Sunday, January 31, 2010
Higher Medisave to pay for long-term treatment
Contributions rate is likely to go up as it is now not enough to meet our needs due to our aging population. The current 6.5% to 9% contribution is not enough to build up reserves to pay for huge medical bills and long-term care.
We must always save for our future as we cannot predict what will happen in the future. The likelihood of us falling ill for a longer period in our lives will increase as medical technology increases.
But the question comes, is there sufficient savings for it? If not what will happen to you? To your family, love ones?
Friday, January 29, 2010
Travel Insurance
Mon, Feb 26, 2007
The New Paper
I REMEMBER the smile on my travel agent's face when she asked me the question: 'Ummm, it's not that I want to make your trip unlucky or anything, but do you want to buy travel medical insurance?'
Her grin was so sheepish, the tone so apologetic, you'd think she was asking me for an extension on a long-overdue loan instead of recommending something as useful as travel insurance.
TOUCHY SUBJECT
Unfortunately, insurance is one topic - like religion and politics - often avoided like the plague.
You're never sure if the person you're recommending it to is going to thank you for thinking ahead or thunk you for jinxing his holiday plans.
People don't mind insuring their luggage against loss, but health insurance means you actually have to entertain the idea that you could get seriously hurt or sick.
And that's like putting the fly in the ointment, the cold water in your warm bubble bath, the pop in your happy bubble.
But as last weekend's tragic events at Rottnest Island involving Singaporean diver Serene Teng show, it's not about being jinxed - it's about being prepared for anything.
What happened to Ms Teng and her family is tragic enough without the spectre of a huge medical bill at the end of it all.
A Royal Perth Hospital official revealed that one day in the ICU room costs $4,850. Serene has been inside since Sunday. That amount doesn't include medication or specialist treatments like MRIs and CT scans.
Her flight from Rottnest to Perth cost around $1,200, and every ambulance ride she had to take would cost between $580 and $660.
Australians are renowned for their compassion and generosity, but even so, there will be some out-of-pocket expenses.
Nobody likes to think about being injured.
For the superstitious, simply buying insurance is an open invitation to your stars to fall out of alignment and hurt themselves - and you - in the process.
For the budget-conscious traveller, it could be viewed as an unnecessary expense, and those who like to visit Disneyland because they like living in fairy tales think, 'It won't happen to me.'
But it can, and it does, and hoping it doesn't happen to you or thinking that a two-week trip would be about as risky as eating an apple is just plain fantasy.
EXPECT THE UNEXPECTED
Anything can happen.
The crown from one of my mother's teeth fell out when she bit into an apple during her visit some years ago. And on another trip, she caught the most horrific flu and ended up paying close to $150 for treatment and medication.
Having lived in Perth for 14 years now, I have heard so many horror stories of Singaporeans involved in accidents. I have even seen for myself first-hand, from those who have visited our church, the immense pressure that the money question imposes on emotions already strained to bursting point.
And I have friends who have paid thousands overseas because a son had to be admitted to hospital for food poisoning or hundreds for dental treatments that would have cost only $60 back home. When you think of how little travel insurance costs compared to that, it doesn't make sense to leave home without it.
The columnist is a freelance writer living in Perth. To give feedback, e-mail tnp@sph.com.sg
Cartoon by Adam Lee
Thursday, January 28, 2010
You Do It for Love
What do love and life insurance have in common? More than you might realize. The main reason you buy life insurance is because you love someone. Think of it as the ultimate act of selfless love.
Allocating your assets throughout your life
The following is a guide to help you determine how to allocation can be done for your portfolio based on your stage in life. This is only a guide; your portfolio may look quite different because of your circumstances, risk tolerance, or other factors.
The reason for this gradual shift away from stocks is that, as you age, you have less time to make up losses you may incur in stocks. If you go through a bear market in your 30s, you got decades to recoup your losses, and chances are good that you will come out way ahead in the long run. But a bear market in your 50s or 60s can seriously damage your nest egg and may even derail your retirement plan.
