THRIFTY IS NIFTY

Cheng Zi fell under the banner of "kou kou zu", or the "stingy group", soon after she went to university.
"I realised it was wrong for us students not to care about our finances just because we don't work," she says.
"Actually, we do have a job. We take classes and our parents pay for it."
Cheng, a senior university student in Shaanxi province, says that "kou kou zu" means maintaining a high standard of living for the cheapest cost.
For instance, she only buys new clothes when she has sold some of her old ones. She also shops online, where clothes are much cheaper, discounts are always on offer and delivery is often free. She normally eats in the school canteen and rarely eats out in decent restaurants.
She has also learned many cost-cutting ideas from "kou kou" people in the workforce.
"Students are not suffering from the financial crisis as much as those in work," she says. "Many of my schoolmates worry about how much money their families have lost or will lose in the stock market."
What really worries Cheng and other students is the impact of the global recession on their job prospects. They are being as frugal as they can to prepare for rainy days ahead.
Other "kou kous" are using more public transport, downloading free books and music instead of buying them, using credit cards less and eating homemade lunches.
Cheng adds: "They've also taught me how to pay less for electricity and water bills, by washing small clothes like underwear and socks by hand, unplugging electrical outlets before leaving the room and using leftover water to flush the toilet. I've started to implement some of these tips. It is good to prepare early for my independent days ahead."
Money savers like Cheng counter the notion that China's post-80s generation is full of spoiled, free-spending youngsters and while other students around the world face a tough Christmas, they are benefiting from their thriftiness.
Some, like Cheng, changed their lifestyles some time ago but the worldwide crisis has swelled the number of 20-something "kou kou zu".
Online communities are cluttered with their mantras: "We don't take taxis we don't go shopping there is no eating out we can manage the housework ourselves."
Once upon a time Cheng's parents gave her 700-1,000 yuan (US$100-143) a month and she would spend it all before she had realised it and couldn't figure out when and where. Now she limits her monthly outgoings to about 300 yuan and last year opened an online store selling clothes and ornaments.
The business makes a profit of 600-1,000 yuan a month and has been a life-changing experience. "My parents were taken aback one day when, instead of asking them for money like I used to, I told them that I could live on my own," she says. "Now I have several thousand yuan in the bank, 80 per cent of which comes from my online shop. Sometimes I buy them presents. I'm so proud of myself."
In Fujian province, Zhang Yan has persuaded some of her friends to become a "kou kou" but had more trouble with others. "They are lukewarm about it, since they feel little pressure from the crisis," she says. "They don't think it's necessary to be so stingy.
"But I tell them this is not just a response to the crisis--it's something you can benefit from your whole life. Plus, it is environmentally friendly and represents a healthy and positive life attitude."
Others find having a handle on their spending ensures they always have some available.
Every night for the last year, Zhang has been punching her expenses into an online accounting system to determine if she has spent her money wisely or not. Now her savings are steadily rising.
"In previous years I invested in stocks and funds because I thought saving money in the bank was quite silly," she says. "But when the bubble burst, I came to realise the importance of stable savings accounts."
Zhang's conviction grew even stronger when she read that Americans on average save at best 1 per cent of their monthly incomes. "Now they're suffering from both the economic crisis and the consequences of low savings."
Zhang's online accounting system, www.qian8ao.com, has received about 2,000 new users each day for the last two months, a 50 per cent increase on previous months.
While high street shops fear the harshest conditions since the Great Depression of the 1930s, online retailers are more upbeat, on the back of an upsurge in website shopping over the past year.
"Online products are much cheaper than those in shopping malls and are often of good quality," says Zhao Li, a young mother in Suzhou, Jiangsu province.
She also hedges her bets. "Sometimes, if I want a pair of luxury brand shoes, I will try them on in a shopping centre and then order them online, where they cost much less."
Statistics from the Chinese Academy of Social Science show that by last June there were 162 million netizens in China, 70 percent of them under 30. The Internet Society of China, meanwhile, noted in its annual China Netguide 2008 that an average netizen spent 186.6 yuan online in 2007, expected to rise to 198.6 this year.
"Consumers are shopping more on the Internet, where they can both save cash and live a high-quality life," says Zhang Lingxiao, from www.taobao.com, a major Chinese online retailer.
"Chinese people still represent great buying potential," says Zhang, "and we believe that online retailing may help businesses survive the financial winter."
by: China Daily ANN

Let Finance Crisis "Drive you to Drink"

Let finance crisis 'drive you to drink'

Whisky
Why you should invest: The value of whisky has not dropped in the last 720 years since they started making it in Ireland, said Mr Bill Hedman, managing director of venture capitalist firm Delemere Enterprises, which has its own distillery in Australia.
'At the very worst, if your investment crashes, you can go and get drunk on very good whisky, instead of holding on to a worthless piece of paper,' he added.
How to invest: You can buy whisky by the bottle or by the barrel.
What you should consider: The taste, rarity and reputation of the whisky, based on reviews by critics.
Investor tips: General manager of La Maison du Whisky Emmanuel Dron, who also invests in whisky, advises investors to buy only award-winning or limited-edition whiskies if they wish to get a good return on their investment.
Some bottles Mr Dron thinks are good buys - if you can still get your hands on one - are the limited-edition Laphroaig single-malt scotch whisky from 1974, which had only 910 bottles released worldwide.
The whisky won the award for the best whisky in the world in 2003.
A bottle cost $700 two years ago, but the price has shot up to $2,500 and will 'carry on increasing', Mr Dron said.
How much you need: If you are buying whisky by the bottle, the cheapest ones start at $80. If you are buying by the barrel, you need to set aside $30,000, which would include insurance, storage and bottling costs.
Wine
Why you should invest: Fine wine has been known to outperform stocks for the last three to five years, said Mr Andrew Bassett, trading director at the Australian Wine Index.
'The price of fine wines rarely goes backwards,' he said, adding that investors can look at returns of between 1 to 12 per cent per annum.
How to invest: You can buy wines by the bottle as an individual investor, or look for brokers like the Australian Wine Index to manage your portfolio.
What you should consider: Price of the wine, the vintage report containing details of how the grapes grew that year and whether it was a good crop, and critics' ratings.
You also need to be prepared to hold on to your wines for at least three years for more attractive returns.
Mr Bassett said: 'The worst market situation we have now is that people are selling their wines at 11 per cent profit instead of their expected 28to 32 per cent profit because it is a buyer's market now, and everyone is pushing prices lower.'
Still, Mr Bassett feels that wine is a 'good, solid investment' because while the prices of stocks and shares can drop by as much as 80 per cent, the worst that wine prices can do is to stagnate.
Investor tips: Mr Bassett feels that it is a 'great time' to buy Australian wines now, especially since the exchange rate has dropped by about 30per cent, so you can get good value for money.
Two years ago, one of Mr Bassett's clients bought a bottle of 2005 Mollydooker wine. It cost $125 a bottle then, but his client sold it this year for $350 a bottle.
Mr Bassett said that investors should maintain a portfolio of 70 per cent 'blue chip' wines and 30 per cent cult and emerging wines, which are more risky but have the potential for very high returns.
Art and antique furniture
Why you should invest: For a good collectible item, the price will never come down, said The Tomlinson Collection's regional manager Jack Thew.
How to invest: Buy art pieces and learn the tricks of the trade through personal experience, or find a respectable dealer.
What you should consider: Investing in art and antiques, unlike the stock market, is not purely about money.
Potential investors should understand trends in art and appreciate the beauty of the pieces in their own right, instead of buying them just as pure investments, said Mr Thew.
Investor tips: Chinese classical designs are an all-time favourite, said Mr Thew, with hard wood furniture made of Zitan wood and Huanghuali wood fetching the highest prices, sometimes more than $100,000 a piece.
Describing them as the blue chips of furniture investment, Mr Thew said: 'The prices of furniture made of those types of wood have increased like crazy.
'This is because they are imperial wood, which was used by the rich and famous. It is also a precious timber, because it takes more than 100 years just to grow six inches of the wood.'
However, not all pieces made of Zitan or Huanghuali wood may fetch the same value because of the different styles and designs of the subject, cautioned Mr Thew.
Investors can also look at buying thousand-year-old terracotta art pieces due to their rarity, said Mr Thew.
High-end watches
Why you should invest: People who put their money in watches are holding value that is better than what they have put into their stocks, said Mr Patrick Tan, executive vice-president of Sincere and head of the Sincere Watch Academy.
One such example is the Patek Phillippe Calatrava, which has doubled in price since it was produced 15 years ago, said Mr Tan.
Prices of watches increase because the cost of producing watches has gone up, explained Mr Tan.
However, it is difficult to determine how much watches appreciate by as consumer tastes are always changing, he added.
What you should consider: Look at the heritage of the brand, the craftsmanship and the engineering of the watch.
More established brands include Patek Phillippe and A. Lange & Sohne.
However, Mr Tan was quick to add that watches are not like durians, and there are no quick tips or 'bao jia' (sure win) guarantees for investors.
The key to investing is still having a good knowledge of watches and doing intensive research.
Investor tips: Buy innovative watches and special-edition watches, such as those released by watchmakers when they celebrate their anniversaries.
However, these are available only to a select few collectors who can 'justify that they are supporters of the brand', Mr Tan said.
One such watch, the Sincere Jubilee A. Lange & Sohne Double Split, released by Sincere during its 50th anniversary celebrations, fetched its owner a 40 to 50 per cent return when he auctioned it off six months later.
Only five of the limited-edition watches were made available to customers.
But Mr Tan's most important tip is for investors to buy what they enjoy.
'It would be a sad situation if people buy the watches purely for investment, but do not enjoy the watches,' he said.
This article was first published in The New Paper on November 2, 2008.

