Investing is a lifetime commitment

Georgian England, the late 1700’s and England has a problem, old people who are no longer fit to work are lying destitute in the streets. The government of the time, in an effort to provide some form of shelter for these unfortunate souls, establish work houses. It would take some dire circumstances for someone to knock on the door of one of these imposing buildings and to ask for sanctuary but with no state benefit to rely upon this was the only option for many. This system existed until later Victorian times when the state began to intervene and support those who could not provide for themselves.


In 1908 the Old Age Pension Act came into force and compulsory pension contributions began in 1909 – finally there was some provision for those not of independent means to enjoy, if not a comfortable retirement, an existence come old age.

Back to the modern age and we have been educated that we need to save, learn to provide for ourselves and our families through investing and insuring ourselves. Pensions and savings have become an entire industry, companies like ours, as well as banks and insurance firms, rely upon people’s need and desire to create wealth and live more comfortably, having lifetime commitments to savings. Governments around the world put incentives in place to force and encourage people to save, through tax incentives and legislation, for their retirement so they are not a burden to the state.

In Singapore the non PR British expatriate has no such incentive. Whilst we can contribute to the state pension system in the UK by National Insurance, most people do not, and the vast majority do not make enough or indeed any personal pension provision. Add to that, in the main, without tax incentives or compulsory government legislation companies are not providing for their staff. Ah, Georgian England looms, but where are the provisions for us poor expatriates? Well of course they don’t exist so solutions for savers need to be found, firstly to source suitable investments and secondly to manage them.

There are some basics to consider when sourcing a long term investment solution. They are to establish objectives, then set a time frame, calculate the amounts affordable to set aside, the access requirements, attitude toward risk, flexibility to change structure, fees and charges, and tax implications. Having a defined investment strategy will help ensure that savers have a plan to stick to – if a discipline is maintained on stop gains and losses savers will be much more likely to achieve their goals. Investments should be simple, understandable and have defined objectives. Once these are in place the next step is to seek solutions.

For long term, companies like Meyado advise on amongst other things, international savings schemes, but even these are not entirely perfect. Flexibility of these savings plans is usually priority for investors, however flexibility means that at the first sign of decreased cash flow or change in circumstances the pension is the first to suffer – whether it be a family emergency or redundancy, not to mention a new car or holiday. Flexibility of these plans is one of their biggest weaknesses for discipline when there are other distractions for savers cash. Large bonuses exist to entice long term savings and you savers take advantage of that, but this should account only for a portion of their savings ability. Most long term savings are created by accumulating money on a monthly basis, so the savings level needs to be pertinent – in general savers should aim to accumulate between 20 and 40% of their income in savings, split between short term cash, medium term capital and long term income provision.

If savers have accumulated capital, or have received a lump sum from the sale of a house, or inheritance perhaps, the investment strategy should be different. With monthly cost averaging savers can afford to take higher risks, with capital they should look for a strategy which will not put their principle at undue risk, but give you opportunities to outpace inflation in terms of growth. Not easy, but the investment world learns quickly and there are many firms out there being creative and structuring funds and other investments which do just that. Direct investment in shares for most clients who are busy working full time should represent no more than 20% of their portfolios, mainly due to the time and effort versus reward. Warren Buffet has an approach of holding no more than 10 investments, and aim for value and dividend income, quite sensible.

Conducting ongoing reviews with any investment is vital, as taxation in the UK can be harsh, benefits often being treated as income rather than capital gains. These rules are constantly changing and there are plenty of urban myths when it comes to what works and does not when it comes to repatriation. Certainly the UK government does not make it simple for non residents to accumulate pension benefits whilst living outside of the country and bring them back into the UK tax efficiently.

All is not lost though. It is a complex situation but if you are disciplined and put some sensible plans in place you can reach that elusive goal called financial freedom, giving you the choice to do what you like later on in life. However, one thing is for sure, if you don’t provide for yourself no one else is going to force you to and that could land you in some serious old age trouble.

Singapore Dollar / USD / GBP

I spent some time this morning analysing views on the Singapore dollar in the short term.  Whilst we see a long term return to normal levels in the short term - to end 2012 the views are wide ranging, but in Sterling terms all point in one direction, that is a further reduction in sterlings strength.  The most pessimistic view was as low as 1.73, but most averaged out at 1.96

In USD terms views varied but ranged from a further decline down to 1.20 to strengthening to 1.32

In both instances Meyado has a view for expatriates to see this as a buying opportunity in the short term and advocate accumulating via cost averaging into currencies and currency denominated funds.

Student Accomodation as an asset class

Given that stock markets have been an incredibly volatile and relative to return, high risk investment over the past 5 years, and bond yeilds have been the lowest anyof us have seen in our working lives, investors who are looking for stability and better than inflation returns have looked to alternative asset classes.

Boutique fund managers have emerged offering alternative investment strategies which provide low volatility returns with higher than average performance figures.

One such class of assets is that of student accomodation.  These funds, based out of the UK, purchase, or invest in, student accomodation.  That could be halls of residence, or houses and apartment blocks which can be let to scholars.  These funds base their returns in the main on rental income yields, although some do pass on the capital gains and values of the properties they have purchased.  Performance figures are in the range of 6 to 9% in GBP terms, but they often have hedged versions available in USD and Euro.

So what's the downside?  The main risk factor with these funds is their ability to become liquid, this entails the sale of properties which as we all know is a slow labourious process, and an emergency sale will always yield a lower price than is usually desired.  These situations could arise when there is a run on capital, such as during the credit crisis.  In these situations it is not uncommon for these funds to suspend redemptions.  This is to protect the other shareholders from a fire sale.

On balance these alternative funds can offer diversity and returns in a portfolio. Because of their boutique nature it is not advisable to invest more than around 10 to 15% into any one fund.

In summary for investors looking for income or stable returns these funds offer a great opportunity, but as always make sure you take advice before jumping in.

Mark Paine on Channel News Asia May 2011

Inflation

This was a fun way to spend time on my way home last night.

In 1978 I used to get 10p per day to spend on my holiday - I would spend this money on a Commando comic which I would buy as soon as the corner shop opened and would have read by about 10am.  My brother would also get 10p but wouldn't spend it and then read my comic for free once I'd finished with it.  He'd save his 10p's and deposit the pound or so he'd accumulate in the Anglia building society when we got back home.  I still have my Commando comics.

Who was better off and by how much?

10p in 1978 equates to 46p in today's terms.
Had 10p been invested in a deposit account in 1978 it would be worth about 117p
Commando comics are selling on Ebay now for between 65p and 300p

I'd say it's a close run thing.

These are fun sites
http://www.hbosplc.com/economy/economicfactbook.asp for deposit rates
http://www.thisismoney.co.uk/historic-inflation-calculator for inflation

Ongoing Reviews

The past month has seen continued shock events, both positive and negative.  Without regurgitating Global events, it is clear to see that there is still an awful lot of instability in both the political, and economic underpinnings of the developed market places and huge impacts in the Middle East, with and without UN / US intervention.

The upshot of all of this has been sideways movements in major equity markets, massive swings in commodities, notably precious metals and currencies such as SGD and AUD have continued to strengthen.

For clients now it is more important than ever to get asset allocations right - our strategy over the past 18 months is paying off well and we are not changing our overall view at this stage.  We are happy to discuss this, simply contact us at singapore@meyado.com or visit our website www.meyado.com.sg