The percentage of each investment type changes as you get older. Notice that stocks should constitute a healthy chunk of your investments even in retirement. There are 2 reasons for this:
- Because you can expect to live longer in retirement that your grandparents did, you need to have at least some growth in your portfolio to stay ahead of inflation.
- Stocks and bonds tend to move in opposite directions, so even when you are retired, you want to hedge your bets against low bond yields when stocks are setting new record highs.
If you are married and counting on only one retirement plan to see you through your post-work life, you are still putting all your eggs in one basket. Divorce, illness, or death can leave on of you with little or no income. Each of you needs your own retirement plan for financial stability.
The most important thing is to avoid putting all your eggs into one basket. Even if you are in your youth and retirement is decades away, you will still need some cash and bonds in your portfolio to counter the risk you take in stocks. REITs can be there to help protect you against the effect of inflation which can significantly devalue your cash and bonds.
Being too conservative with your investments is as risky to your long-term financial health as being too aggressive. If you take too much risk, you could lose most or all of your savings. But if you are too conservative, your savings become vulnerable to inflation, and between inflation and taxes, you risk dooming yourself to a lower standard of living in retirement.
The percentage of each investment type changes as you get older. Notice that stocks should constitute a healthy chunk of your investments even in retirement. There are 2 reasons for this:
- Because you can expect to live longer in retirement that your grandparents did, you need to have at least some growth in your portfolio to stay ahead of inflation.
- Stocks and bonds tend to move in opposite directions, so even when you are retired, you want to hedge your bets against low bond yields when stocks are setting new record highs.
If you are married and counting on only one retirement plan to see you through your post-work life, you are still putting all your eggs in one basket. Divorce, illness, or death can leave on of you with little or no income. Each of you needs your own retirement plan for financial stability.
The most important thing is to avoid putting all your eggs into one basket. Even if you are in your youth and retirement is decades away, you will still need some cash and bonds in your portfolio to counter the risk you take in stocks. REITs can be there to help protect you against the effect of inflation which can significantly devalue your cash and bonds.
Being too conservative with your investments is as risky to your long-term financial health as being too aggressive. If you take too much risk, you could lose most or all of your savings. But if you are too conservative, your savings become vulnerable to inflation, and between inflation and taxes, you risk dooming yourself to a lower standard of living in retirement.
Wednesday, January 27, 2010
Strategies of a financial adviser
The Straits Times
By Chris Firth
What do financial advisers do with their own money that most individuals don't do? I can't speak for advisers as a group, but I can give you a selection of insights into my own strategies. But bear in mind that these approaches may not be suitable for everyone.
Almost everyone has a need for a safe place for cash. However, fixed deposits are not on my shopping list. I would use a money market fund instead. A unit trust that calls itself a 'money market fund' must comply with strict guidelines on quality, issuer and tenure. The result is a low-risk investment that easily outperforms a fixed deposit if you can live without a guaranteed return. Currently, a 12-month fixed deposit promises you a paltry 0.45 per cent or so. In contrast, the LionGlobal SGD Money Market Fund is averaging around 1.3 per cent and the Phillip Money Market Fund around 1 per cent.
At least, I try to. If you can keep your nerve, crises are good times to buy equities. During the second half of 2008, I built up a six-figure investment in the Legg Mason Southeast Asia Special Situations Fund. That decision didn't look too smart in March last year but is now booking a healthy profit. Why this particular fund? It has a high beta (moves rapidly compared to the broad market) and the fund manager seems to benefit more than most from rising markets. Importantly, though, I keep my overall exposure to equities comfortably inside my personal risk threshold. So even if things go wrong, it won't be a disaster.
Unlike many of my clients, and possibly fellow advisers, I rarely buy individual stocks. The reasons are twofold. First, once you start looking at an individual firm, you have to do your homework extremely well. This can be very time-consuming, if done properly. Unlike the risk of an index or well-diversified fund, company risk comes in a myriad of flavours.