BULL or BEAR Market, you can make money

Bull or bear market, you can make money
By Lorna Tan
For the past months, many stock investors have been caught in a roller-coaster ride, no thanks to the current financial turmoil.
It is common to hear investors lamenting about how much they have sunk into the stock market, only to see the value of their stocks plummet.
If you have a stock portfolio and are bearish on where the market is heading, there are two things you can do: sell your stocks now, which may mean a loss, or just hope for the best.
Rather than do nothing, you may also want to check out the recently relaunched Straits Times Index (STI) Futures, which provide retail investors an opportunity to profit even from a falling market.
For those unfamiliar with the topic, the benchmark STI represents the performance of the top 30 stocks of the Singapore market, based on market capitalisation. They include Singapore Press Holdings, Singapore Exchange (SGX), SingTel and the local banks.
STI Futures are contracts or agreements between buyers and sellers to buy or sell the STI portfolio of 30 stocks at an agreed price (futures price) to be settled at a specific future date.
STI Futures were launched in 2000 but not many retail investors were aware of this tool. With the relaunch last Thursday, there will be firms that provide ready buy and sell prices for STI Futures. This will lead to greater liquidity of the product.
It is a useful tool for investors who wish to take a position on where the local market is heading - that is, whether they believe that the STI will trend up or down - by buying or selling STI Futures contracts.
This means trading based on broad market movements instead of single stock movements. This reduces the need for individual stock selection; your risk is also diversified over 30 stocks instead of being pegged to a single stock.
At the same time, it can help to protect you against, or help you profit from, fluctuations in the stock market.
Here are some things you need to know about STI Futures:
What is the value of one STI Futures contract?
The value of each STI Futures contract is equal to $10 multiplied by the current index trading level.
For instance, if the index is trading at 2,300, holding a futures contract will be equivalent to investing $23,000 in the stock portfolio of the 30 listed companies.
This means that when a STI Futures contract is traded, the seller has, in essence, agreed to sell $23,000 and the buyer has agreed to buy $23,000 worth of stocks, as measured by the STI.
How are STI Futures transacted?
You are not required to cough up the full payment equivalent to the contract value. But the buyer or seller must each put up an initial margin deposit with the broker in order to secure the contract.
This margin, which is decided by SGX, is typically about 5 to 15 per cent of the contract value. The prevailing initial margin is $1,625 for one contract.
The margin essentially means that the STI Futures allow the investor to trade a portfolio of 30 stocks at a mere fraction - about 5 to 15 per cent - of its value.
At the end of each trading day and all following days that your position remains open, the contract value is "marked-to-market".
Your account is credited or debited based on that day's trading session. If your margin deposit falls below a certain maintenance level - currently set at $1,300 - your broker will request additional funds to replenish your trading account. If your position generates a profit, you may withdraw any excess funds from your account.
Margin levels prescribed by SGX are based on the movement of the underlying stock market as represented by the STI. The margin levels, therefore, will fluctuate depending on the historical and prevailing movement of the STI.
Do I need to own any of the stocks included in the STI in order to trade the futures contract?
You do not need to own any stock in order to trade the STI Futures. In stock index futures trading, you do not actually deliver or receive any stocks.
How can I profit from trading the STI Futures?
Like trading stocks, the point is to buy low, sell high.
The STI Futures offer the flexibility of buying and selling in whatever order you want.
That is, you can "buy first, sell later" or you can "sell first, buy later". If you think prices are going up, you may establish a "long" (buy) position, and if you think prices are going down, you may initiate a "short" (sell) position.
In addition, with the STI comprising a portfolio of 30 stocks, you can effectively participate in the broad market movements without the hassle of stock-picking. Each index point movement has a value of $10.
In other words, you gain $10 per index point rise if you have a long position or per index point fall for a short position.
Below are two trading scenarios:
Scenario A
Day 1: You are bullish about the Singapore stock market and decide to buy a September STI Futures contract at 2,400.
Contract value = 2,400 x $10 x 1 contract = $24,000
Initial margin required (at $1,625 per lot) = $1,625
The STI rises that day.
End-of-Day 1 settlement price = 2,425
Daily marked-to-market profit = (2,425 - 2,400) x $10 x 1 = $250
You now have a paper profit of $250.
Margin account balance = $1,625 + $250 = $1,875
As you have not liquidated your contract, you have one lot of open position.
Day 2: Market rallies further to 2,438. You feel the price is good and decide to take profit, selling your September STI Futures contract at 2,438.
Daily marked-to-market profit = (2,438 - 2,425) x $10 = $130
Margin account balance = $1,875 + $130 = $2,005
Total net profit = $130 + $250 = $380
In this scenario, your bullish outlook holds and you ultimately make a net profit of $380 when you liquidate your position.
Scenario B
Day 1: You are bearish about the short-term prospects of the Singapore market and decide to sell a September STI Futures contract at 2,400.
Contract value = 2,400 x $10 x 1 contract = $24,000
Initial margin required (at $1,625 per lot) = $1,625
Contrary to your initial bearish view, the market turns bullish; the STI closes higher.
End-of-Day 1 settlement price = 2,435
Daily marked-to-market loss = (2,435 - 2,400) x $10 x 1 = $350
You now have a paper loss of $350.
Margin account balance = $1,625 - $350 = $1,275
Maintenance margin required (at $1,300 per lot) = $1,300
You have a margin call and must deposit additional funds now because your margin account balance of $1,275 is below the maintenance margin of $1,300.
You need to top up $350 to bring it back to the initial margin level of $1,625.
Day 2: The market shows a decline.
You want to cash in on this move by liquidating your position by buying a September STI Futures contract at 2,388.
Daily marked-to-market profit = (2,435 - 2,388) x $10 = $470
Total net profit = - $350 + $470 = $120
In this example, you ultimately make a net profit of $120 on Day 2 when you liquidate your position.
How long should I hold on to a position?
As stock markets can be volatile, you take advantage of price movements by getting in and out quickly. Depending on your personal preference and perspective, you may wish to adopt a short-term trading approach (taking a position for one day, one hour, or even just a few minutes); or medium-term approach (several days to several weeks); or long-term (months at a time).
What are the risks?
The initial margin deposit is relatively small compared to the contract's value. The transaction may lead to quick and substantial profits, but the reverse is true for losses too when prices do not move in the expected direction. Investors should also be mindful of margin calls if the margin account falls below the maintenance margin.
It is possible that you may lose more than the amount you have in your margin account under circumstances of extreme market movements. Investors are strongly advised by financial experts to use only excess funds that they can afford to invest.

This article was first published in The Straits Times on October 5, 2008.

