Investments

“Gerald, do you know anything about accredited investors? If not, why don’t you research and craft an article about it? But please do not ever reveal my name”.

It was 2013 when a former wealth manager-turned-entrepreneur made this request to me during a meet-up. He had come across my blog and knew that my mission is helping investors to make better investment decisions. Through the years, my research on accredited investors make me realize how warped the game is being played against investors.

Be very sure, don’t ever be blur

2019 will be a defining year for accredited investors as Monetary Authority of Singapore (MAS) effect major changes to the regulatory framework concerning accredited investors. These changes probably came on the back of many investment casualties.

And it’s happening all over again and again. From Hyflux perpetual bonds of 2018, to the Swiber bonds of 2016, to the Lehman Brother’s Minibond, numerous Singapore accredited investors had suffered significant losses after being exposed to risky investments. No thanks to the work of wealth managers and private bankers.

The latest case involving Hyflux perpetual bond is not the first nor will it be the last. But why should you care or bother about it?

For many years, the loose monetary policy of United States led to a period of low interest rates across many countries, fuelling investors’ interest for alternative high yield products to grow their wealth. Singapore is no exception. Since 2014, Structured Products like Structured Deposit and Structured Note had been making their way back into Singapore market due to the low interest rate environment. Local banks have been promoting these financial products to satisfy investors lust for yields.

While Structured Deposit and Structured Note are in vogue (again), it does not mean you should throw all caution to the wind. On the contrary, you must understand the catch behind such alternative products to avoid losing your hard-earned money.

Era of wealth

Many wealth builders would recall that Structured Products like Minibonds and High Notes 5 were notorious for triggering the Great Financial Crisis in 2008. Thousands of Singaporeans lost their life savings when they bought these risky products, which they thought to be safe instruments.

As a result of the financial crisis, Monetary Authority Singapore (MAS) banned these products for a period of time to conduct investigations on whether the financial institutions selling these products complied to the guidelines and regulations. The bans were lifted shortly after the completion of the investigations.

How high will it go? The recent euphoria over Bitcoin certainly caught the attention of many investors as the cryptocurrency soared past USD17,000, a remarkable 17-fold increase since the start of the year. Many wealth builders lamented that they had missed the boat of opportunity. While on the other hand, experts warned of an explosive bubble forming. In this article, I will share my view on Bitcoin and whether it is worth to invest in this digital currency.

Dawn of new currency

When it comes to investing, ignorance is not bliss. Therefore, it is important to look at both sides of the coin (no pun intended!) before making judgement. To put things into perspective, Bitcoin was first invented at a time of tremendous financial chaos – the Great Financial Crisis in 2008. Many young investors new to the money game may not be aware of the crisis of confidence in the financial markets back then. All over the world, people’s confidence of the banking systems were shaken to the core when Citibank, then among the world largest banks, was almost brought down to the knee.

Singapore was also not spare of the crisis either and the government was forced to intervene.

Unlike many countries, Singapore does not need to rely on the issuance of government bonds to finance its expenditure as it operates on very prudent budget. However, in light of the 1997’s Asia Financial Crisis, the Singapore government saw the need to develop the market for bonds so as to meet the banks’ needs for risk-free asset in their portfolio.

One of SG Wealth Builder’s blog missions is wealth preservation and therefore, investing in bonds has always been on my mind. But is investing in bonds suitable for everyone? To answer this question, it depends on which phase of your life you are currently in and the kind of returns you are expecting from your investments.

Generally, for those who are in the twilight stage of their wealth building journey or planning for retirement, bonds offer a source of regular fixed income stream and opportunities for capital gain. But this is not to say that such instrument is safe and of low risk nature. There are certain risks that investors must watch out.

To highlight the risks, many investors were stunned by Swiber Holdings Limited’s swift collapse in 2016. It is unknown whether Swiber bondholders can get back any of their investments.

