Monday, March 15, 2010

Time to wise up to your money plans

Tue, Nov 24, 2009

The Straits Times

By Lorna Tan, Senior Correspondent

If there is a silver lining from the economic downturn, it is that people have been shaken out of their complacency.

For many retail investors, it is a wake-up call that they must take charge of their financial planning and know what they are investing in.

This mindset change was evident among the 700 participants at a financial literacy seminar in July.

Held at Suntec, it was organised by the Securities Investors Association of Singapore (Sias) and supported by MoneySense and the Association of Banks in Singapore (ABS). MoneySense is a national financial education programme launched by the Monetary Authority of Singapore (MAS) in 2003.

It was part of a series of quarterly investor education seminars under the 'My Money' Financial Literacy Programme. The programme aims to help consumers become more informed and responsible investors by instructing them on the basics of savings and investment products.

Singapore Management University senior lecturer of finance Ang Ser Keng as well as Mr Ng Teck Yaw and Mr Koh Keng Swee from ABS shared facts on bonds and life policies such as investment-linked insurance policies and how they can play a part in one's financial plan. They also spoke on managing one's portfolio via an asset allocation strategy.

Sias president and chief executive David Gerald wrapped up the four-hour session by highlighting the importance of managing risk in investments through diversification. He also encouraged investors to learn about investing step by step and outlined the three dimensions of investing: Know yourself, know the products and know the strategies.

I was one of four guest panellists during the question-and-answer session that followed, and the questions came fast and furious.

It was clear from the queries that investors are adopting a more cautious approach to investing. This is understandable. After all, an investor may not know if he has an aggressive appetite until he experiences the volatility of the market first-hand. After having gone through one cycle of that in recent months, many investors should have a better understanding of their risk profiles now.

Eager to minimise their investment risk, several participants wanted more information on 'safer' products like bonds, Singapore Government Securities and exchange-traded funds.

One participant asked if unit trusts and exchange-traded funds helped in diversification. The answer from the panel was that they generally do.

Another wanted to know if it made sense for him to have set up a 30-stock portfolio, and if he should reduce it to a more manageable size. He was advised to cap it at 10 stocks so that he could monitor it more effectively. Fast forward to November, and there have been encouraging signs that the economy is turning around. I can only hope that people will remember the lessons they have learnt and not let bad old investing habits return.

Investors should assume an active role where their personal finance is concerned. Even if they leave their money to professional advisers and fund managers, they must monitor their investments regularly.

It might be worth their while to take note of these points:

There is no 'free lunch' in investing. The higher the potential returns, the higher the risk.

Do not take on more risk than you can tolerate.

Do not be attracted to an investment based on the attractive offers of potential returns alone. Find out and understand the risks involved.

If you plan to invest your Central Provident Fund (CPF) savings, consider the interest you are currently earning, that is, 2.5 per cent per annum (pa) for Ordinary Account and 4 per cent pa for Special Account. From Jan 1 last year, the first $60,000 of your combined CPF balances, up to $20,000 from the Ordinary Account, earns an extra 1 per cent interest.

Before investing, ask yourself:

What is your investment objective and time horizon?

How much can you afford to invest?

How much losses are you prepared to incur?

Is the product suitable for you?

What are the fees and charges?

What is the worst case scenario?

Is the product provider and financial adviser regulated by MAS?

Are there other alternative products?

It is heartening and refreshing when consumers try to ask the right questions before channelling their money into investments. After all, it is only you who can make a significant difference to your financial health.

This article was first published in The Straits Times.

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