Looking on the bright side of the financial collapse

Looking on the bright side of the financial collapse
By Michael Lewis

One of life's rules is that there's bad in good and good in bad. The total collapse of the US financial system is no exception. Even in the midst of the current financial despair we can look around and identify many collateral benefits.
A lot of attractive office space seems to be opening up in midtown Manhattan, for instance, and the US government is now getting paid to borrow money. (And with T-bills yielding 0 per cent, they really ought to borrow a lot more of it, and quickly.) And so as Morgan Stanley chief executive officer John Mack blasts short-sellers for his problems, and Goldman Sachs CEO Lloyd Blankfein swans around pretending to be above this little panic, we ought to step back and enjoy the positives.
To wit:
We finally get to see what's inside these big Wall Street firms.
We've just witnessed the largest bankruptcy in US history and we know neither the inciting incident (though there is speculation that sovereign wealth funds decided to stop lending to Lehman Brothers Holdings Inc), nor the deep cause. But there's now a pile of assets and liabilities smouldering in New York awaiting inspection.
The assets include sub-prime mortgage-backed bonds and no doubt many other things that aren't worth as much as Lehman hoped they might be worth. But it's the liabilities that are most intriguing, as they include more than US$700 billion in notional derivatives contracts. Some of that is insurance sold by Lehman, against the risk of other companies defaulting.
The entire pile might be benign, but somehow I doubt it. We may well find out that Lehman Brothers, in liquidation, has a negative value of hundreds of billions of dollars. In that case the natural question will be: How much better could things be inside Morgan Stanley and Goldman Sachs, both of which were engaged in the same lines of business?
We are creating the financial leaders of tomorrow.
Remember when everyone believed in Alan Greenspan? When John McCain, running for US president in 2000, said that if Mr Greenspan died he'd have him stuffed and propped up against the wall at the Federal Reserve, where he'd remain chairman?
No sooner did Mr Greenspan shuffle off the stage and sell his memoir than the financial system he helped shape fell apart. He's left not only a mess but a void.
No matter how well-educated we become in our financial affairs, we still need public officials to look up to, unthinkingly. And there's nothing like a government bailout to create new public-sector heroes. US Treasury Secretary Hank Paulson, 62, is probably too old; in any case, he's tarred by his association with both George Bush and Goldman Sachs. But 47-year-old Tim Geithner at the New York Fed is perfectly positioned to make Americans feel as if their financial system is in good hands for many years to come.
Getting the credit
I have no real idea if Mr Geithner knows what he's doing and he may not either. ('Bail out that one. No! Not that one - the other one!') It doesn't matter. He's in the middle of great events and should, by the end of them, know more about what happened than anyone.
Whatever happens to the US financial system someone is bound to get the credit for something even worse not happening and, as no one really understands what Mr Geithner does, he's the obvious choice.
Ordinary Americans get a lesson in low finance. It's been expensive but, then, so is kindergarten.
Americans' willingness to believe that we can hire some expert to tell us how to outperform markets is a big problem, with big consequences. It underpins Wall Street's brokerage operations, for instance, and leads to a lot more people giving out financial advice than should be giving out financial advice.
Thanks to the current panic many Americans have learned that the experts who advise them what to do with their savings are, at best, fools.
Merrill Lynch & Co, Morgan Stanley, Citigroup Inc and all the rest persuaded their most valuable customers to buy auction-rate bonds, telling them the securities were as good as cash. Those customers will now think twice before they listen to their brokers ever again. Many, I'm sure, are just waiting to get their money back from their brokers before they race for the exits and introduce themselves to Charles Schwab.
Bank of America Corp will soon discover that the relationship between Merrill Lynch and its customers isn't what it used to be, but Bank of America's loss is America's gain.
America has lots of new houses. Not all of them have people in them, sadly, but that's a minor detail. Even better, no one has had to pay for them, and probably never will.
I'm betting that the US government will soon have no choice but to take the final step and guarantee every bad mortgage loan ever made by Wall Street.
I can hear you thinking: Doesn't that mean the taxpayer foots the bill? That's so negative! Sure, one day some taxpayer will foot the bill but if the government does what it does best, and continues to borrow huge sums from foreigners, it doesn't have to be you or me.
Huge numbers of Wall Street executives will have the time to raise their children.
For years now Wall Street has been far too lucrative for a certain kind of energetic and ambitious person to justify anything but the most perfunctory personal life. Now that the market for his services has collapsed, he has time to go home and figure out which of the children roaming around the mansion are actually his.
In time, he will learn to love them and they him, and they will gain the benefit of his wisdom and experience. Perhaps one day they will put it to use as traders and investment bankers on the Wall Street of the future, where they will report to those exalted creatures of high finance: loan officers.
There, slowly, they can earn the money they will need to pay off the mortgages defaulted upon by their forebears. - Bloomberg
The writer is a Bloomberg News columnist and the author of 'The Blind Side'. The opinions expressed are his own.

This article was first published in The Business Times on September 19, 2008.

Starting Kids on Managing Money

Starting kids on managing money Teach your kids good money management. -->

By Lorna Tan, Finance Correspondent

My son was nine when he popped this question: 'Who gets the house when you and Dad pass away, Mum?'
Startled, I retorted: 'I'm giving it to the church.'
In case my parish priest is reading this, I'm sorry, I lied. I wanted to avoid giving the boy the impression that he could depend on his parents financially for life. Better for him to stand on his own two feet and be responsible for himself when he grows up than to depend on handouts.
But what am I doing to ensure this?
The recent media reports highlighting the undesirable trend of younger Singaporeans facing credit woes were a wake-up call for me. It appears that most of these young adults are snared by materialism and a desire for the high life. With easy access to credit, they splash money on cars, branded goods, clubbing, gadgets and overseas holidays.
As a parent, I would be devastated if my kids became bankrupts through bad money management. In fact, it will be an irony because a large part of my job is to advocate in my articles the importance of financial literacy.
Like all parents, I want my children to be useful and upright people leading fulfilling lives. However, it is becoming evident that having reasonable levels of IQ (intelligence quotient) and EQ (emotional quotient) is no longer adequate to get through life successfully. We've neglected the importance of FQ (financial quotient).
Finally, Singaporeans are slowly waking up to the reality that it is not enough to 'study hard and earn money' but also how to save and invest it. This was why I decided to register my kids for a two-day financial literacy programme during the June school holidays. It was called the MoneyTree programme, conducted by home-grown firm Young Entrepreneurs' Secrets. It costs $680 to $880 per person, depending on the level.
My 15-year-old daughter was receptive to attending the programme but I had difficulty convincing my 14-year-old son to do so because he did not see the necessity for it. Neither did he want to give up two days of his precious vacation time. Frustrated, I ended up giving them $50 each as an incentive.
I sat through half of the first day's session and was impressed with what the children were put through.
In an informal classroom environment, some 14 children were taken through a series of key topics, including how the forces of demand and supply determine prices of goods, the types of income and their sources, managing money and prioritising expenditure.
To simulate the real-world environment, the children were provided 'play' currency and 'credit cards', which gave them a feel of the financial pitfalls that exist in the real world.
I found myself gritting my teeth when my son was the first among the participants to use his 'credit card' to pay for a transaction, without considering the interest-rate charges that would snowball. I was tempted to intervene but I quietly consoled myself that it was better for him to make mistakes now than learning them the costly way later in his adult life.
The youngsters were taught the importance of budgeting and 'paying yourself first' so as to prevent overspending. Another key lesson was to differentiate between needs and wants. 'It's not how much you make, it's how much you keep' was something that the trainers emphasised throughout the programme.
Useful takeaways from the programme include the importance of saving early to take advantage of the benefits of 'compound interest' and the 'Rule of 72'. The former refers to interest paid on both the principal and accumulated interest over time, while the latter shows how long it takes to double your money by dividing 72 with the expected interest rate.
For instance, if you invest $10,000 in an instrument that gives you an annual return of 6 per cent, that sum will double to $20,000 after 12 years.
In the same vein, the price of a burger will double to $8, 12 years from now, assuming it is currently sold at $4 and the annual inflation rate is 6 per cent.
On the second day, the children learnt more about bank savings and making their money work harder by having multiple income sources and investing in stocks and unit trusts, and the differences in risk and reward between saving and investing.
I hope the lessons my two kids gleaned from the two-day workshop will go a long way, but I'm aware that I, too, have a role to play in instilling good money habits in them. One method recommended by experts is to encourage the saving habit by matching the kids' savings. I should also hold back from giving in too easily to their demands when they badger me for gadgets and consumables like mobile phones.
Recently, I started involving them in my financial planning by giving them an idea of the various instruments I use to make my money work harder for me. By doing so, I hope they will understand the need to plan for their financial future early by inculcating good money-management skills and discipline.

This article was first published in The Straits Times on August 17, 2008.