When SPH announced its plan to cull staff for the next couple of years, it was a sign of times for the media giant. Faced with falling revenues and declining daily newspaper circulation, SPH is grappling with the disruptions of the media industry. Nonetheless, it is important to note that over the past decade, SPH had made numerous acquisitions of online media platforms. Thus, will SPH acquire The Finance SG?

Ten years ago, SPH set the dot-com community on fire by acquiring IT media company, Hardwarezone, for a cool $7.1 million. The online magazine has a monthly pageviews of over 35 million and is widely considered one of the top websites in Singapore (in terms of traffic). The mega deal came at a time when the online entrepreneur scene was still reeling from the aftermath of the dot-com implosion. The deal set the stage for today’s fintech evolution and let many online entrepreneurs dream again.

In 2013, SPH splashed out a whopping $60 million for SgCarMart, Singapore’s leading online classifieds website for the automotive industry. The portal has an estimated number of 30 million pageviews per month. Whether this was a panic buy is subject to debate but through this acquisition, SPH has effectively laid down the marker that future growth will be driven by online businesses.

For many young investors, the current market corrections may seem like a fascinating experience. Some of them may view the volatile swings in the market as opportunities to make money from the stock market. This is not a flawed thinking but to mitigate the possibility of incurring heavy losses, it is important to avoid making three fatal mistakes commonly made by investors during bear market. Below are three lessons that I learned from the 1997’s Asia Financial Crisis and the 2008’s Great Financial Crisis.

Adopting the wrong strategy

Whilst it is true that when stock markets plunge, fear prevail and depress stock prices, thus presenting opportunities for bargain buys. But under such circumstances, I have learned that adopting a buy-and-hold strategy can be dangerous because you never know whether the stock counter can survive the storm. Instead, investors should be flexible and change strategy to momentum investing to exploit the fear sentiment in the market. This is where “contra” (buying and selling of stocks without forking out cash).

For example, during the crisis in 2008, I bought 100 lots of Mercator Lines and subsequently sold off my investments within two days, making about S$3500 of profits. It was not exactly a spectacular profit but then again, I made this amount of money within two days of trading and it was more than my monthly salary (back then I just started working for only a few years).

As mentioned in my previous posting, I am sharing my views on fixed income securities, which refers to financial products that offer investors a return in the form of fixed periodic payments (coupon) and the eventual return of principal at maturity. Example of fixed income securities include government bonds and preference shares issued by companies.

Benefits of Investing in Fixed Income
Historically, the returns of stocks and bonds moved in opposite directions at the same time. Investors can reduce their portfolio risk through diversifying their investments on fixed income securities, which offer investors a predictable income stream during times of market volatile.

Fixed income securities are very transparent in the sense that investors would know how much interest they can expect to receive, how often they will receive it and when they can get back their principal investment monies. Investors can also check the prices in real-time and the volume information from SGX website and their broker’s trading platforms. Fixed income securities also operated like shares and investors can buy and sell them through broker anytime during trading hours.

How does it works?
Issuer borrow principal amount from investors and repay the money at maturity. In exchange, investors receive coupons (interest payments), usually paid in twice-yearly installments.

In life, besides working hard for money, you have to also ensure money work hard for you. This is especially so in this era of low saving interest rates. Currently the inflation rate is about 4 to 5% in Singapore and the bank saving rates are below 1%. So effectively, your purchasing power is eroded. So how do you go about beating the inflation and make sure that money is not slipping away from the pocket? The key is to invest your money correctly.

When I mean the correct way to invest your money, I do not mean that we should immediately  take out all our money from the bank and start investing in various financial instruments. Rather, we should do our homework first before making any moves. Always remember the mantra “Don’t be in a hurry to lose away your money”.

I always believe that there is a systematic approach to investing and that laying a strong foundation is crucial for every investors. We should educate ourselves the way of financial wisdom, preferably at young ages, so as to give ourselves a strong head-start. Remember, the journey of investment is a long one and there are always many new things to learn, no matter how established you are.