Second, when I do have a strong view on a firm, I am more likely to buy options than shares. Options give you the ability to take many different positions: optimistic, pessimistic or looking towards a certain pattern of future price movements. Options also allow significant profits to be made through their inherent leveraging.
It's not extraordinary to have returns of 100 per cent to 500 per cent (or a loss of 100 per cent). My rationale is: If you have a strong conviction on a counter and have put in the effort to research it, then don't bother with the stock - go for an option. I would buy options on United States stocks. If you want broad market exposure, buy exchange traded funds or unit trusts.
VIX is short for the Chicago Board Options Exchange Volatility Index, a measure of implied volatility. It is sometimes called the 'fear index', and is generally high when there is negative sentiment in stock markets. During the recent crisis, the VIX hit 80, compared with its more usual range of 10 to 30.
It is possible to buy this index by using VIX call options, effectively betting on rising fear. These call options will rise in value as the VIX rises. This is a strategy I have successfully deployed in the past three to five years. Sadly, I did not have the imagination in 2008 to see the VIX surpassing 80 (thinking that a level of more than 40 was already too pricey). However, one missed opportunity doesn't invalidate the approach.
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Over the short or medium term, the current rate of 4 per cent on the CPF Special Account (SA) is an extremely good deal on a risk-reward basis. The only rational justification for eschewing the 4 per cent and investing under the CPF Investment Scheme is to have a very long horizon and choose a fund with as much equity exposure as is allowed. An important point here is that returns must be viewed in the context of their risk. A 4 per cent return in Singapore dollars with no risk is great.
It's been fashionable in the advisory industry to knock whole life insurance. But the smoothing ability and long-term investment horizon of insurance companies shouldn't be sniffed at. A whole life plan is a good instrument to diversify your portfolio and can insure you for life to boot. However, if I were looking for only protection, I would certainly include term plans in the insurance mix.
Anyone intending to buy a car should try to avoid or minimise a car loan, as they are much more expensive than they may appear. A typical car loan at 2.45 per cent represents an effective borrowing rate of almost double, around 4.65 per cent. Why? All the car loans I have seen charge interest each year on the full amount borrowed, rather than on the balance outstanding. If you avoid borrowing at 4.65 per cent, that is equivalent to investing in a product that guarantees you a 4.65 per cent return. Such a product would be a smash hit if launched today. Hence, not taking a car loan beats even the CPF SA savings rate.
No one I have heard of forecasts markets accurately and consistently, nor has anyone been able to create a reliable model of economies. Moreover, the past is a poor guide to the financial future. Investment guru Warren Buffett reportedly said: 'If past history was all there was to the game, the richest people would be librarians.' It's best to take the view that over the short run (for example, the 12 months of this year), there is a huge random element affecting the outcome of the economy and stock markets. The art of investment starts with the calm acceptance that you don't know what is coming next.
The writer is the chief executive of wealth management firm dollardex.com.
This article was first published in The Straits Times.
Tips for successful investing
Mon, Oct 12, 2009
The Business Times
By ALBERT LAM
Investment director
IPP Financial Advisers
MONEY cannot buy love but it can buy happiness. The topic of money is one of the most important in our lives. Preoccupation with this subject is universal, since it is of concern to nearly all humans. Even the Bible expounds at great length about our attitude towards money and our responsibility towards its proper stewardship. The main cause of divorces around the world has been shown to be argument and struggles over money. I have also seen people who have gone from riches to rags, and from rags to riches.
Ironically, money has no bearing on the degree of joy, as joy is a reflection of contentment. Money, however, does have a significant impact on happiness because one can buy temporal happiness with money. Just think of a man who becomes happy when he gets his hands on the latest fast car or gadget, or a woman who can't stop smiling, with the coveted 'it' bag of the season on her arm.
Discipline
In the past 20 years, I have made my fair share of mistakes in investment. I went through the 1987 crash, the 1998 currency crisis, the 2000 technology bubble, 2003 Sars and the 2008 Great Recession. Having gone through all these, I realised that success in investment depends on many facets. It is both a science as well as an art.