Start saving to get on to the wealth track

WEALTH is often measured by a posh home, luxury car, several private bank accounts, and a fat salary.
But Paul Clitheroe, probably one of Australia's most visible spokesmen for financial literacy, says it is not how much you earn that makes you wealthy. It is how much you spend.
That is, frugality and a savings habit will help you get started on the wealth track. 'Globally no one understands that,' he rues.
He recounts that just the day before, he had a four-hour conversation with a bank chief executive earning a $3 million salary, and saving nothing. 'That's common. When he got home at night, doing his own budget was the last thing he wanted to think about. He spent the whole day doing the bank's budget. I could teach him nothing. Every good principle of money advice he knew. He will see a financial planner next week; he will know more than the financial planner.
'I told him - you're far better educated, but you have to shut up and listen. What the planner will do is to make you do the basics, a budget. You should be saving $1 million a year. Then he said - 'I got it! I thought the financial planner was a genius who is going to make me rich.' '
Mr Clitheroe was one of five founders of Australian financial advisory group ipac in 1983. The five friends pooled personal savings of a total of A$100,000 (S$127,000) to start ipac. In 2002, ipac was sold to AXA for about US$250 million. Today the group, which has an office in Singapore, manages more than US$14 billion in assets. Four of the founders remain active in the business.
Mr Clitheroe, who has written books, says: 'My role was always to be out in public to talk about the value of advice.' Between 1993 and 2002, he hosted a Money programme on Australian television, and has been chairman and chief commentator of Money Magazine since 1999. Currently, he is ipac executive director, and also chairman of the Australian government's Financial Literacy Foundation.
'What is financial literacy? Of every dollar I earn, I spend 80 cents and put aside 20 cents. You have financial literacy. The more educated people are, the more they earn, the less likely they are to save. The people in Singapore who most understand budgeting will be the poorest who wonder how they are going to buy rice tonight.
'They actually possess more financial literacy than many others put together. As a community like Singapore develops, the less people worry about how they will buy rice, we lose financial literacy.'
Mr Clitheroe says one of the great and persistent fallacies is that a financial adviser can make you wealthy. He tells aspiring entrepreneurs - who tend to be Asian - to take their savings, start a business, and return to see him in five years. Ipac's audience, instead, tends to be wage-earning executives.
'I don't believe financial advisers make people rich. People make themselves rich. The adviser's job is often a strategy to turn career earnings into wealth. But with a business owner, the time to save is likely to be when the business is sold, and that's a significant amount of money.'
People, he says, tend to chase 'false prophets' - in this case, the myth that an adviser can be a 'magic pill' to wealth. He recounts that earlier in the day, he exchanged pleasantries with a passing Australian couple here who recognised him. 'As they walked away, the question they asked was - Do you have a hot tip for us?
'What are the true hot tips? Be nice to your mother and don't stand on a canoe. That's valuable information,' he guffawed.
'It's like the diet industry. Would I prefer to eat chocolate doughnuts and eat a magic pill to keep slim? Give me the magic pill! Who is tricking us? If it looks too good to be true it will be.'
As Asians tend to be entrepreneurial, Mr Clitheroe say ipac's growth in Asia is likely to be slow. He shrugs off competition from private banks, however. 'When we sold ipac, I became a classic private bank customer. But a private bank is a money manager; they're not my life counsellor.' This is because a bank makes money from transactions, deposits and loans, and thus is more likely to churn clients' accounts.
Ipac charges a fee for advice, although this isn't common in the advisory market here. 'If you don't pay someone an annual retainer, how do they possibly give you trusted advice? I'm a very happy private bank customer, but the bank is transactional. My banker gets promoted every couple of years, and I get a new banker. In (ipac), clients that talked to me 25 years ago still talk to me. I have the same business cards with the same number. That's what I call a trusted advice model.'
He adds: 'We're not pretending this will be a dominant model in Asia; it won't be. But we feel very strongly it will be a powerful niche. Over time, most of our clients will come from other clients.'
Meanwhile, some of Mr Clitheroe's efforts goes towards getting employers in Australia to offer financial literacy courses to their staff. 'Around the world, employers say, that's not my problem. But the best argument for financial literacy is that it is in the interests of profitability and shareholders.'
Research in the US and Australia increasingly shows that financial stress in employees leads to lower productivity, absenteeism, demands for higher pay, and higher turnover as staff chase higher salaries elsewhere.
'I tell companies that building financial literacy through workplace training is not only a good statement about their role as a community citizen, it will make money for shareholders. The second I talk about making money, the conversation shifts dramatically.'
Some employers, he says, are concerned that staff who are financially comfortable will quit their jobs. 'Employers say, if they're broke, they'll need to work for me ... I say let's look at the research. People get bored with early retirement. Ten years ago the typical Australian retired at 55. But most went back to work at 57, and it's not due to money. It's the social contact they miss. Financially independent people are better employees. They go to work because they want to work.'

This article was first published by The Business Times on Aug 6, 2008.

When ' GOOD' debts turn 'BAD' things get ugly

When 'good' debts turn 'bad', things get ugly
By Alok Kumar
Today's uncertain economic outlook calls for consumers to think about what they actually need to spend to maintain the lifestyle they are accustomed to, and to carefully assess if they have the financial flexibility to cope with any change in circumstances.
Although consumers may start thinking about spending on big ticket items like holidays, home improvement and car purchases to take advantage of the strength of the Singapore dollar before prices increase further or to enjoy current low interest rates, consumers should still exercise prudence in their spending.
A recent survey by GE Money Singapore revealed that 66 per cent of respondents felt that the uncertain economic climate has made them more cautious when considering a loan.
If a loan is required, one needs to evaluate the loan that one is taking.
Debt can be a complex issue and it is thus necessary for consumers to be able to differentiate between 'good' and 'bad' debt.
'Good' debt essentially helps one make purchases for items or essentials that one may not have enough savings for at the moment, but can well afford in the long run. It is essentially debt that can create value.
When used intelligently, debt can be positive and even be of assistance in building wealth. Examples of 'good' debt can broadly be divided into three areas.
These include loans taken to purchase assets such as property that may appreciate in value; for activities or items that are beneficial such as education to enhance one's qualifications that will likely increase one's earning ability and long-term returns; loans for business ventures for which business owners need cash that they do not have at the moment to fund or expand their facilities, with the aim of getting better returns in terms of business profits.
In addition, debt, if used prudently, can often be leveraged to one's advantage in certain circumstances. For example, one of the most common uses of loans applies to the purchase of cars.
We often see cars as depreciating assets but very often, it is a necessity or a mode of transport that gets one to work to earn a living.
While some consumers may be able to pay for their cars upfront or even pay for a property with existing cash without taking a loan, most will prefer to leverage debt so that they can free up cash for other purposes that may yield greater benefits in their opinion.
Depending on the individual's unique circumstances, the 'freed-up' cash can be used as emergency reserves to prepare for a rainy day.
Or, it may be used by savvy investors who can generate returns in excess of the interest rate they pay on their car loans. For example, there are also some small business owners who find it cheaper to take a car loan, and use the available cash to finance business needs, and hence gain better returns.
For instance, take a car loan quantum of $100,000 with a flat interest rate of 2.5 per cent (effective interest rate of about 4.61 per cent per annum).
A business owner who can afford to pay cash for the car might take full financing at these rates and use the cash to finance his business needs instead, considering that current business loans have an interest around 9 to 13 per cent per annum, effectively leveraging debt to his advantage.
A debt is considered 'bad' when a person has to stretch himself beyond his means, overspends and as a result, is unable to settle his loan repayments.
As a general rule of thumb, most financial experts recommend that an individual's total personal debt should not exceed 36 per cent of gross income.
Besides the debt-income ratio, keep in mind that a person can fall into a debt trap through the accumulation of late payment and interest charges as well.
For example, the concept of 'bad' debt often comes into play when discussing the purchase of discretionary items using high-interest credit cards and not having the ability to pay off the credit card bill in full.
The discretionary item, especially if purchased without considering one's financial situation, continues to lose value, while the amount one paid for it continues to increase.
Exacerbating the 'bad' debt factor, some consumers may be tempted into applying for in-store credit cards for the savings offers that range from 10 per cent to 20 per cent off the cost of purchases upon signing up immediately.
What people often do not realise is how much of that savings may be destroyed by the high interest rate, sometimes as high as 24 per cent per annum, on the card if they fail to pay for these items immediately.
Penalty charges for late credit card payment can also be incurred and amount to additional expenses on top of the higher interest rates.
Be careful to avoid turning 'good' debt into 'bad' debt by considering factors such as other existing monthly payment obligations, both fixed (eg housing, car, insurance) and variable (eg food, clothing) as well as possible shifts in the economic climate, to ensure that you are comfortable with the monthly repayments, and prevent unnecessary late payment charges.
Of course, even after careful planning, there may be instances when consumers need to make adjustments to their cash flow, or would require a loan.
Consumers appreciate and look for flexibility when considering a loan. In the GE Money consumer survey, 95 per cent of respondents stated that flexibility was an important or very important consideration when taking a loan.
Yet, more than half viewed their current personal loans as restrictive and felt imprisoned by the inflexibility presented by current industry offerings.
There are in fact, flexible personal loans in the market that cater to the consumers' needs for repayment flexibility. For example, personal loans that offer flexible repayment options including payment holidays and the option to pay interest only at the start of the loan, etc.
These payment features help individuals manage changing financial circumstances, by allowing customers to allocate cash to where it is needed most, without incurring heavy penalties for taking a break from the loan payment.
In fact, the GE Money survey showed that 43 per cent of consumers appreciated flexibility at the start of the loan, the time when they are usually strapped for cash, while 43 per cent felt that it was important to have flexibility to deal with unexpected events that can possibly take place midway through a loan's term.
Ultimately, a loan can help an individual, and can be a positive affair when taken responsibly. Consumers need to consider what is needed to leverage debt to their advantage and to prevent 'bad' debts.
Consumers need to build a good credit history that not only shows accountability and maturity about the individual, but will help the individual obtain other future loan facilities when needed.
Exercising financial responsibility and prudence when it comes to taking a loan will help individuals take steps towards building a better future for themselves and their families, and facilitate their future requirements at different stages of life.
The writer is chief marketing officer of GE Money, Singapore.
This article was first published in The Business Times on 4 July 2008.

