I don't believe it. I thought at long last they are going to hold the benchmark rates steady so as to let the policies filter through and settle down. Now, they say that they might be cutting again!
Logically, when someone wants to borrow money, but know that the rates will go lower and lower every month, will this person wait for until the rates hit the trough? Of course this person will if possible!!! The feds are actually encouraging these people to wait by refusing to stabilize the benchmark rates. Everyone is waiting for the rates to be stable before lending or loaning. Of course there is a liquidity problem.
Furthermore, now we have a liquidity problem because of the sub-prime crisis. Meaning, people want to loan, but no one is willing to loan them the money. Therefore, lowering the rates would have no effect on the current situation. In fact, lowering the rates will just worsen the liquidity crisis. The only effect it has is to push down the USD further, and fueling the inflation upwards again!! After this, countries would seriously think of replacing the USD with the Euro. USD would lose its place as a reserve currency, and it would go on a downward spiral. Without its status as a reserve currency, I want to see how they are going to dig themselves out of the debt cycle. This crash would even be bigger than the great depression.
At least oil did not hit USD100 this month. However, it did hit USD99 last week. If US cuts benchmark rates again, you can be assured that rate cut plus cold winter equals ... ... ... Rest assured that not only oil will be affected. Suddenly, I think that barter trade is much better than all the paper money flying around.
I really hope that I'm wrong, for the sake of everyone.
Friday, November 30, 2007
Thursday, November 29, 2007
Perception
Topic(s):
Self Improvement
I quote from the Slice of Life:
Always look at both sides of the story. After which, evaluate with an open mind. Glass should always be half full. :)
Perception is a way of grasping and making sense of the "realities" around us. Perception links a meaning to what you take in with your senses that allows you to have the experience in your nervous system. Because perception is based on interpretation we can change it.
A change in perception is what turns the half empty glass into a half full glass. Perception explains how two people can have exactly the same experience and one commits suicide while the other becomes an inspiration for generations to come. Whatever you perceive is going to be true for you, regardless of what you see. Change your beliefs, change your perceptions, and you can change your life.Always look at both sides of the story. After which, evaluate with an open mind. Glass should always be half full. :)
Wednesday, November 28, 2007
Anger Management II
Topic(s):
Self Improvement
I quote from the Slice of Life:
When we react impulsively, we're not fully conscious of what we're doing. We're not thinking about whether our outburst is justified. We're not thinking of the many other options we have to deal with the situation besides getting angry. But if we can consciously examine the situation, we'll find plenty of ways to handle the spat amicably.
It's sometimes too hard... I think I need a break. Or am I falling sick?
I feel like screaming... I think I better do something soothing before I go bonkers.
When we react impulsively, we're not fully conscious of what we're doing. We're not thinking about whether our outburst is justified. We're not thinking of the many other options we have to deal with the situation besides getting angry. But if we can consciously examine the situation, we'll find plenty of ways to handle the spat amicably.
It's sometimes too hard... I think I need a break. Or am I falling sick?
I feel like screaming... I think I better do something soothing before I go bonkers.
I'm burning out!!!!!!!!!
Topic(s):
Rants
Need a place to vent out.
Arrrrrrgggggghhhhhhhh... I'm burning out!!!!!!
I don't know how long I can take this.
Arrrrrrgggggghhhhhhhh... I'm burning out!!!!!!
I don't know how long I can take this.
Tuesday, November 27, 2007
Risk and Return
Topic(s):
Retirement Planning
In my previous posts, I've been shooting returns like 2% p.a., 5% p.a. Some people said that 8% returns is the minimum you should get. Some said 25% p.a. is the norm. If you do have friends who said that this is the norm, ask them the return now. Most probably they will not give you a straight answer because the market has not been doing well since the sub-prime crisis in the United States.
The higher risk you take, the more rewards that you should get (not will). This is the basis of investment. Most of us like to put our savings in our bank savings account, or Fixed Deposits (FDs). The reason is because it is quite safe. We're almost guaranteed to get back our money, plus the interest. Therefore, since the risk is low, we get obscenely low returns like 0.25% and 1.2% (Artificially low in my opinion).