More importantly, one's ability to manage fear, greed and risk will determine whether you invest successfully. Successful investing also involves the discipline of sticking to a long-term strategy planned to achieve your goals, together with an appropriate short-term strategy for the season; in other words, there is no short cut in investment and there is no magic formula.
There are many successful investment gurus whom we can look at to acquire knowledge and whose wisdom we can ride on for financial success. I will share some of the wisdom that I have picked up over the years.
If you want to prosper, investigate before you invest; short cuts do not work well. I once invested in a very promising health-related business that had strong sales and a loyal following. However, the company lacked experience and strong management capabilities. The company expanded too fast and eventually had cashflow problems. I learnt from this investment that investing in other people's business carries the highest risk, and good management is more important than a good business.
To achieve success, be a realist with a hopeful nature. John M Templeton once said, in investment work, you cannot afford to be an optimist or pessimist; if you are going to succeed, you need to be a realist. It is human nature to lean towards either extreme as we are easily influenced by sentiment and public opinion. It is tougher to be a realist. A realist is someone who has evaluated the facts and figures (which requires hard work) and has arrived at an objective view. A realistic person accounts for the possibility that he could be wrong if certain scenarios do not take place. When that happens, he would not be too stubborn to change position and admit his mistakes. David Stockman, ex-president Ronald Reagan's budget director, said that when the basic direction of reality changes, you have got to get with it.
Manage your risk and learn to ride through tough times. I once met a billionaire who told me that a person's dream can turn into a nightmare if he cannot manage his cashflow. His nightmare can in turn be someone else's dream come true. He was referring to over-leveraging, especially in the property market. If servicing your home loan requires 80 per cent of your disposable income and daily expenses take up the rest, would you be able to continue with mortgage payments should you suddenly lose your job? Avoidance of over-leverage applies to all types of investment.
Patience is a virtue. Time in the market is more important than timing the market. Most contra players in the stock market lose money because they have to get the direction right within a specific timeframe; that is like fighting two wars at the same time. However, someone with a longer investment time horizon can have the luxury of waiting for their investment to bear fruit. Think of Warren Buffet, who has held Coca-Cola stock since 1988.
Profit-locking
Diversification is a must. Different financial instruments carry different risks and rewards. The correlations of equities, bonds, hedge funds and commodities are quite low when packaged into a portfolio. In general, with the exception of last year, these instruments do not go up and down together. Therefore, in a market collapse, you should find some protection in a diversified portfolio that has some of the mentioned asset classes.
Profit-locking is paramount to long-term success in investment. One of the world's most prominent hedge funds adopts this strategy conscientiously. An investor should set a goal of locking in at least 50 per cent of his profit every year. I have seen too many cases where a client's investment profit went up substantially, only to have the paper profit evaporate totally in a down cycle.
There is a common belief among some that one should always stay invested regardless of what happens to the external environment. I do not fully subscribe to this view as there is a season for everything. It is wise to stay invested but the asset allocation should be adjusted to suit the investment climate. There are times that we should be fully invested and there are times to have more in cash. There is nothing wrong with holding cash even though deposits are not paying much. When asset prices fall, the same amount of cash can buy more - this is like having a higher return.
If things still don't go well despite adopting the above guidelines, remember that money has four legs and we have only two; money runs much faster than we do. Therefore, one must save and invest regularly. An investment that yields inferior returns for a period of time is better than not having the discipline of putting aside a fixed sum for savings or regular investment.
Summing up, having the right mindset towards money management would help us stay focused on accumulating for the long term and handle market volatility with relative ease. Believe in what you are doing and stay determined in following through on your plan.
This article was first published in The Business Times.
Tuesday, January 26, 2010
Indian stocks too hot: Analysts
Recommendations on India are being cut by investment strategists because of it risk a "tactical correction" as investors have failed to price in the effect of rising interest rates and inflation.
Inflation likely to rise after flat end to 2009
Inflation was fairly flat last month. However there is predictions that inflation rate will be 4% this year and it will increase by 1.2% to 3% next year.