START EARLY, and TIME IS ON YOUR SIDE

Start early, and time is on your side
It's embarrassing to say this because it makes me seem money-minded, but I sleep with my financial calculator at my side.
The reason is very simple.
I enjoy playing with figures, and one of my favourite bedtime activities is punching different permutations of numbers into my calculator to work out the number of years it will take for me to fill up my pot of gold, which to me means financial independence.
PAY YOURSELF FIRST
When you sit down to sort out your bills, the first cheque you write should be to yourself. Work out what you can realistically save every month and pay that 'bill' first by depositing the money in the bank or investing it. Then, and only then, pay your other bills. Start with a modest sum and stick to it. Set aside more when your income goes up. If you get a bonus, sock part of it away.
It never fails to amaze me that it is possible to grow a modest sum into a sizeable one simply through the power of compounding.
For instance, do you know that $68 a month invested for annual returns of 8 per cent over 30 years will generate a sum of $102,020? But if your investment horizon is shorter, say, 10 years, you will need a larger monthly sum of $554 invested at the same rate of 8 per cent to generate $102,020.
Consider this: If you start saving at the age of 20, putting away $2,000 a year until you reach 30, and you continue to stay invested without any further input of cash till you turn 63, you will have nearly the same amount of money socked away as a person who also saves $2,000 every year but starts a decade later, between the ages of 30 and 62.
To illustrate this, let's assume Mr A started a yearly investment of $2,000 at age 20 and stayed invested for 10 years, at a rate of return of 6 per cent. Then, from age 30 to 63, he allowed his investment to continue growing at 6 per cent without any further annual inputs of $2,000. At age 63, his investment would total about $191,150.
In contrast, take the case of Mr B, who embarked on a yearly investment of $2,000 only when he turned 30. He must continue putting in $2,000 a year all the way till he turns 62 before the total value of his investment grows to about $192,690.
A handy and easy tool that illustrates the effects of compounding is the Rule of 72.
To work out how long it would take for your investment to double in value, divide 72 by the expected percentage return. With a return of, say, 9 per cent a year, to double your money, you would need eight years, that is, 72 divided by nine.
This means that if you invest $10,000 in an instrument that gives you an annual return of 6 per cent, that sum would double to $20,000 after 12 years.
I've concluded that to make compounding work for you, two things have to be present: a good savings discipline and a long investment time horizon.
Set up a saving routine and stick to it
Let's look at the first one. Without the discipline to save, there can be no surplus for investments.
Not long ago, I ran into a former colleague who complained that she was unable to save every month, after settling her bills and paying for entertainment. It was clear to me what the problem was: She was paying others before she paid herself. Being disciplined about saving includes learning to 'pay yourself first'.
It is not that difficult to make savings your priority. Decide how much you can realistically save by taking into account your monthly liabilities. Start with a modest sum and stick to it. Increase this portion when your income goes up. Don't spend all your year-end bonuses.
Over the years, I have found that most people have trouble saving for the long term. They might be disciplined at the beginning and save for a short time, but then, they throw caution to the wind by blowing all their hard-earned savings away on some big-ticket purchase such as a holiday or a car.
I have money automatically channelled from my pay and deposited into regular savings plans so I have no access to it. After all, if I don't see it, I'm much less likely to spend it.
Financial experts typically advise clients to save 20 per cent of their pay. Learn to distinguish between needs and wants, limit expenditure on depreciating assets such as consumables and live beneath your means. Don't give in to compulsive buying habits and make it a habit to question every purchase.
Start as early as you can
The second factor required to make compounding work for you is a long-time horizon. This refers to the amount of time you have before you actually need to cash in your investments.
Generally, if you have less than one year, your investments should be kept liquid, in savings and money market funds. If you have a medium- to long-term horizon of five to 10 years, your money should be kept in a mix of cash, lower-volatility instruments such as fixed income, and equities.
If you have an even longer horizon, you have enough time on your side to ride out the volatility of investing in equities, so more of your investments could be channelled there, depending on your risk appetite.
This is why it's just good sense to start saving early as well as regularly. In fact, get started as soon as you get a job because you will have more time on your side. Check out regular saving schemes, which include savings plans offered by banks as well as insurance plans. Many unit trusts also let you make regular savings plan contributions from as little as $100 to $200 a month.
We work hard for our money, so let's make sure our money works just as hard for us. Focus on the long term and make time your best ally.
This article was first published in The Sunday Times on May 25, 2008

Dispelling 10 money myths

AMID the backdrop of a beleaguered stock market and challenging economic conditions, it is even more imperative that you manage your wealth well. More often than not, our wallets are lighter than they should be because of unsound beliefs in how to amass and grow our wealth such as the following:
You cannot lose money with high grade bonds
With the stock market is facing more challenges today, investing in the safety of good grade bonds seems like an excellent idea. But nothing can be further from the truth. In fact, investing in long-duration bonds or 'long bonds' may be one of the greatest investment mistakes of the next decade.
This is because bonds are effectively IOUs issued by corporate bodies or governments to raise money. They pay a fixed rate of interest over a fixed term, say 10 years. But while the income may be fixed, the price is not. A bond holding bought one year ago, for instance, is likely to be worth a lot less now if interest rates start to surge. In fact, the longer the duration of the bond, the sharper will be the drop in its value when interest rates go up.
You can time the market
A client asked me recently whether it is true that many unit trust investors lose money. There is some truth in this but it is not entirely accurate.
Let us compare the following: The annualised return for the S&P 500 over the last 20 years, with dividend invested, is about 11 per cent a year. Meanwhile, the average investor of unit trusts, investing in S&P 500 companies, earns only 6 per cent a year during the same period. As for the average direct stock investor, he earns a meagre 3 per cent a year during that time.
The only plausible explanation for such great discrepancies is poor timing, which just goes to show that timing the market accurately is an almost impossible task. Most investors are in fact consistently worse off due to the poor timing of their investment.
Bluechip stocks are low risk
Remember previously local hot favourites like ACCS, Citiraya and China Aviation Oil? Their rise was meteoric but their fall from grace was equally spectacular. Over in Europe, shares of Northern Rock Bank of the UK are almost worthless. In the US, the collapses of Enron, Worldcom, and more recently the plunge in Bear Stearns' share price from US$160 to US$10 is still fresh in our minds. Many top Wall Street banks are now scrambling to raise cash to beef up their depleted reserves from the sub-prime write-offs.
Much of the stockmarket losses may well take more than a generation to recover. For example, the US stock market hit a peak in 1967 and did not cross that mark until 15 years later in 1982. The Japanese stock market reached its secular peak in 1989. Even today, the Nikkei is trading at less than one-third of its historical high. Many global technology funds are also trading at less than 50 per cent of their all time highs from 2000.
I will start saving when I have enough money
It is never too early to cultivate the good habit of saving, because the sooner you start, the longer the period your money gets to grow. This is my general advice to people of all ages, but young people in their 20s and 30s should take special heed as they tend to overspend.
Despite our grand new year resolutions to start saving more, many seem to always fall behind their planned saving schedules. It is best that you put money aside in a systematic manner through an insurance plan, a regular savings plan or a recurring investment programme. Start with an amount you feel comfortable with and gradually step it up when you gain more confidence in setting aside the committed amount.
I am too young for life insurance
You may be young, but you are not immortal. As soon as there is someone who depends on you financially, you will need life insurance. That may be a partner whom you share a mortgage with, a spouse, or children - anyone who would struggle for money as a result of your death.
Statistics show that you are five times more likely to suffer a critical illness than you are to die before age 65, as heart attacks and cancer are becoming more survivable than ever before. In fact, most people who contract multiple sclerosis are aged between 20 and 40, and half of all testicular cancer cases show up in men under 40. As such, all Singaporeans should make sure that they have adequate critical illness cover in their life insurance programme.
There is no need to teach children about finance
Ignorance and money are a dangerous combination, so it is very important to help your children understand the value of money. Parents should start discussing the concept of money with their children once they start saying they want something. For a start, you can begin by teaching them that they get things only when they earn them.
As your children get older, you can introduce them to the concept of stocks. You could buy them some Singapore Airlines (SIA) shares and tell them that when they fly on an SIA plane that they partly own the plane and the company, so if SIA makes money, they will too.
This way, they will understand from a young age the importance of saving and investing wisely, so they will be able to take better care of you when you get old.
I am changing my car because the new car is better for my cash flow
This is one of the silliest notions I keep hearing over and over again from clients. To be fair to the salesman, we, the buyer, want to believe him. Our ability to exercise good judgment is often obscured by our innate desire for that flashy piece of metal. We figure that life is going to be much easier when we are the object of envy among friends, colleagues and relatives.
The moment a new car is out of the showroom, its resale value would already be much lower. Also, you would have to take a huge loss when you sell off your old vehicle. Lower maintenance cost of a new car is largely an illusion, as most Japanese or European cars are made to last for at least 10 years without major problem. Although the monthly loan financing of the new car may be lower, this is usually because you are stretching your loan repayment period and you have also ignored the par value of your current car in your calculation.
Nevertheless, this remains largely a lifestyle decision, and if your income can support it, it is really no great sin to spend some money for that extra attention. To me, I am too much of a miser to consider it.
I should pay off my mortgage as soon as possible
Liquidity should be the No 1 consideration in any prudent investment. Many Singaporeans believe that home equity (defined as the excess of your property valuation over your remaining mortgage) is a convenient nest egg which they can tap when they are in financial trouble. But the opposite is true instead.
You see, banks are income lenders, not collateral lenders. They associate assets with liens, but their first requirement is that you must show your ability to repay your loan. The irony is that you almost have to prove that you don't need the money before they loan it to you.
But note that what I am advocating is not piling up excessive debt but the proper management and utility of debt to enhance your wealth. In fact, most people do not realise that mortgage interest can be used to offset their rental income in their income tax computation, thus reducing their effective borrowing cost of a rental property.
A shortage of land in Singapore means property prices cannot fall
It is true that land may be scarce in Singapore but it is mathematically impossible for residential prices to appreciate faster than income over long periods of time. Think about it. If home prices go up more than income over time, nobody would be able to buy a place to live in, apart from inheriting one.
Other common property-related myths include:
Prime properties never fall in price.
During the last property market correction in Singapore from 2001 to 2005, property across the entire spectrum of the market was affected, regardless of whether it was high or low-end. Remember, there is a difference between high prices and increasing prices. Prices may be high, but they may not be increasing.
House prices do not fall to zero like stock prices, so it is safer to invest in real estate.
It is true that house prices do not fall to zero, but your equity in a house can easily fall to zero and even below that. It just takes a fall of 30 per cent to completely wipe out people who only have 25 per cent equity in their house. This means that house price crashes may actually be worse than stock crashes. Singaporeans should take note especially since most of their retirement funds are locked in their property, and the money may be leveraged.
I do not know why I always overspend
The cause may appear unclear initially but actually the following are some of the common reasons why people spend beyond their means:
Buying happiness: This is an easy trap to fall into, since most advertisements go to great lengths to associate a product with happiness. They lead you to purchase things by persuading you that doing so will make your life better. While the purchase itself may give you pleasure, the feeling is fleeting. You will end up having to purchase something else to find more 'happiness'.
Keeping up with the Joneses: Spending to bolster your image is dangerous. In many cases, the Joneses are doing exactly the same thing to keep up with you.
Embarrassment: Often it is hard to admit to friends that you do not have the money to take part in certain activities, so you play along instead and pay for things that you cannot afford. These could be anything ranging from a weekly dinner at a fancy restaurant to regular golfing sessions.
Lack of patience: Some people want instant gratification. When they see something they fancy, they want it immediately, regardless of whether they can really afford it.
Laziness: Instead of doing some research, looking for deals and spending their money wisely, they often pay too much for things. When bargaining, a sure-fire technique is to ask dispassionately, 'What is the lowest you can go?', even if you feel that the price is already very good and you really want that item. Often, the seller will give you a better offer.
Hopeless optimism: Many people spend with the expectation that they will earn more money soon as a result of a pay rise or bonus. But if the bonus or raise does not work out as expected, there will be a lot of debt to account for.
Charge and charge: Some people who do not have the cash in hand see credit cards as real money. This, of course, can get them into a lot of financial trouble.
These are just a few reasons behind overspending - some people may be motivated by a combination of several reasons. Whatever your reasons, understanding the motivating forces behind overspending can help you address the issue and get a new 'lease of life', financially speaking.
This article was first published in The Business Times on May 14, 2008