However, if you want higher returns, the first question you need to ask yourself is are you willing to take the risk that you might lose money in the short run, but get your returns in the long run? That means staying put even though you might lose 20% of your investment, with the strong belief that everything will be right in 20 years time.
If you cannot bear losing that amount, then I would suggest that you should continue parking your money in FDs, saving accounts, and Treasury bills (T-Bills). Safest in Singapore. More likely you can only invest in one other option. Your job. Invest in it well, and you'll be paid better (hopefully).
If you think that you can stomach the 20% loss (Be truthful), then I would believe you're suited for investments in the different asset classes I mentioned in the previous post.
Why would people actually take such risks if you could lose 20% or more of your investment?
Main reason is because of the fundamental belief that over the long run, the market will be always a line that is sloping upwards. It will have some volatility but over 20-30 years, it will smoothen out, and the end result is that you will get your returns. Just imagine what Singapore was like in 1965, and now in 2007. 42 years and we've grown so much. That's the basis of this belief.
However, even though you could lose 20%, that doesn't mean that you have to. That is diversification, as mentioned in my previous post. Take a right balance of asset classes, with the risky assets and the safer assets. In the end, your returns are lower (still higher than FDs), due to lower risk, but your retirement portfolio will be growing steadily. This group of people most probably will be looking at the sharpe ratio more. In general, the higher the sharpe ratio, the better the risk adjusted returns you will have.
Some people likewise practice Focus Investing, which is the opposite of diversifcation. The basis is you focus your investments on the companies that you think will give the most returns, and invest in it big time. The most famous of them all is Warren Buffett. Coca Cola? MacDonald anyone? This relies on you making the right "bet", and getting it right. However, we usually only know about the winners, but not the losers. Focus investing is very risky because you stand the chance of losing everything. This group of investors focus alot on the alpha and beta of the company, especially on high alpha companies. In general, beta means the level of influence that the market has on the company. Alpha means the movement that is independent of the market. This is also known as systematic and non-systematic risks.
This post is not really about saying what's the risks vs returns graph, alpha and beta, or sharpe ratio. You notice that I've mentioned quite a few terms, but giving only a brief summary. Reason is that there are many books or websites out there that focuses on these definitions. I think they would do a better job than me explaining it in my small little post. This post is more about understanding the concept that there's no free lunch. If someone is giving you a high return, you're taking a higher risk.
There's also a misconception that index funds, or ETFs are very low risk investments and you can plonk your whole fortune in it. That's in-correct. Let's say you have invested in the Singapore Index when it's at a high of 3800. Now the index is at 3300. How much would you have lost?
Asset Allocation is what matters in index investing, and that's what keeping the risk low for index investing. I'll be talking about it in my next retirement planning series.
The higher risk you take, the more rewards that you should get (not will). This is the basis of investment. Most of us like to put our savings in our bank savings account, or Fixed Deposits (FDs). The reason is because it is quite safe. We're almost guaranteed to get back our money, plus the interest. Therefore, since the risk is low, we get obscenely low returns like 0.25% and 1.2% (Artificially low in my opinion).
However, if you want higher returns, the first question you need to ask yourself is are you willing to take the risk that you might lose money in the short run, but get your returns in the long run? That means staying put even though you might lose 20% of your investment, with the strong belief that everything will be right in 20 years time.
If you cannot bear losing that amount, then I would suggest that you should continue parking your money in FDs, saving accounts, and Treasury bills (T-Bills). Safest in Singapore. More likely you can only invest in one other option. Your job. Invest in it well, and you'll be paid better (hopefully).
If you think that you can stomach the 20% loss (Be truthful), then I would believe you're suited for investments in the different asset classes I mentioned in the previous post.
Why would people actually take such risks if you could lose 20% or more of your investment?
Main reason is because of the fundamental belief that over the long run, the market will be always a line that is sloping upwards. It will have some volatility but over 20-30 years, it will smoothen out, and the end result is that you will get your returns. Just imagine what Singapore was like in 1965, and now in 2007. 42 years and we've grown so much. That's the basis of this belief.