The higher inflation is due to the recent run-up in food prices. Another factor will be higher electricity tariffs and it is expected to increase in April.
How to beat inflation
Warren Fernandez
Sun, Apr 06, 2008
The Straits Times
It is ironic. Singaporeans who are uncomfortable with taking financial risks and who prefer to leave their cash untouched in savings deposits are in fact taking a big risk by not protecting themselves against inflation.
The continued rise in the cost of goods and services is a clear indication that inflation is creeping up on everyone and eroding the value of their money.
For instance, a movie ticket cost $1 in the early 1970s. Fast forward to today and a weekend movie outing will set you back by $10.
If you are one of those risk-averse investors whose money is mainly in bank deposits and you think you are 'playing safe', think again.
In the long run, your savings will actually shrink and you could become poorer, not richer, because of inflation.
Said IPP Financial Advisers investment director Albert Lam: 'With inflation, your dollar buys a smaller percentage of an item over time, meaning its purchasing power is reduced.'
If your money is sitting idle in a bank and earning interest that is lower than the rate of inflation, you are not making it work hard enough for you.
Over time, your nest egg will be eroded by inflation. For instance, if the inflation rate is 5 per cent and your fixed deposit is earning 1.2 per cent, you are looking at a shortfall of 3.8 per cent.
What triggered this spike in inflation?
Mr Joseph Chong, the chief executive of financial advisory firm New Independent, pointed out that the current bout of high inflation is concentrated in energy, especially crude oil and food.
He said that under-investment in oil exploration and conservation in the 1980s and 1990s when crude oil fell to US$10 a barrel led to a lack of supply as demand kicked in from a strong global economy.
'In order to diversify away from crude oil, the United States doled out big subsidies for farmers to produce ethanol from corn.
'Acreage previously used for food and feed production was converted to ethanol production, which created a food supply squeeze,' he added.
How does inflation affect your purchasing power?
You should factor in the impact of inflation on your purchasing power when you lay out your long-term financial goals.
If not, you will underestimate the amount that you need to set aside to save or invest in order to achieve your desired standard of living upon retirement.
Mr Stanley Sim, the financial advisory manager of New Independent, worked out that in just 20 years, inflation of 2 per cent a year would reduce $10,000 to $6,676 in terms of purchasing power, which translates into a loss of 33 per cent in monetary value.
If inflation reaches 5 per cent, it will reduce $10,000 to $3,585, a loss of 64 per cent in value.
Sun, Apr 06, 2008
The Straits Times
It is ironic. Singaporeans who are uncomfortable with taking financial risks and who prefer to leave their cash untouched in savings deposits are in fact taking a big risk by not protecting themselves against inflation.
The continued rise in the cost of goods and services is a clear indication that inflation is creeping up on everyone and eroding the value of their money.
For instance, a movie ticket cost $1 in the early 1970s. Fast forward to today and a weekend movie outing will set you back by $10.
If you are one of those risk-averse investors whose money is mainly in bank deposits and you think you are 'playing safe', think again.
In the long run, your savings will actually shrink and you could become poorer, not richer, because of inflation.
Said IPP Financial Advisers investment director Albert Lam: 'With inflation, your dollar buys a smaller percentage of an item over time, meaning its purchasing power is reduced.'
If your money is sitting idle in a bank and earning interest that is lower than the rate of inflation, you are not making it work hard enough for you.
Over time, your nest egg will be eroded by inflation. For instance, if the inflation rate is 5 per cent and your fixed deposit is earning 1.2 per cent, you are looking at a shortfall of 3.8 per cent.
What triggered this spike in inflation?
Mr Joseph Chong, the chief executive of financial advisory firm New Independent, pointed out that the current bout of high inflation is concentrated in energy, especially crude oil and food.
He said that under-investment in oil exploration and conservation in the 1980s and 1990s when crude oil fell to US$10 a barrel led to a lack of supply as demand kicked in from a strong global economy.