THE POWER OF COMPOUNDING IN INVESTING

The power of compounding in investing
Time could help regular-savings-plan investors chalk up a considerable sum of returns.
Clearly, the initial investment sum plays an important role in the sum of returns. Let's say you invest $100,000, assuming an investment return of 20%, you would get $120,000 in total. The sum would diminish to $12,000 if you had invested only $10,000 at the same rate of return. So some people may have an illusion that investment only work well for people who invest large sums of money.
Well, not exactly. Even if you invest a relatively smaller amount, you could make a very good return by utilising the power of compounding. What you need to have on your side is TIME; or simply to invest early. Let's illustrate how much $100,000 would grow at steady rates of return over different periods as shown in Table 1.
Assuming a long term rate of 2% per annum, the initial amount of $100,000 would grow to $ 122,000 in 10 years, and $181,000 in 30 years' time. However, if you chose to just invest into fixed deposits at this point of time, you would probably expect a lower rate to be used for compounding. The current fixed deposit rates from three largest local bank ranges from 1.4% to 1.5% per annum as at 20 February 2008. If you chose to invest in a diversified balanced portfolio with a 40% weighting in fixed income funds and 60% weighting in global equity funds, you would probably expect returns from 5% to 7% per annum over the longer term.
Thus, if an investor chose to invest in a diversified portfolio with an average rate of return of 7%, the investment could grow at a faster pace. Assuming a rate of return of 7%, in 10 years, the investment will grow to $197,000 and to $761,100 in 30 years' time.
You may wonder, "What if I am good at building an aggressive equity portfolio and I invest early?" Assuming an annualised return of 12% - in 10-year's time you would have made $311,000, which is 3.1 times of the original investment amount. The sum balloons to almost 30 times the original amount in the span of 30 years. A great value investor like Warren Buffet generated annualised returns of 21.4% in the past 42 years (since 1966). With the power of compounding, the investment grew tremendously to 336 times the original amount in 30 years.

Source: Fundsupermart.com compilations, all figures rounded off to the nearest thousands
The table above illustrates that fixed deposit may look safe but would entail substantial "opportunity cost" of giving up investment. As long as you invest early and pick the right asset class or portfolio, even a decent annualised return of 7% would bring you a long way. Investing for the long term also helps investors to tide over short-term volatility in equity markets. Long-term value investors are less-likely to exhibit too much fear during volatile times unlike many ordinary stock investors who just look into momentum investing.
Other than investing a lump sum for the long term, investors may also choose to invest regularly by using the Regular Savings Plan. This investment strategy is suitable for long-term investors to make use of the power of compounding. by Kelvin Yip

10 ways to overcome the shrinking dollar

10 ways to overcome the shrinking dollar

It takes discipline and a sound investment strategy to combat the corrosive effects of inflation, say financial experts.
1. Cut down spending, live within your means
IPP Financial Advisers investment director Albert Lam's advice is to review your lifestyle and consumption patterns.
For instance, you can substitute a branded item with a no-frills one, or switch to a cheaper mode of transport like the bus.
2 Try to save 20% of your pay or more
This is a useful tip especially for those just starting their careers, says head of ipac financial planning's advisory team, Mr Bill Castellas.
Establishing a disciplined pattern of 'money behaviour' will go a long way towards building surpluses for long-term investments.
3 Do not be overly conservative
Invest your money instead of leaving all of it in savings deposits or fixed deposits, said Mr Lam.
New Independent's financial advisory manager Stanley Sim also suggests that instead of parking spare cash in savings deposits, investors can place it in money market funds that have zero sales charges and offer better rates.
Impact of inflation on purchasing power
4 Don't rely solely on guaranteed products
Mr Castellas feels that such products, like bonds, might provide peace of mind but only marginal protection against inflation over the long term.
5 Save regularly via an investment platform
The earlier you start investing a small amount that you can afford to set aside, the quicker your investment will grow till it builds up into a significant sum in later years.
'Set aside an affordable sum from your daily expenses each month via a regular savings plan,' said Mr Castellas.
'You can put it into growth-oriented assets like equities and or real estate investment trusts.'
6 Take on sensible level of investment risk
Build an investment portfolio with a reasonable spread of defensive and growth assets that suit your lifestyle.
7 Invest for returns that will beat inflation
In order to beat inflation, consider investing in a globally diversified portfolio of stocks and bonds with a long-term horizon, said Mr Sim.
A moderate-risk portfolio, comprising 60 per cent equities and 40 per cent bonds, should be able to generate a 6 to 8 per cent return a year over the long term.
8 Understand the power of compounding
Start planning, saving and investing as early as possible so you can enjoy the benefits of compounding, said Mr Lam.
He suggested investors apply the Rule of 72, a handy tool that illustrates the effects of compounding.
To work out how long it will take for your investment to double in value, divide 72 by the percentage return. With a return of, say, 9 per cent a year, to double your money, you will need eight years, that is, 72 divided by nine.
Mr Sim noted that if you can invest $10,000 in an instrument that gives you an annual return of 6 per cent, that sum will grow to about $32,000 after 20 years.
If you start early, the compounding effects will help you fight inflation by preserving and growing your wealth.
9 Invest in asset classes that appreciate
Both Mr Lam and Mr Sim gave property as an example. But invest in this asset class only if it is within your means.
If rents increase at a faster rate than inflation, your property rental yield will provide a healthy return, they said.
10 Limit exposure to depreciating assets
Such assets include consumer goods like cars.

by Lorna Tan

10 TIPS TO SAVE YOU MONEY

IT is tax time again.
You have until 15 Apr to file your tax form or until 18 Apr if you e-file.
The Inland Revenue Authority of Singapore (Iras) expects that 85 per cent of the 1.5 million taxpayers will e-file this year, up from 80 per cent last year.
Most employers are in the auto-inclusion scheme. That means you can view your employment income at https://mytax.iras.gov.sg, check that the information is correct, and click 'submit' to file your tax return. It's easy.
Here are 10 more tips to help you save money on taxes.