However, even though you could lose 20%, that doesn't mean that you have to. That is diversification, as mentioned in my previous post. Take a right balance of asset classes, with the risky assets and the safer assets. In the end, your returns are lower (still higher than FDs), due to lower risk, but your retirement portfolio will be growing steadily. This group of people most probably will be looking at the sharpe ratio more. In general, the higher the sharpe ratio, the better the risk adjusted returns you will have.
Some people likewise practice Focus Investing, which is the opposite of diversifcation. The basis is you focus your investments on the companies that you think will give the most returns, and invest in it big time. The most famous of them all is Warren Buffett. Coca Cola? MacDonald anyone? This relies on you making the right "bet", and getting it right. However, we usually only know about the winners, but not the losers. Focus investing is very risky because you stand the chance of losing everything. This group of investors focus alot on the alpha and beta of the company, especially on high alpha companies. In general, beta means the level of influence that the market has on the company. Alpha means the movement that is independent of the market. This is also known as systematic and non-systematic risks.
This post is not really about saying what's the risks vs returns graph, alpha and beta, or sharpe ratio. You notice that I've mentioned quite a few terms, but giving only a brief summary. Reason is that there are many books or websites out there that focuses on these definitions. I think they would do a better job than me explaining it in my small little post. This post is more about understanding the concept that there's no free lunch. If someone is giving you a high return, you're taking a higher risk.
There's also a misconception that index funds, or ETFs are very low risk investments and you can plonk your whole fortune in it. That's in-correct. Let's say you have invested in the Singapore Index when it's at a high of 3800. Now the index is at 3300. How much would you have lost?
Asset Allocation is what matters in index investing, and that's what keeping the risk low for index investing. I'll be talking about it in my next retirement planning series.
Monday, November 26, 2007
Why must charity heads be paid market rate??!?!?
Topic(s):
Singapore Ramblings
I do not understand why charity heads must be paid market rate! To join a charity, you must first understand its mission, and what it stands for. It's the same for any organization. If you are leading a big company, you must first understand its mission, goal, vision in order to lead the organization. That goes the same for charity.
If the CEO does not understand the concept of charity, how can he lead the charity? Charity relies on mostly donations to sustain its operations. Charity by itself means giving to the needy. By paying market rate, why are we giving to the CEO instead of the needy? That goes totally against the concept of charity. You're taking the much needed funds to the CEO instead of the charity work that the charity provides. Many of the charities are also volunteer driven. So you're saying that the operations people can be volunteers and not paid, but the CEO is paid market rate??? Why the distinction between the CEO and the operations people??
Furthermore, the fiasco at NKF shows that a profit-driven CEO in a charity is a major disaster in public relations. Profit-driven ways of getting funds might work in the private sector, but it should not be done in the charity sector. It goes against the spirit of charity.
The more I read the news, the more I feel the government is VERY out of touch with the ground, and looks too much at the $$$. Furthermore, the perception that they give is that they want the private sector to do it, and they do not want a hand in this. Then I ask this question. Why are we paying taxes?? So that the government can get a raise anytime they want?? Or are they suppose to do something for the people??
If the CEO does not understand the concept of charity, how can he lead the charity? Charity relies on mostly donations to sustain its operations. Charity by itself means giving to the needy. By paying market rate, why are we giving to the CEO instead of the needy? That goes totally against the concept of charity. You're taking the much needed funds to the CEO instead of the charity work that the charity provides. Many of the charities are also volunteer driven. So you're saying that the operations people can be volunteers and not paid, but the CEO is paid market rate??? Why the distinction between the CEO and the operations people??
Furthermore, the fiasco at NKF shows that a profit-driven CEO in a charity is a major disaster in public relations. Profit-driven ways of getting funds might work in the private sector, but it should not be done in the charity sector. It goes against the spirit of charity.
The more I read the news, the more I feel the government is VERY out of touch with the ground, and looks too much at the $$$. Furthermore, the perception that they give is that they want the private sector to do it, and they do not want a hand in this. Then I ask this question. Why are we paying taxes?? So that the government can get a raise anytime they want?? Or are they suppose to do something for the people??
Sunday, November 25, 2007
Terminal 3 is stuffy!