'In order to diversify away from crude oil, the United States doled out big subsidies for farmers to produce ethanol from corn.
'Acreage previously used for food and feed production was converted to ethanol production, which created a food supply squeeze,' he added.
How does inflation affect your purchasing power?
You should factor in the impact of inflation on your purchasing power when you lay out your long-term financial goals.
If not, you will underestimate the amount that you need to set aside to save or invest in order to achieve your desired standard of living upon retirement.
Mr Stanley Sim, the financial advisory manager of New Independent, worked out that in just 20 years, inflation of 2 per cent a year would reduce $10,000 to $6,676 in terms of purchasing power, which translates into a loss of 33 per cent in monetary value.
If inflation reaches 5 per cent, it will reduce $10,000 to $3,585, a loss of 64 per cent in value.
Monday, January 25, 2010
Keep Medisave for 'right purposes'
Many people in their 50s may use their Medisave on smaller expenses, not anticipating what could befall them in the future. What happen if in 20 year's time and you are really very sick? You will regret you have used all your Medisave.
Medisave can still be used of screenings but we should keep Medisave for the right purpose, and not wipe it out.
Stay above the fray while investing
Mon, Jan 25, 2010
The Business Times
By Chris Firth
CEO of DollarDex.com
DEAR readers, I am offering six tips on investing in 2010 to help you navigate the world of finance as a smarter investor.
1. Some investments will look too good to miss
This is the oldest trap in the book. We think you'll find at least one 'too good to miss' investment in 2010. Perhaps you will be enticed with, say, 30 per cent returns, or the argument that 'everyone is doing it'.
Of course, there is usually a catch. The returns may be over-optimistic, or have unexplained risks that may not surface till years later. High returns are not impossible and can be obtained through leveraging - but the downside risks are also leveraged.
Property is a classic example of the effect of gearing. For example, you could buy a condo for $1 million and borrow $0.8 million. If the property gains 10 per cent, then your gain on your $200,000 investment could work out to close to 50 per cent after borrowing costs. But you must not overlook that your risk on your investment is not straightforward property market volatility, it is at a greatly amplified level due to leveraging.
Being wary is a good tactic. Salient points of an investment could be exaggerated, selectively presented or misunderstood by sellers. Mouth-watering past returns could be the result of selection bias - meaning you only get shown the good results, and the bad results are conveniently dropped. Any investment that sounds too good to be true, probably is.
2. Average house prices will gain
However, on the flip side (there always is), we are quietly confident that the average house price will improve in 2010. Why? The stellar performance of the stock market in 2009, rising consumer confidence, an improving labour market and the increasing positive impact of the integrated resorts on the Singapore economy and tourism sector.
While unanticipated events could put a damper on the gains, such as large rises in mortgage rates, or global economic setbacks, we expect property to put in a strong performance in 2010.
3. Most analysts' predictions will be wrong
It's an easy prediction that no one can forecast the future accurately and consistently, nor can anyone create a reliable model of the world economy. Arguably, the past is not a good guide to the future. Famous fund manager Peter Lynch once sarcastically commented: 'Charts are great for predicting the past.' In a similar vein, Warren Buffett reportedly said: 'If past history was all there was to the game, the richest people would be librarians.'
Even if we accept that prices of stocks (or oil, or gold) eventually tend towards fair values, large and persistent market bubbles and slumps occur regularly. Over the short run (for example, the 12 months of 2010), there is a huge random element affecting the outcome of complex systems such as an economy. Whatever the mechanisms, there is no foolproof way to explain (let alone predict) market movements.
So take all the 2010 market and economic forecasts you read with a heap of salt - most of them will be wrong in some way, and the ones that are spot on will probably be due to luck.
4. Bank deposits pale against money market funds
A typical 12-month fixed deposit (FD) promises you around 0.45 per cent at the moment. Although FD rates may gradually move up as global monetary tightening pressures are felt, they still look paltry. When money market funds are averaging around 1.4 per cent (LionGlobal SGD Money Market) and one per cent (Phillip Money Market), it's a fairly reliable forecast to say that such funds will be better places for your cash in 2010.
