Personal Investing

Kaiwen Leong

Description

Investing is all about asking the right questions. Everyone asks: how do I invest like the top investors? But here's a better question: how do I invest like the top banks? These are two very different questions that yield two very different results. And by results, we mean money. Mapping your salary progression? Planning your retirement? Wanting to combat inflation? Investing includes C-level banker Edwin Lim's inside look into the trading strategies of top banks and how he and his C-level colleagues applied those strategies to their own investment portfolios. You too can invest like the top banks, enjoy consistent long-term returns on your investment and become the ultimate investor.

Sujets

• Economie gestion
• Personal finance
• Finance

Informations

• Publié par: Marshall Cavendish International
• Date de parution: 29 juillet 2014
• Nombre de lectures: 1
• EAN13: 9789814634717
• Langue: English

Extrait

2014 Marshall Cavendish International (Asia) Private Limited
Published by Marshall Cavendish Editions An imprint of Marshall Cavendish International 1 New Industrial Road, Singapore 536196
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National Library Board, Singapore Cataloguing-in-Publication Data
Lim, Edwin, 1962-, author. Personal investing : how to invest your money for consistent returns / Edwin Lim, Dr. Kaiwen Leong and Edward H. Choi. - Singapore : Marshall Cavendish Business, 2014. pages cm ISBN : 978-981-4561-01-3 (paperback) eISBN: 978 981 4634 71 7
1. Finance, Personal. 2. Investments. I. Title
HG179 332.024 - dc23
Printed in Singapore by Markono Print Media Pte Ltd

CONTENTS
Chapter 1 Stop Wasting Your Time Making Money
Chapter 2 Navigating the Maze
Chapter 3 Building a Defensive Strategy
Chapter 4 The Four Pillars
Chapter 5 Investment Vehicles
Chapter 6 How the Big Boys Do It
Chapter 7 The Big Payout
About the Authors
CHAPTER 1
STOP WASTING YOUR TIME MAKING MONEY
Let s be honest. Most of us are trying to make money and get rich. And there is nothing wrong with that. After all, money is money. But behind the greed in your eyes are deeper aspirations. You want to make all that money to support not just yourself, but your loved ones-your family, your children. You want to leave something behind for your children so that they can get a head start in life.
But even though you have all this money in the bank and live a comfortable life, bear in mind that a few uninformed money-managing decisions can deplete all your savings. This is why it is important to learn to manage your money and not allow money to manage you. That is the heart of investing-to turn what you already have into more.
The bottom line is, stop wasting your time making money. Start making investments.
CASH IS NOT KING
When I lived in China in early 2000, credit cards and cheques were not widely accepted and I had to carry a bundle of cash with me when shopping. Of course, pulling out a wallet filled with cash made me feel rich. But at the same time, it meant that I had to hold more cash than necessary under my mattress. My money was just sitting there, stagnant.
Many people argue that cash is king and this might be true to some extent. We might want enough cash to ensure that we are not squeezed into a corner during tough times or to be able to take advantage of an investment opportunity. If you are saving for a vacation or university education or, more generally, have firm plans requiring the use of cash within the next three to five years, it makes sense to keep cash or maintain deposit accounts in high-rate, low-risk products such as fixed deposits or certificates of deposit.
The cash I m referring to, however, is money you plan to keep for the long term, such as for retirement or that you have no need of for the next seven years or more.
Many wealthy individuals do not hold all of their assets in cash. Specialised banks and a division of private bankers actively seek out these wealthy individuals to invest their cash into a diversified portfolio of investments. Even Warren Buffett, the American business magnate, once said that the worst investment you can have is cash cash is going to become less over time . So why is cash not a popular choice in the overall investment portfolios of wealthy people?
INFLATION
One of the biggest enemies of your hard-earned savings is inflation, which erodes the value of cash. In the five years after the 2008 financial crisis, banks were offering a meagre 0.25% in savings rates, while inflation rates in both American and Asian economies were averaging between 1% to over 4%. This means that the longer your cash sits in your account or under the mattress, the less you can buy with it each year.
Cash is fantastic to have on a rainy day or for short-term needs, but it is not an asset that will appreciate in value on its own over the long term. You can place cash in fixed deposits or certificates of deposit that earn more than the normal savings rates but even that may not be sufficient to offset the inflation rate over time.
The chart below illustrates the average federal fund rates 1 that commercial banks would benchmark their savings rates against the inflationary rate from the 2008 financial crisis to 2013. America was seriously affected by the crisis and you can clearly see how inflation would have eroded the value of your savings if you had kept your assets in cash.

