long you will live is in the lap of the gods but statistics show that 50 per cent of Singaporeans aged 65 today are expected to live beyond 85, and a third beyond 90. It might be advisable to add a few years to that for good measure.
AIA Singapore and Aviva Singapore, for instance, have online retirement calculators to help you with the maths.
Getting started
Mr Ong Lean Wan, director and chief executive at research-driven and fee-based financial consultancy Life Planning Associates (LPA), says the first step in retirement planning is to top up Central Provident Fund (CPF) accounts.
For most Singaporeans, the basic source of retirement income will be the monthly payout from their CPF accounts. If at age 55, the CPF member has the full Minimum Sum of $131,000, it works out to be an approximate monthly income of $1,100 for life from age 65 under the CPF Life annuity scheme.
CPF savings earn a guaranteed minimum interest rate of 2.5 per cent per annum, as legislated under the CPF Act. Mr Ong says this kind of guarantee is hard to find in any other investment option.
There is also a tax relief of up to $7,000 per calendar year if you top up your CPF account with cash. The top-up for members under 55 will be made to their Special Accounts. Additions will be made to the Retirement Account for those aged 55 and more.
Top-ups for Special Accounts are capped at the Minimum Sum of $139,000 but less the amount of cash already in the account plus any of the savings that may have been used for investments.
As an example, if you have $39,000 cash in the account, and have not made any investments, you can top up your account by $100,000.
Retirement Account top-ups can be made up to the prevailing Minimum Sum but minus the cash balance already in the account.
Similarly, if you have $100,000 in your Retirement Account, you can add a maximum of $39,000.
However, Deputy Prime Minister Tharman Shanmugaratnam said that the CPF Life scheme is not designed to meet the needs of higher-income earners but to help a two-member, lower-middle income household or those that fall between the 20th and 40th percentile by income.
Manulife Singapore chief executive Annette King notes that one downside might be that the money in the CPF accounts will be locked in, and that some liquidity is still necessary to deal with any emergencies or unforeseen circumstances.
She adds that people who can afford a better lifestyle after retirement could consider using the many plans offered by insurers to supplement their income on top of the CPF Life payouts.
Different ways to plant your retirement savings
Private plans
Typically, consumers can make a one-time single-premium payment or pay the premiums yearly or monthly over a fixed number of years.
However, before committing to any such plans, you should review your finances and see if you can afford the premiums for the next 10 years if your liabilities or expenses might increase.
Mr Eddy Lim, head of protection and savings propositions at AXA Singapore, acknowledges that younger people especially may have difficulty working out how much they will be able to afford, especially if they intend to get married and buy their first property.
"It doesn't mean that to plan for retirement, you will have to fork out large sums of money. If you can take out maybe $200 or $300 a month, it will still add up over the long run," he says.
You can also choose the age at which you start to receive your money.
Given the wide array of plans in the market, it may be difficult to pick and choose, but Ms Viviena Chin, chief executive of Eternal Financial Advisory, says her clients tend to prefer plans that have lifetime payouts and guaranteed capital returns.
Few private plans offer lifetime payouts, but Tokio Marine's TM Retirement Life and Manulife's Manulife 3G do offer this.
The other plans usually have options on the payout mode, either lump sum or annual or monthly payments over a fixed period of time.
LPA's Mr Ong cautions against just taking the advertised investment returns wholesale, or at face value.
"Usually only a part of that is guaranteed, and the rest are projected rates, which depend on the economy. In recent years, many insurers have cut their terminal bonus rates because of the financial crisis, so only the guaranteed part matters."
Newer retirement plans
AXA Retire Happy has a unique feature - it offers a guaranteed rising retirement payment at 3.5 per cent a year, although there is also an option for level payouts. The increasing payout will help ease the problem of inflation during retirement.
The guaranteed returns can be up to 2.75 per cent per annum, and there is a non-guaranteed terminal bonus at the plan's maturity. This is largely dependent on how well the participating fund performs
AIA Retirement Saver dishes out a guaranteed bonus worth 24 times the guaranteed monthly retirement income payout at the age of 65, to "celebrate retirement".
It is capital guaranteed, and also has a non-guaranteed annual cash dividend feature to help cope with inflation but this is dependent on the performance of its underlying participating fund.
Manulife's ManuRetire Secure, unlike the other retirement products, is not a participating fund-based solution, but rather is an equity-based fund. As such, the returns can be as high as the market achieves.
It uses the Citi Octave SGD Index as its underlying investment strategy.
There is no capital guarantee, but the downside risk is capped at 80 per cent of the highest historical unit price. Customers make a single premium payment, and can continue to invest as and when. In the event that there is a need to cash out, surrenders in the first three years are subject to charges but there are no charges from the fourth year.
Aviva MyRetirement has guaranteed returns of up to 2.38 per cent per year and customers can choose whether to receive their payment in a lump sum or over 10 years.
Payment can be made over eight years or up to five years before the preselected retirement age. There is also a capital guarantee when the selected retirement age is attained, which means that all the premiums paid up to that age will be returned to the policyholder in full.
Other options
Great Eastern's Family 3 gives out non-guaranteed cash bonuses yearly from the end of policy's second year. From the 10th year, there will be a lifelong yearly payout comprising guaranteed and non-guaranteed cash benefits. In the event of death, the sum assured will constitute a legacy for the family.
One feature of this plan is that the ownership of the policy can be transferred to your child when he or she turns 22. It will continue to pay annual cash benefits, and the eventual death benefits can be accrued to the third generation.
NTUC Income's Classic Annuity is a single-premium product that can be bought with funds in the Supplementary Retirement Scheme. It provides lifetime income after you retire. The fund is expected to earn a non-guaranteed long-term average return of 5.25 per cent per annum.
Endowment plans, such as Prudential's PruSave or PruFlexiCash, can also be used in retirement planning as they provide a lump sum or regular payout on maturity.
Other than these plans, if you still have additional disposable income, Aviva's Mr Lim says it is wiser to have a diversified portfolio to avoid over-exposure in any one asset.
Providend's Mr Tan adds: "You can either buy (additional products) directly from the stock markets or bond markets but a more practical way to do it is through unit trusts or ETFs (exchange-traded funds), where you can be better diversified without needing a large sum of money."
Even after all this preparation has been done and policies put in place, it is important to review your financial needs and retirement plans regularly. Ms Chin does so for her clients yearly to ensure that any potential gaps are plugged early.
Ms Chin takes into account any changes in financial situation, such as a pay increment or an additional mortgage payment.
"For example, if they have a windfall, or expect to be able to collect rent because they have bought an investment property, then maybe some of the funds can be channelled to other areas to make their money work harder for them," she says.
songyuan@sph.com.sg
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