Tip 1: You have no tax to pay - if you earned less than $22,000 last year.
If you receive a tax form or PIN mailer, however, you are required to submit your tax return to Iras regardless of your income.
To check if you need to file a tax return, send an SMS message with your IC number to 91164900 using this format: Filetax S1234567Z.

Tip 2: Paying through Giro
About 60 per cent of taxpayers pay through Giro.
It allows you to make up to 12 months of interest-free instalments, from May 2008 to April 2009.
Otherwise, you have to pay within one month of receiving your tax bill.
You can download the Giro application form at www.iras.gov.sg.
Tip 3: Wife Relief

If your wife was not working or earned less than $2,000 in 2007, you can claim 'wife relief' of $2,000.
There is no corresponding 'husband relief' in the case of a non-working husband.

Tip 4: Qualifying Child Relief
QCR is $2,000 per child for the first three children. Either parent may claim the full amount or it may be split between both parents.

Tip 5: Working Mother Child Relief
For first, second, third and fourth children, the relief is 5, 15, 20 and 25 per cent of a working mother's wages.
Both this and the QCR can be claimed for Singaporean children up to 16 years old, or above age 16 if a full-time student with income less than $2,000 in 2007, excluding scholarships.

Tip 6: Parenthood Tax Rebate
This is $10,000 for your second child and $20,000 each for your third and fourth children born in 2004 or later. The rebate may be split between the parents in any way they choose.
This one is huge since it is a rebate, which you deduct directly from your taxes. It reduces taxes more than a relief, which is subtracted from your income.

Tip 7: Parent Relief
You can claim parent relief of $5,000 if your parent is staying with you and $3,500 if not.
The parent must be 55 years or older, live in Singapore and earned less than $2,000 in 2007. You can claim for up to two parents.

Tip 8: Foreign Maid Levy
A working mother may claim this relief even if the husband paid the levy. It is twice the amount of levy paid. So the maximum you can claim is $4,440 if you qualify for the concessionary levy of $170 per month with effect from 1 Jul 2007, and $6,720 if you don't.

Tip 9: Grandparent Caregiver Relief
Are you a working mother with Singaporean children aged 12 or younger in 2007?
Then you can get a relief of $3,000 for one (only one) of your parents or in-laws who help to look after your children. They must be living in Singapore and not working in 2007.

Tip 10: One-off 20 per cent rebate
As announced in this year's budget, resident taxpayers will receive a one-off personal tax rebate of 20 per cent, up to a maximum of $2,000.
This rebate is automatically included by Iras, so you need not declare it in your tax form.
-By
Larry Haverkamp
Mon, Mar 24, 2008 The New Paper

Retire young, retire rich

ACCORDING to the annual world wealth report compiled by Merrill Lynch and the Capgemini Group last year, Singapore registered the fastest increase in the number of US-dollar millionaires in 2006. More than 11,000 people joined this wealthy club that year, raising the number of high net worth individuals to a total of 66,660.
With more and more people making it into the group of the wealthy, it appears that joining their ranks is no longer as unattainable as once thought. No wonder many young professionals and undergraduates here are dreaming of joining that select group sooner rather than later. If you are one of those with that goal in mind, it may be timely to start planning how to get there. After all, the earlier one starts, the higher the chances of getting there in time. Here are some tips culled from various sources.
Start saving now and let compound interest work your way
'Tip number one is you have to start saving immediately,' said James O'Shaughnessy, founder of O'Shaughnessy Funds and author of How to Retire Rich in an earlier CNN Money report. 'The younger you are when you start, the better chance of retiring in style.'
Easy as it seems, most people have trouble saving for the long term. 'Saving is often a vicious cycle for most people. They are only disciplined enough to save in the short term before blowing all their savings away in a big ticket item like a car,' said Alvin Chia, a private investor who turned financially free at the age of 27. 'It is important to live below your means and avoid splurging on unnecessary items if you want to achieve the retirement dream early.'
Both early savings and living below your means allow you to take full advantage of the power of compound interest. If you save $2,000 a year starting at the age of 20 until you are 30, you will still have more money than a person who saved the same amount between the ages of 30 and 60. Enough said.
Pay yourself first
Taken from David Bach, who shared the powerful concept of automated savings in his book, The Automatic Millionaire, the trick to this is to have money automatically channelled from your payroll and deposited into your savings account before you even have access to it.
Invest for the long term
Equities offer the best form of long-term growth among most classes of investments. From 1926 through 2004, stocks - using the S&P 500 index as a measure - have posted an average annual return of 10.4 per cent versus a mere 5.4 per cent for bonds, according to Ibbotson Associates.
Both Mr Chia and Laura Oh, a 26-year-old home tutor, have their investments mostly in equities as well. They both have achieved their financial freedom.
Interestingly, they are both long-term value investors who invest in undervalued companies that pay high dividend yields and use these dividends to re-invest again when the right opportunities strike. Miss Oh, for one, started paper trading at the age of 19. 'Starting to invest early and putting your money into the right class of investments definitely helps you grow your money faster than putting it in fixed deposits,' she said.
Have a detailed game plan and monitor your progress
Set realistic goals by projecting your retirement expenses based on your needs. 'Know how you want to live in retirement and be honest about it,' said Mr Chia. 'Then calculate how much savings you need to put aside a year to achieve your ultimate goal.' One rule of thumb is that you will need at least 70 per cent of your annual pre-retirement income to live comfortably.
Review your status at least every couple of years to make sure you are still advancing towards your goal.
Don't be discouraged by failures and remain focused
It is not uncommon to meet with obstacles along the way. Don't lose faith or be daunted by the goals that you set for yourself. Break that impossible goal into a million achievable bite-sized goals and conquer each one at a time. As Mr Chia recalled, he was relentless in the pursuit of his retirement dream and took small steps to build up his investment pool. He said: 'When I was 19, I worked as a security guard at night to make sure I was making money sleeping. My main duty was to open the gates for the staff every morning and in that process, I earned myself $1,400 extra a month just from sleeping.'
Find a mentor to guide you
Having a mentor to constantly give you personal advice on your financial state and the allocation of your investment portfolio is a major plus. Very often, your mentor should also be someone who shares the same life and investing philosophy as you. Only then can the mentorship be very successful.

By Jason Low

How Much to Give Mum and Dad

MONEY talk can be a taboo topic not only among couples but also between parents and their grown-up children.
Once the children start working, how much of a cash allowance they give their parents on a regular basis often becomes a touchy issue.
Give too much and the children might suffer financially; give too little and their parents might not be able to maintain their current lifestyle.
Let's look at two contrasting examples. Computer consultant Diana Low, 42, gives a token monthly sum of $200 to her parents, who are retired comfortably.
This is in contrast to her colleague, Ms Joyce Chua, 43, who gives $950 per month to her parents, who are less well-off than Ms Low's parents. She also pays the phone bills at her parents' house.
Both earn about $11,000 monthly and are married with two children.
Clearly, Ms Low's amount will look meagre compared with Ms Chua's.
But advisers such as Mr Stephen Teo, Alpha Financial Advisers' business director, believe that the amount that one gives ought to be a matter of financial capacity and not filial piety.
"Filial piety to me is about the commitment to take care of your parents when they need you and should not be measured by the amount of money you give them," he said.
Mr Tony Tan, a consultant with independent private wealth manager Providend, suggests that if parents are working and can comfortably support themselves, "the gesture of giving is more important than the amount itself".
He explains that this is especially so in traditional Asian societies that hold filial piety in high regard. "This act of giving symbolises our gratitude to our parents for their unconditional love and nurturing all these years," he said.
Ms Low said: "My parents don't need money from me, so the $200 monthly allowance is just a token sum."
On the other hand, Ms Chua considers herself part of the "sandwich generation" - those who have one source of income but two sets of dependants' financial commitments to be fulfilled - ageing parents and growing children.
Anecdotal evidence suggests that many children do not discuss budgets or other money-related issues with their parents early enough.
Nevertheless, good communication regarding finances is critical to a healthy relationship not only between couples, but also between adult children and their parents.
Many start communicating only when it becomes unavoidable - for instance, when their parents are suddenly taken ill and the question surfaces as to who should foot the bill for long-term care.
In Ms Chua's case, her brother Alvin, 37, gives a monthly allowance of $800 to his parents, in addition to footing the annual premiums for their hospitalisation plans.
Ms Chua's parents are retired and totally reliant on their two children to support them. In this case, it is important to know how much would be sufficient for them to lead a comfortable lifestyle.
Mr Teo proposes that before deciding what amount to give your parents, you should have a clear idea of your own financial situation. Only then would you know how much you had in excess to meet various other financial commitments.
Factors that affect your financial capacity to give an allowance to your parents include: income, expenses, the number of dependants that you have, and other financial goals such as housing, education and retirement.
Mr Tan estimates that, as a minimum, $600 a month "should provide a decent standard of living" for one retiree living in his own flat. This is based on certain assumptions such as a fully paid-up home mortgage and a moderate lifestyle, including one annual regional vacation.
For two parents, he worked out that the minimum monthly allowance would be about $1,000.
This amount is sufficient to cover basic monthly expenses such as utilities, groceries and transportation.
As for himself, he gives $1,000 every month to his parents, to be split equally between his mum and dad.
The actual payment can be made in various ways such as cash, Giro, cheque or directly into an investment portfolio.
from: Lorna Tan