Topic(s):
Thoughts
Just went to see the Singapore Changi Airport Terminal 3 open house today.
Their basement consists of many shops. Saw Candy Empire there, and Ya Kun.
Above that is the Arrival hall. Typical airport layout. I don't really remember much about it though.
It's the Departure hall above that is different from other airports. Can you identify the picture below?
You can see this "contraption" everywhere. This is actually the air-con vent. Innovative deisgn. However, there is a problem with this. I'll explain later. Now, this is the picture of the ceiling.
See the problem? The design of the roof is such that the sunlight is filtered down through these strange reflectors. However, the aircon vents are all near the ground level (There are 2 more levels above the departure hall). The result is a stuffy departure terminal. All the hot air is trapped above, and I'm not sure how effective the air-con will be if the vents are all near the ground level.
There are also a lot of live plants around the whole terminal. I really hope that the plants have sufficient sunlight or artificial light because if they don't, we're going to suffer from carbon dioxide overdose.
The 2 levels above the departure hall consists of mainly shops. If I understand correctly, Kopitiam will be operating the food court above the departure hall. I've also seen Harris, and Harry's there. Burger King and Dian Xiao Er too. Yes... You heard me correctly. Dian Xiao Er.
Inside the departure hall though, is different. The moment I went in, I felt that it's much cooler than outside. Maybe because the air-con vents are finally situated at the top. There are many shops inside, which includes Charles & Keith, Sony Gallery, and even an official FIFA shop. They also have a small butterfly kingdom inside. Weird, but true. Terminal 3 is also connected to the other terminals by the sky train, whether you have checked-in, or not checked-in, so its not a problem going to the different terminals. There's still a lot of construction though.
Here's a couple of photos within the departure hall, and arrival hall:
This is what you'll see after you check-in.
This is the departure hall where you wait for boarding.
This is a small eco-corner at the arrival hall.
This is the main arrival hall.
This "eco-attraction" is near where you collect your baggage.
Due to the number of mirrors used in the Terminal 3 architecture, it looks very big. In fact, I think its as big as 63 football fields. However, with all the mirrors, it looks even bigger.
One thing I don't like is that the departure hall is quite stuffy. Other than that, I would say that Terminal 3 seems to be designed for shopping. I see shops everywhere! Inside, outside, basement... It might be because they are catering it to the hotel to be built near the airport.
Frankly, if they have used solar panels instead of reflectors on the top, Terminal 3 would truly be eco-friendly. I thought they would have done something out of the box. After looking at it, I do not see anything that is very out of the ordinary. In fact, to me, it looks like Terminal 3 is a very big greenhouse. Oh well...
Official opening is 9 January 2008.
Their basement consists of many shops. Saw Candy Empire there, and Ya Kun.
Above that is the Arrival hall. Typical airport layout. I don't really remember much about it though.
It's the Departure hall above that is different from other airports. Can you identify the picture below?
You can see this "contraption" everywhere. This is actually the air-con vent. Innovative deisgn. However, there is a problem with this. I'll explain later. Now, this is the picture of the ceiling.
See the problem? The design of the roof is such that the sunlight is filtered down through these strange reflectors. However, the aircon vents are all near the ground level (There are 2 more levels above the departure hall). The result is a stuffy departure terminal. All the hot air is trapped above, and I'm not sure how effective the air-con will be if the vents are all near the ground level.
There are also a lot of live plants around the whole terminal. I really hope that the plants have sufficient sunlight or artificial light because if they don't, we're going to suffer from carbon dioxide overdose.
The 2 levels above the departure hall consists of mainly shops. If I understand correctly, Kopitiam will be operating the food court above the departure hall. I've also seen Harris, and Harry's there. Burger King and Dian Xiao Er too. Yes... You heard me correctly. Dian Xiao Er.
Inside the departure hall though, is different. The moment I went in, I felt that it's much cooler than outside. Maybe because the air-con vents are finally situated at the top. There are many shops inside, which includes Charles & Keith, Sony Gallery, and even an official FIFA shop. They also have a small butterfly kingdom inside. Weird, but true. Terminal 3 is also connected to the other terminals by the sky train, whether you have checked-in, or not checked-in, so its not a problem going to the different terminals. There's still a lot of construction though.
