Burning Questions on Macroeconomic & Financial Planning Issues
Everyone needs to start at some place. For a brand new graduate, have a plan to save at least 30% of your monthly pay cheque. After building a decent cash level, you are ready for investing. There are 3 main ways to invest: direct shares, retail unit trusts and managed portfolio. For the young individual, a sensible collection of unit trusts will be the way to start. See more on investment portfolios below.
Generally, a deflationary period will see lower asset prices, cost of products and lower wages. So, if you were going to purchase a big ticket item like a home or car, it is likely that delaying the acquisition will lower your buying price. The problem is that if everyone in the country acted this way, the deflationary environment will be accentuated. You should expect lower salaries till the economy picks up but save more since the cost of living is lower. We hope that with government fiscal policies, the period and intensity of deflation will be mitigated.
Companies should plan for the recovery and use the downturn to re-position their business proposition. The Singapore government has given many incentives for companies and individuals to invest and upgrade their people and equipment in the current recession. The main thing is for entrepreneurs and company management to appreciate that business cycles are part of life and on-going strategic planning will help companies weather the storm.
The stock market and property market are different in terms of how they fit in with the real economy. We need to make a distinction between investing and speculating. The latter will involve market timing. For owner occupied, property, any time is good to buy if you have a long-term view. Public housing market is immune to significant price fluctuations. If you are buying a private property that is affordable, then it makes sense to bargain hard when it is a buyer’s market. Yes, there is a possibility that the private property market has not found the bottom but we can never tell. As for shares, the markets around the world are on a cheap sale. A collection of quality shares within a diversified portfolio is highly recommended. See question #1 on the three ways of investing. Investors will generally not have the confidence to invest in shares in a recession. The truly strategic investor will take advantage of the steep discounts being offered in the equity market now and build a portfolio as part of a comprehensive financial plan.
It is challenging enough to pick stock and bonds in normal times. In a bull market, the skill of stock selection is not required as most stocks rise in tandem. The current recession does not make the distinction between quality and junk equities and bonds. Therefore, it pays to have a reputable fund manager to do this job. Unit trusts or managed portfolios are recommended. The fund manager should be able to identify beaten down quality shares and bonds that will blossom when the recovery follows the downturn.
Companies should plan for the recovery and use the downturn to re-position their business proposition. The Singapore government has given many incentives for companies and individuals to invest and upgrade their people and equipment in the current recession. The main thing is for entrepreneurs and company management to appreciate that business cycles are part of life and on-going strategic planning will help companies weather the storm.
We should all hold more cash than before as reserves due to uncertainties connected with the recession, not the bear market. Market timers hold on to cash until they see signals of an emerging bull market. The short answer to this question is that excessive cash holdings may prove to be a mistake if quality shares within a diversified portfolio are not added on in the midst of a bear market. Regular investing through dollar-cost averaging is a prudent technique.
No, it is not too late to start, especially if you are so young. Most people don’t think about retirement planning until they are in their late 40s. Even then, it may not be too late if they have modest retirement goals. In any case, if you start in your mid-30’s, then the amount required for setting aside for investing for retirement will be manageable. Time is a crucial ally for retirement planning. Start today.
There are very few optimistic people in a recession. As long as you are cautiously optimistic, you can identify several opportunities in this crisis compared to those who chose not to think about life beyond the recession. Upgrading skills for the recovery is a smart thing to do. When jobs start flowing, you want to be ready for those career prospects and make up for the wage freeze/cuts. There are investment opportunities that most people cannot see. A useful exercise is to go the Esplanade or where the Merlion stands and look across Marina Bay. Can you visualize how this landscape will be transformed in a few months and the activity from visitors? You find opportunities when you can see beyond the horizon.
You need to find a suitable financial adviser. The life insurance agent is a good place to start but recognize that the scope of advice may be limited. The banks also have very few relationship managers devoted to young people starting out. I suggest that you form a small group of like-minded people and surf the net on the different types of licensed and qualified financial advisers in the market and decide which organization is most appropriate for you.
Roy A. Varghese, CPA, CFP is Foundation Adviser at ipac financial planning Singapore private limited. He can be reached at roy.varghese@ipac.com.sg
The opinions expressed are personal and do not represent the corporate policy or opinion of ipac financial planning Singapore private limited or NUS Extension.