5. CPF Special Account rate to stay attractive
The CPF Board announced recently that members will continue to receive at least 4 per cent interest on a portion of their savings until the end of 2010. In terms of risk and reward, it's hard to beat anything (in SGD) that offers 4 per cent with no volatility. So we predict that this will be the best risk-adjusted return in 2010.
6. Watch out for overconfidence
If 2010 turns out to be a great year for stock markets, then it's safe to say that there will be a wave of overconfidence building up. Shares or commodities always look great during a bull run, but it's easy to forget that the downside risks are still high - and arguably get higher as markets reach new peaks.
Trends are very hard to predict ahead of time and most investors don't spot a profitable trend until it has already happened and is on the verge of collapse.
This article was first published in The Business Times.
Saturday, January 23, 2010
Lessons from the crisis
Many people lost considerable wealth during the dramatic market sell-off.
People do not learn from past crises. Investors have a short-term investing mentality and they are still chasing the next best idea or fund. They need to learn to diversify and stay in the market.
Example of a customer whose idea of diversification is to split his investable amount of $50,000 into different China funds, something which is deemed risky as the investment is concentrated in one country.
Investors wanted higher returns thus many decisions were based on short-term market views. These views could be as short as a few days or weeks, whereas frequently the investment vehicles would have a longer tenure. Often, the only investment strategy seemed to be to generate returns. This led to a lot of ill-considered portfolios which appeared fine while markets were going up, but suffered considerably when correction happened.
Even when markets started to recover from March of last year, many investors remained on the sidelines and did not benefit from the substantial rallies. These were the ones who had become influenced by fear and who had therefore become much more risk averse in their investment decisions. Uncertainty is stopping them from making good investment decisions.
There is a way out which is, investing regularly rather than in one lump sum. The rationale is that if one is regularly investing during a financial crisis, the cost of entry is lower and investors can accumulate units at lower prices. This will augur well for them when markets eventually rise.
But it all boils down to the basic. Taking more time to understand client’s investment experience and needs; educate clients on the potential impact of their decisions with more emphasis on the total portfolio; and developing longer term investment goals.
Investors must take time to better understand their emotions as investor. Too many were all too willing to ignore risks when markets were rising, but quickly scared when they turned downwards. Investors who have clearly understood their investment goals and who have allocated funds accordingly are less likely to be panicked out of markets at the lower levels.
People do not learn from past crises. Investors have a short-term investing mentality and they are still chasing the next best idea or fund. They need to learn to diversify and stay in the market.
Example of a customer whose idea of diversification is to split his investable amount of $50,000 into different China funds, something which is deemed risky as the investment is concentrated in one country.
Investors wanted higher returns thus many decisions were based on short-term market views. These views could be as short as a few days or weeks, whereas frequently the investment vehicles would have a longer tenure. Often, the only investment strategy seemed to be to generate returns. This led to a lot of ill-considered portfolios which appeared fine while markets were going up, but suffered considerably when correction happened.
Even when markets started to recover from March of last year, many investors remained on the sidelines and did not benefit from the substantial rallies. These were the ones who had become influenced by fear and who had therefore become much more risk averse in their investment decisions. Uncertainty is stopping them from making good investment decisions.
There is a way out which is, investing regularly rather than in one lump sum. The rationale is that if one is regularly investing during a financial crisis, the cost of entry is lower and investors can accumulate units at lower prices. This will augur well for them when markets eventually rise.
But it all boils down to the basic. Taking more time to understand client’s investment experience and needs; educate clients on the potential impact of their decisions with more emphasis on the total portfolio; and developing longer term investment goals.
Investors must take time to better understand their emotions as investor. Too many were all too willing to ignore risks when markets were rising, but quickly scared when they turned downwards. Investors who have clearly understood their investment goals and who have allocated funds accordingly are less likely to be panicked out of markets at the lower levels.
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