Here's a couple of photos within the departure hall, and arrival hall:
Due to the number of mirrors used in the Terminal 3 architecture, it looks very big. In fact, I think its as big as 63 football fields. However, with all the mirrors, it looks even bigger.
One thing I don't like is that the departure hall is quite stuffy. Other than that, I would say that Terminal 3 seems to be designed for shopping. I see shops everywhere! Inside, outside, basement... It might be because they are catering it to the hotel to be built near the airport.
Frankly, if they have used solar panels instead of reflectors on the top, Terminal 3 would truly be eco-friendly. I thought they would have done something out of the box. After looking at it, I do not see anything that is very out of the ordinary. In fact, to me, it looks like Terminal 3 is a very big greenhouse. Oh well...
Official opening is 9 January 2008.
Strengthening the currency is not a cure-all solution
Topic(s):
Economic Ramblings,
Singapore Ramblings
Just read with interest of the views on how to lower inflation in today's newspaper. Both the government, and the Straits Times Paper(which I presume copied from the government stance) sited strengthening the currency as the way to go.
Strengthening the Singapore currency will result in an increase of expenses for all the MNCs which set up headquarters or branches here. No matter how strategically located we are, MNCs always think with their wallets, and that is especially true for listed MNCs (actually its true for all bosses). With increase of expenses, more will start to shift to lower cost countries. That would mean Hong Kong.
Inflation in my opinion, could only be mitigated by free market competition, which is what we do NOT have here. Recently, Hong Kong's MRT has reduced fares because of a merger. In Singapore, we will never have a free market competition because our "first world" government has created a big conflict of interest, Temasek.
Will any sane organization invest in a company, and vote that it should reduce fees/prices?? Temasek has a stake in DBS, SMRT and CapitalLand. So do you expect DBS to start giving us 5% savings rate or SMRT reducing fares? Or Plaza Singapura (own by CapitalLand) to start reducing rentals?? The papers have highlighted the plight of so many residential and commercial property owners on the sky-high increase of property prices here. What is the government reply? They will monitor. Monitor what?!??!? The evidence is already there that we have a shortage of residential and commercial space. Or are they monitoring Temasek?
There is a very strong conflict of interest between the welfare of the general public, and Temasek. The government is giving the perception, at least to me, that they are thinking on the $ sign, and not on the needs of the public. Market competition is designed such that the strongest will prevail. The Singapore government instead, promotes monopoly of services because they claimed that Singapore is too small.
Look at our public transport system. It's dominated by 2 big transport groups. Comfort Delgro, and SMRT. Look at the hot property market. Heard of CapitalLand? Keppel Land? Look at the Telecommunications. Singtel anyone? Look at the media. Mediacorp? SPH? Look at infrastructure. Keppel? Sembawang? Temasek has a stake in all these companies.
I am not suggesting that Temasek should divest off all these investments, but since Temasek belongs to the Singapore government, which indirectly uses Singaporeans' money to invest, something should be given back to the Singaporeans by law on a regular basis (based on a formula), like the Singapore shares given previously every year (discountinued ?!?!?!??).
With this amount of money given back to Singaporeans (must be tax free), it will increase our income and hopefully mitigate the rise of cost of living. This coupled with imports from other countries for our needs, more energy efficient usage, should keep inflation under control.
Sometimes I wonder why the perception that the government gives is to continuously keep flogging a dead horse.
Strengthening the Singapore currency will result in an increase of expenses for all the MNCs which set up headquarters or branches here. No matter how strategically located we are, MNCs always think with their wallets, and that is especially true for listed MNCs (actually its true for all bosses). With increase of expenses, more will start to shift to lower cost countries. That would mean Hong Kong.
Inflation in my opinion, could only be mitigated by free market competition, which is what we do NOT have here. Recently, Hong Kong's MRT has reduced fares because of a merger. In Singapore, we will never have a free market competition because our "first world" government has created a big conflict of interest, Temasek.
