07 October 2007

SMART Investment & International Property Expo 2007

Just came back from the SMART Investment & International Property Expo 2007, held at Suntec Convention Hall.

One phrase used by the speaker (who mentioned it 12 times in his 20 minutes presentation) in the seminar on "How not to fall victim to wealth management" just disturbs me alot. The phrase is,

"Low Risk, Low Return. High Risk, Potential High Return"

I see now, why it is so easy to be a financial planner nowdays. Just sell ideas that your clients want to hear, not what they need.

The speaker to the seminar topic, How not to fall victim to wealth management", is Christopher Tan, CEO of Providend Ltd. There is nothing wrong with his presentation. In fact, it goes in-line with our "social norm and understanding" about investment. And there is a flaw in this norm.

I have blogged about Risk previously.

From an investor's point of view, we don't invest with the initial thought of how much money we can afford to lose. It just don't make sense to me. Why will I want to lose any money if i can potentially lose money from investing?! Yet, this is the defination of risk understood by the masses (or the defination successfully sold to the masses by financial products practitioners). That's is why the phrase above make sense to the masses, but not to me.

For example, if I do not understand the financial product and i buy it, my risk is the highest, but is my return potentially higher? Neh... Return, in my financial sense, equates to my education of that financial product / instrument and how can the product meet my needs (or goals). To get high return, educate myself on that instrument or product and how can it help me achieve what i want to achieve in my financial plan.

Well, i do learn something from Christopher though. Chris did explain the generic concept of what is a Capital Protected / Guranteed fund. Sounds familar? POSB Durain? DBS Shenton fund?

Well, now I do see why capital protected funds, most likely, do not return high returns and mostly are in the negative on annualised basis. Ha ha... lucky you may think that my capital is at least protected for the past 5 years when i parked my money in such a fund. WRONG! Your money is losing value every year even if it is protected. NO investment is riskless or risk free (although government bonds are considered risk free as a concept). Even if your capital is protected from the market volitality, it is losing value due to inflation (inflation is a form of risk!!!). If for that 5 years, inflation is 5% ytd, your capital is worth only 95% of its initial value today!!! Gosh! <>

I also see that it is quite easy to manage a capital protected fund. About 70-80% of our capital is placed in a zero coupon bond to secure the protected return XX no. of years later. This xx no. of years are usually near or equal to expiry date of the fund. This secure our "protected capital" term (thus no risk to the fund manager). The remaining 20-30% are placed in "high risk" (easier to understand by the masses) assets to deliver higher return. Based on this understanding, we just manage our own capital and placed it in Government bonds or T-Bills - Risk free ya. Why let the fund manager gain on our expense of absorbing all the risks? <>

It also strucked me on funds that invest in the lastest or hottest theme in town may also not deliver potential high return. The understanding is based on:

1. It takes time to develop the financial product to tap the latest craze theme.

2. By the time the product is sold to us, it is usually 6 - 9 months lag.

In layman terms, we are late.

Another key area that i find extremely beneficial is the talk by Swee Yong Ku, Director, Marketing & Business Development, Savillis Singapore. Members in my yahoo group, Federation of Financial Freedoom, will know that i'd recommended them to attend his talks. Yong Ku spoke about "How to profit from Singapore's Integrated Luxury Resort Developments" in the real estate context.

Yong Ku gave an update on how an IR may affect the economy of the city that it is built in, by citing examples in Macau, Australia, UK etc. He further analyse on the potential impact the 2 IRs in Singapore is getting from 2009 onwards. Plus also postulate on how job growth and birth rates may affect our local real estate scene. I just gain more confidence that 2010 may not be that bad after all when all the picture overlays are placed on each other. His analysis is pure logic and we determine for ourselves the prospect of real estate development in Singapore. :-)

As logical as it seems, my belief or long-term view on real estate is based on 2 principles:

1. Land is limited.

2. Population is ever increasing.

Using real estate to hold our wealth for the long-term is very hard to be wrong. Well, unless the 2 principles above dont stand ground, the chances of me getting it right is pretty high.

To sum up, Education is the best hedge against potential loses in our investments. If you keep telling yourself that you dont have the time to invest in your education, ya most prob you are right not having the time.

But remember, the longer the procastinate, you more you lose. So why wait? Start now! :-)

Have a great weekend,

Leroy Ang
"When I Stop Learning, I Stop Living."