Even Asian economies such as Singapore, which were not so badly affected by the financial crisis, had average inflation rates of 5.2% in 2011 and 4.6% in 2012, while banks were offering meagre average savings rates between 0.05% to 0.1%. As an example, 100,000 placed into a savings account for one year with a savings rate of 0.05% would get you a mere 50 in return. You could probably get higher returns by simply spending the money on discounted items.
CURRENCY VALUATION
With any investment strategy, you always want to establish some control over the value of your assets. However, the value of a country s currency is primarily influenced by its economic, financial and macro policies. This means that you have no control over its value and your assets are highly dependent on your government s policies. For example, following the devastating financial crisis in America and Europe, the values of the USD and Euro have taken a beating over the past decade against more resilient Asian economies such as Singapore. The chart below shows the steadily declining value of the US Dollar against the Singapore Dollar-an approximately 26% fall from an exchange rate of 1.70 down to 1.25.
Of course, the argument for holding on to cash in Singapore Dollars would be applicable as you have gained 26% in value, but the key point here is that you cannot control a country s economic situation. If Singapore were to experience an Asian financial crisis similar to that in the late 1990s, the tables would be turned.

COST FOR SAFETY
In today s uncertain and volatile economic climate, it is difficult to predict what will happen next. As such, many of us have stayed on the sidelines and held on to our cash savings. On hindsight, equity markets have hit new highs since late 2011 and property prices have escalated to levels not seen for several years. We now regret holding on to our cash, but that s the price for being safe .
The investment landscape has changed dramatically over the past decade and the cycles for economic and financial downturns are getting shorter. We must thus embrace new strategies of investing in a world of uncertainties as low yields from cash investments will prevent you from reaching your financial objectives.
Aside from the usual three- to four-year economic downturn cycles that each country experiences, there have been an increasing number of financial crises on a global scale within the last decade. These include:
1992-1993
European exchange rate mechanism crisis
1997-1998
Asian financial crisis and Russian financial crisis
2000-2001
Dot-com bubble, European Union recession
2002-2003
US recession
2008-2012
US financial crisis / Sub-prime mortgage crisis / European sovereign debt crisis

The road to recovery from these crises is littered with potholes that most economies have to navigate cautiously given the fragile state of affairs. A misstep can easily cause panic in the global markets. The worst part of today s chaotic financial turmoil is that your cash investments returns are dwindling faster as governments are forced to stimulate or maintain recovery by cutting interest rates to unprecedented levels. Ultimately, you need to ask yourself whether the low returns from cash are worth the safety or outweighed by the financial growth you need to achieve upon retirement.

THE LAW
Small Steps, Big Returns
Make your money work for you instead of the other way around. Everyone can start investing for their future by simply taking the first steps in low-risk investments. It is a conscious effort and the earlier you start, the sooner you will understand how much you can benefit from it.

TRUTH FROM THE TRENCHES
Are You Making Money from the Bank or is the Bank Making Money Off You?
I often hear retirees or those near retirement say that they should have saved more or invested wisely when they had the chance. These should haves often set in when finances become tight, especially for retirees as their regular income has stopped and expenses keep increasing year after year.
As a banker, I often meet people who assume that investing is only for the wealthy or finan