Will any sane organization invest in a company, and vote that it should reduce fees/prices?? Temasek has a stake in DBS, SMRT and CapitalLand. So do you expect DBS to start giving us 5% savings rate or SMRT reducing fares? Or Plaza Singapura (own by CapitalLand) to start reducing rentals?? The papers have highlighted the plight of so many residential and commercial property owners on the sky-high increase of property prices here. What is the government reply? They will monitor. Monitor what?!??!? The evidence is already there that we have a shortage of residential and commercial space. Or are they monitoring Temasek?
There is a very strong conflict of interest between the welfare of the general public, and Temasek. The government is giving the perception, at least to me, that they are thinking on the $ sign, and not on the needs of the public. Market competition is designed such that the strongest will prevail. The Singapore government instead, promotes monopoly of services because they claimed that Singapore is too small.
Look at our public transport system. It's dominated by 2 big transport groups. Comfort Delgro, and SMRT. Look at the hot property market. Heard of CapitalLand? Keppel Land? Look at the Telecommunications. Singtel anyone? Look at the media. Mediacorp? SPH? Look at infrastructure. Keppel? Sembawang? Temasek has a stake in all these companies.
I am not suggesting that Temasek should divest off all these investments, but since Temasek belongs to the Singapore government, which indirectly uses Singaporeans' money to invest, something should be given back to the Singaporeans by law on a regular basis (based on a formula), like the Singapore shares given previously every year (discountinued ?!?!?!??).
With this amount of money given back to Singaporeans (must be tax free), it will increase our income and hopefully mitigate the rise of cost of living. This coupled with imports from other countries for our needs, more energy efficient usage, should keep inflation under control.
Sometimes I wonder why the perception that the government gives is to continuously keep flogging a dead horse.
Did you say the word "invest"?
Topic(s):
Retirement Planning
Updated 25 November 2007: Added Cash asset class
To build up your retirement portfolio, I don't think we can run away from investing. Some people might say... I have already invested in fixed deposits (FD). It's not technically wrong, but you'll take a long time to build up your retirement just by using FDs. Let me give an example of someone investing $10,000 in FD returning 1% compounded, and in a balanced portfolio returning 5% compounded for 20 years:
FD (1%): $12,201.90
Balanced portfolio (5%): $26,532.98
See the difference? It's more than double. Now with Singapore's inflation getting higher and higher, our miserable FD rates will not even be sufficient enough to even overcome inflation. However, not everything is about returns. You must be able to first take the risk that comes with it.
I will just briefly introduce you to the 4 common asset classes for investing.
Cash:
This is not the money you keep under the pillow, or in the bank's miserable 0.25% p.a. savings account. This usually represents the FDs, Treasury Bills (T-Bills), and the money market funds.
Equities:
Basically, this means stocks, unit trusts, index funds, and Exchange Traded Funds (ETFs). What are stocks? Basically, it just means that a company allows the public to invest in the company, with the public hoping that it will become the next Apple, or Sony. The company will issue shares which the public can buy from an exchange. In Singapore, its the SinGapore eXchange (SGX). In the SGX, you can find financial reports, and announcements with regards to the company. This is considered very high risk because there is no capital guarantee, and you might not have any returns for some time.
Unit trusts usually invests in a basket of companies (There are some that invest in other investments). Therefore, when an investor buys into a unit trust, they are buying into a basket
of companies, thereby diversifying their risks of the companies going bankrupt. The unit trusts are also available to the public for subscription.
Index funds usually buy into all the companies that are in the index. Giving an example, whenever you hear someone in Singapore say that the market is good/bad, they are usually referring to the Straits Times Index (STI). The index contains a number of companies like Singtel, DBS, OCBC, etc. So if an index fund buys into the STI index, the index fund will own all the companies within the index. The index fund will rise and fall together with the index, minus the fund expenses. The risk is lower than unit trust because very seldom will the whole index collapse. The index usually consists of companies that are the one of the biggest, and influential in the country. It is unlikely, although possible, that all the companies in the index will go bankrupt. Therefore, this risk is one of the lowest among equities.
Exchange Traded Funds are similar to Index funds. The only exception is that they are listed in the exchange (e.g. SGX), and you're able to buy them like stocks.