Father of index funds

JOHN Bogle may not rank among the Buffetts and the Soros in the investment world today but he is well respected around the world for being the father of index funds and founder of one of the two largest mutual fund organisations in the world. He started the Vanguard Group in 1974.
He has since retired from the company but is still active in the financial world as the president of Vanguard's Bogle Financial Markets Research Center where he continues to write and lecture about investment issues. While at the helm of Vanguard, he started the world's first index fund, Vanguard 500 Index Fund in 1975, and oversaw more than 100 mutual funds with current assets totalling over US$550 billion.
Born in Montclair, New Jersey in 1929, Mr Bogle studied the mechanics of mutual funds in college and laid the foundation of index mutual funds in his thesis report. Being the pioneer of no-load mutual fund and a champion of low cost index investing, he sees himself as an advocate for the retail investors. Bogle is always seen putting the interest of the investors first and constructively criticising the mutual fund industry - the very industry that he created.
He feels that mutual funds today are overly profit-motivated and charging investors too hefty a fee. And today, he is still seen championing the cause for individual investors by setting forth to tackle the rampant mutual fund marketing problem of excessively promoting performance and charging.
Below we'll take a look at some of the main rules of Bogle's investing philosophy.
INDEX FUNDS ARE THE WAY TO BEAT THE PROS
Mr Bogle has always been a strong advocate of index funds, the financial instrument that he himself created and therefore understands so well. An index fund is, as he explains, 'simply a basket (portfolio) that holds many, many eggs (stocks) designed to mimic the overall performance of any financial market or market sector.' That is to say, the effective returns of the investor will be equivalent to that of the market return less a relatively low fee of 0.1-0.3 per cent.
He believes that the low cost and low turnover nature of index funds will allow investors to earn better returns as compared to allowing investment professionals out there manage their money in an actively managed fund. Such professionals charge substantially high commission fees of between one and three per cent.
Simply put, Mr Bogle believes that in the long run, the passively managed index fund investment will outperform the actively managed fund, taking into account the fee most active managers charge in aggregate.
Looking at the 36-year period from 1970-2006, he found that only three out of 355 funds beat the index consistently, a clear indication that the investor with a multi-decade horizon should choose the index fund.
Mr Bogle also recommends putting nearly all of the US portion of an investor's stock portfolio into the S&P 500 as it is considered as the quintessential index to track the performance of companies in the US.
His style of buying the haystack rather than trying to find the needle (in the market) strikes a chord with investing great Warren Buffett who commented that the know nothing investor can actually outperform most investment professionals by investing in an index fund. Thus it seems that such an investing style will provide a perfect way for new investors to get started investing in the market and yet outperform professionally managed funds.
TIME IS YOUR FRIEND, IMPULSE YOUR ENEMY
Mr Bogle's style encompasses a long term horizon for all his investments. He discourages investors from letting transitory changes in stock prices alter their investment programmes. He once said: 'There is a lot of noise in the daily volatility of the stock market, which too often is 'a tale told by an idiot, full of sound and fury, but signifying nothing'.'
Stocks can remain overvalued or undervalued over the years. But with time on the investor's side, he should exercise patience and enter into these stocks at the right time (when they are undervalued) and wait for them to realise their true value over the years.
Time is indeed an investor's friend if he is able to utilise this time to his advantage by doing his own research into his watchlist of stocks and waiting for the most opportune time to get invested in some of them when they are undervalued. When the investor is able to do that, he will almost definitely be getting a bargain for his buck and also effectively decreasing his risk-reward ratio.
Mr Bogle also once said that the greatest sin of investing is 'to be captured by the siren song of the market, luring one into buying stocks when they are soaring and selling when they are plunging.' Impulse, therefore, is an investor's worst enemy because emotions will come into play leading to irrational decisions. Moreover, it is simply impossible to time the market, especially during a period of market volatility.
PURSUE THE RIGHT FORM OF RETURNS - EAT THE BAGEL NOT THE DOUGHNUT
Mr Bogle also has a sense of humour when it comes to dealing with serious stuff like investing. He uses two different kinds of baked goods - bagel and doughnuts - to symbolise two distinctively different elements of stock market returns.
Investment return - dividend yields and earnings growth - is the bagel of the stock market: nutritious, crusty and hard-boiled. By the same token, speculative return - the change in prices that investors are willing to pay for each dollar of earnings - is the doughnut of the market: reflecting changing public opinion about stock valuations, from the soft sweetness of optimism to the acid sourness of pessimism. He urged investors to enjoy the bagel's healthy nutrients but don't count on the doughnuts' sweetness. Investors should have realistic expectations of the returns that they will gain and avoid relentlessly speculating in the market to gain extraordinary returns.
Owning the entire stock market through an index fund might be a winning philosophy for some investors mainly due to an index fund's cost efficiency, tax-efficiency and assurance of earning for them the market's return. But only if one follows one of the most important rules for successful investing: Stay the course and do not be deterred by investment losses. In the long run, the true investor will eventually win given that he has time on his side, is well-researched in identifying undervalued stocks and is not tempted to eat the sweet tasting doughnuts!

Jason Low
Mon, Jul 30, 2007The Business Times

The pitfall of performance chasing

SOME people liken investing to gambling - you pick a game (market) you like, calculate the risks involved, put a bet (investment), and with a combination of luck and odds, you hope to walk away with a gain.
The truth is, investing is actually a lot more complex, and perhaps why it's not called gambling is that, while factors such as economic circumstances and local/global events (ie, what some call 'luck') play a part, these risks can be managed, or at least mitigated.
That said, investing really is all about odds. It's about figuring out how likely a stock, bond or other investment will yield returns, by how much, and by when.
And despite claims to the contrary by some individuals, we do not have the benefit of a crystal ball to gaze at to reveal the future. So instead, we have to look at current - and past indicators - to help us predict the future.
Last week, we talked about financial ratios, and how they could help us determine the health of a company. This week, we expound on one of the most important principles when investing: that the past performance of a company or investment is no guarantee of future results.
Many investors brush this statement off without realising how often they break this particular principle. In fact, there's an industry term that is used to describe such behaviour - performance chasing.
Some investors jump on the band wagon whenever brokers or industry watchers start touting a hot new asset class or sector.
They dump huge amounts into this new-found love affair, only to come away disappointed with the returns, which can sometimes even be in negative territory.
Worse still, some investors pull out current investments in order to help finance these new ones, and thus incur frictional expenses like commissions and fees, thus compounding the situation.
For instance, the latest high-end property boom has seen some people making amazing sums of money by buying and 'flipping' their units.
However, don't be fooled - there are also plenty of stories of those who assumed that there was quick money to be made, but ended up instead being unable to flip the million-dollar apartments which they had no intention of keeping in the first place.
In fact, history has often showed that in many cases, the best time to invest in a particular sector is after it's suffered some horrible industry trends.
So before you jump into that new investment you might want to ask yourself some questions:
Has this particular sector, industry, or stock experienced a sudden increase in price recently, and does this still make the investment attractive?
Have the prospects for better earnings already been priced in?
What makes you think the returns from this investment will be materially higher in the future than they are at the present time?
Another very important question you have to ask yourself is, how well do you know the investment, sector or business you intend to invest in? As a general rule of thumb, you should only go into businesses you understand.
For example, if you are thinking of buying into the stock of a property company, then you should understand the economics of the property sector. Based on your understanding of the sector, how far ahead can you forecast how profitable the company will be? How certain are you of that prediction?
So it really isn't a good idea to just jump into a sector or investment because you're afraid that you're going to miss out if you don't.
A more recent - and painful example, for some - was the Internet boom, which saw thousands of investors rushing head first to grab a piece of the pie.
As an intern at The Business Times then, I remember attending countless launches of new companies which had hit on the 'next big Internet technology that would revolutionise the world'.
And at every turn, gleefully heady angel and seed investors regaled me with tales of how the Internet would change the way we live our lives, and make plenty of companies rich, to boot. Well, it has - but today, less than a handful of the dozens of companies I interviewed are still around, and many investors have lost staggering sums of money.
The corollary to that is that there were also some stunning successes, and some very rich - and probably very retired - investors. So, there are risks, and there are rewards, but don't be silly and jump into an investment just because everyone else is.
As my grandma always said: 'If everybody decides to jump off a building, you also want to jump?'

Daniel Buenas
Mon, May 21, 2007
The Business Times