Bonds:
It just means that you're lending money to a person. Whenever you invest in a bond, you're allowing your money to be lent to another company/orgainization. It's actually similar to FDs, just that its much bigger.
There are many types of bonds like government bonds, company bonds, and the mortgage backed bonds. These bonds can be termed investment grade (meaning it is relatively safe), or junk (meaning it is risky). The current sub-prime crisis in the United States (US) originates from junk mortgage backed bonds.
The bond might give you interest regularly like your FDs, or it can be a zero-coupon bond, meaning that you receive no interest. Instead, you'll get a discount when you buy the bond, and you'll get back the "original price" when the bond matures. Our Treasury Bills (T-Bills) are zero-coupon.
For bonds, it is less risky than equities, but there is still risk. A bond can also run into a risk of default (company go bankrupt), or the risk that the bond interest does not cover inflation.
Alternate Investments:
This covers a wide range of investment products, like gold, silver, wine and property.
Usually, people will choose a mix of investments of the above asset classes so as to diversify their risks. If there is no overweight of any asset class and it covers many asset classes, it is sometimes known as a balanced portfolio. Balance the risks out and you'll find that the returns are relatively safe, compared to the risks involved.
If you wish to read up on more, there are many books in our easily accessible libraries. I've only covered the very basics here. It is always better to know about this, even if you have someone managing your portfolio for you. It's better to be informed.
Next on my retirement series, I will talk about Risk and Returns.
To build up your retirement portfolio, I don't think we can run away from investing. Some people might say... I have already invested in fixed deposits (FD). It's not technically wrong, but you'll take a long time to build up your retirement just by using FDs. Let me give an example of someone investing $10,000 in FD returning 1% compounded, and in a balanced portfolio returning 5% compounded for 20 years:
FD (1%): $12,201.90
Balanced portfolio (5%): $26,532.98
See the difference? It's more than double. Now with Singapore's inflation getting higher and higher, our miserable FD rates will not even be sufficient enough to even overcome inflation. However, not everything is about returns. You must be able to first take the risk that comes with it.
I will just briefly introduce you to the 4 common asset classes for investing.
Cash:
This is not the money you keep under the pillow, or in the bank's miserable 0.25% p.a. savings account. This usually represents the FDs, Treasury Bills (T-Bills), and the money market funds.
Equities:
Basically, this means stocks, unit trusts, index funds, and Exchange Traded Funds (ETFs). What are stocks? Basically, it just means that a company allows the public to invest in the company, with the public hoping that it will become the next Apple, or Sony. The company will issue shares which the public can buy from an exchange. In Singapore, its the SinGapore eXchange (SGX). In the SGX, you can find financial reports, and announcements with regards to the company. This is considered very high risk because there is no capital guarantee, and you might not have any returns for some time.
Unit trusts usually invests in a basket of companies (There are some that invest in other investments). Therefore, when an investor buys into a unit trust, they are buying into a basket
of companies, thereby diversifying their risks of the companies going bankrupt. The unit trusts are also available to the public for subscription.
Index funds usually buy into all the companies that are in the index. Giving an example, whenever you hear someone in Singapore say that the market is good/bad, they are usually referring to the Straits Times Index (STI). The index contains a number of companies like Singtel, DBS, OCBC, etc. So if an index fund buys into the STI index, the index fund will own all the companies within the index. The index fund will rise and fall together with the index, minus the fund expenses. The risk is lower than unit trust because very seldom will the whole index collapse. The index usually consists of companies that are the one of the biggest, and influential in the country. It is unlikely, although possible, that all the companies in the index will go bankrupt. Therefore, this risk is one of the lowest among equities.
Exchange Traded Funds are similar to Index funds. The only exception is that they are listed in the exchange (e.g. SGX), and you're able to buy them like stocks.
Bonds:
It just means that you're lending money to a person. Whenever you invest in a bond, you're allowing your money to be lent to another company/orgainization. It's actually similar to FDs, just that its much bigger.
There are many types of bonds like government bonds, company bonds, and the mortgage backed bonds. These bonds can be termed investment grade (meaning it is relatively safe), or junk (meaning it is risky). The current sub-prime crisis in the United States (US) originates from junk mortgage backed bonds.
The bond might give you interest regularly like your FDs, or it can be a zero-coupon bond, meaning that you receive no interest. Instead, you'll get a discount when you buy the bond, and you'll get back the "original price" when the bond matures. Our Treasury Bills (T-Bills) are zero-coupon.
For bonds, it is less risky than equities, but there is still risk. A bond can also run into a risk of default (company go bankrupt), or the risk that the bond interest does not cover inflation.
Alternate Investments:
This covers a wide range of investment products, like gold, silver, wine and property.
Usually, people will choose a mix of investments of the above asset classes so as to diversify their risks. If there is no overweight of any asset class and it covers many asset classes, it is sometimes known as a balanced portfolio. Balance the risks out and you'll find that the returns are relatively safe, compared to the risks involved.
If you wish to read up on more, there are many books in our easily accessible libraries. I've only covered the very basics here. It is always better to know about this, even if you have someone managing your portfolio for you. It's better to be informed.
Next on my retirement series, I will talk about Risk and Returns.
Saturday, November 24, 2007
CPI basket
Topic(s):
Economic Ramblings,
Singapore Ramblings
Updated 20 Dec 2007: Breakdown of the 2002/2003 CPI basket
Saw that they published the Singapore CPI basket so I thought I would leave a note here. This is based on the 2002/2003 housing expenditure will be updated every 5 years. Hmm... That means it should be updated soon.
Housing: 21%
Transport: 17%
Recreation & Others: 17%
Cooked Food: 13%
Non-cooked Food: 10%
Education & Stationary: 8%
Communication: 5%
Health Care: 5%
Clothing & Footwear: 4%
Looking at the CPI basket, inflation for the coming November and December might really hit about 3.6% to as much as 4%. Food inflation is evident across many countries, and all the mad cow, bird flu diseases doesn't help. Price of oil affects more than 2/3 of the CPI basket.
Without going into details, based on this broad category, inflation for this year should be around 2% to 2.1%. Next year will be interesting. Average inflation will should hit at least 3.2% based on the current sky high prices, and other countries refusal to reign in their over-growing economies.
Regardless of the inflation rate for both this year, or next year, you can see that our savings rate of 0.25% p.a. means that we're losing money every day due to high inflation eroding our savings.
Some economists say that wage inflation will help in mitigating the rise of cost. What wage inflation??? They assume everyone is having a raise just because finance, and O&G sector is booming?? Every company is finding ways and means to cut cost. What wage inflation?? More like wage deflation soon.
Anyway, seems like the CPI basket might be reviewed soon. I'll see if there is any news about it.
Saw that they published the Singapore CPI basket so I thought I would leave a note here. This is based on the 2002/2003 housing expenditure will be updated every 5 years. Hmm... That means it should be updated soon.
Housing: 21%
Transport: 17%
Recreation & Others: 17%
Cooked Food: 13%
Non-cooked Food: 10%
Education & Stationary: 8%
Communication: 5%
Health Care: 5%
Clothing & Footwear: 4%
Looking at the CPI basket, inflation for the coming November and December might really hit about 3.6% to as much as 4%. Food inflation is evident across many countries, and all the mad cow, bird flu diseases doesn't help. Price of oil affects more than 2/3 of the CPI basket.
Without going into details, based on this broad category, inflation for this year should be around 2% to 2.1%. Next year will be interesting. Average inflation will should hit at least 3.2% based on the current sky high prices, and other countries refusal to reign in their over-growing economies.
Regardless of the inflation rate for both this year, or next year, you can see that our savings rate of 0.25% p.a. means that we're losing money every day due to high inflation eroding our savings.
Some economists say that wage inflation will help in mitigating the rise of cost. What wage inflation??? They assume everyone is having a raise just because finance, and O&G sector is booming?? Every company is finding ways and means to cut cost. What wage inflation?? More like wage deflation soon.
Anyway, seems like the CPI basket might be reviewed soon. I'll see if there is any news about it.
Subscribe to:
Posts (Atom)
