CODE RED

RED has been the colour of choice in the global stock markets as of recent. Stocks and indices seem to be having a blood bath while chaos dominates the world. How far are we from salvation? Well, I wish I knew the answer to that. But to make it simple, things aren’t going to be rosy anytime soon. Hate to be the bearer of bad news but someone had to rip the band-aid off. However, there may be some things to look out for in the coming economic horizon. There is still plenty of room to make your money grow besides having it drained out by excessive government spending. So where are these investment zones you ask? Well, let us look into Malaysia, Indonesia and Sri Lanka, shall we?

Malaysia

Let me paint you a mental picture of the problem at hand. Imagine that Malaysia is like a beautiful garland. The different cultures, races and people are the various flowers that make this garland, with peace and harmony being the string that binds them together. Well, this is not the problem. The problem is that now, there are monkeys in the picture. We all know what happens to the garland when the monkeys come. The lack of wisdom, competence and the constant need to mark their territories seem to be hindering certain decision makers from making the decisions the country badly needs. The “spend now, take later” policy that was implemented during the last general election has come to fruition. And now, it is time to harvest. As the harvesters celebrate, the following things shall come to be: Reduction in petrol subsidy (note that they did not increase the price), reduction in sugar subsidy (to curb diabetes and to increase people’s libido), electricity tariff increase (to reduce subsidies to industries),  toll price hike (EPF needs to make for its losses somehow), introduction of the GST (to prevent the country from declaring bankruptcy and to identify national traitors) and last but not the least, the increase in people’s salary ( yeah right…. ). Now, the whole idea of there being two sides to a coin is very much applicable in this situation. Malaysia is going to gain strength as a stable investment hub. Why? Well, let us look at the sectors where the prices are increasing. They are all goods and services where people, whether they like it or not, have to use.  Hence, as much as people would fret and whine about it, they will still continue to use these goods and services. Furthermore, with Bank Negara’s potential increase of the Overnight Policy Rate (the OPR is the interest rate charged by Bank Negara Malaysia to the commercial banks ) from 3% to about 3.25-3.5% next year, there may be a lot of investment opportunities coming your way. However, the domino effect of the price hike may also eat into the pockets of the average income earner. Hence, the Malay-sian dilemma.

Indonesia

I still have my bets on this one! The recent super devaluation of the Rupiah was due to the current account deficit of Indonesia. Before going further, it may be helpful to know what a current account deficit means. A current account deficit occurs when a country’s cost of imports exceed the cost of exports. Meaning, the amount spent to import goods and services, is more than the income earned by exporting goods and service from the country. If the income from exports is more than the cost of imports, then the scenario would be called a current account surplus. So, Indonesia’s predicament is just like most of our new income earners globally. They spend more on refurbishing themselves with gadgets and gizmos which cost them more than their salaries. Currently, the current account deficit of Indonesia stands at US$ 8.4 billion (which is 3.8% of the GDP, Gross Domestic Product). It has decreased compared to last year where is was US$ 9.9 billion (4.4%of the GDP) showing signs that it is recovering. And recently, Bank Indonesia a.k.a the Indonesian Central Bank had increased the interest rate. Now, this may in fact act as a catalyst to reduce the exports and create more demand for locally produced goods and services which would curb the demand for imports. This would certainly aid the current account deficits tremendously. But what is more exciting is that the increase in interest rates might stir more activity in the market making way for new investment opportunities to form. I still have my bets on this nation to do really well in the coming years. And since prices are at a low now, I am literally going on a shopping spree. The long term investor may look into this option as well.

Sri Lanka

A country of beauty and splendor, Sri Lanka has been marching through the economic front with a very stable economy. The end of the civil war brought about both good and bad. Good was the economic potential and avenues for social and economic growth. It was bad because of the media attention that started befalling the nation due to the lack of clarity surrounding the war scene. The growth of the nation started a little higher than the current estimates which still stand at an expected growth of 7.5%. The constant development, despite global scrutiny, has been the key factor or attraction for most global investors. Over the years, the economy has proven itself to be pretty resilient towards any political happenings within the nation. The recent CHOGM 2013 (Commonwealth Heads of Government Meeting) that was held in Sri Lanka had ushered in an international crowd of potential investors who may be investing in the activities that are aimed at rebuilding the nation. But there is still a slight shadow befalling the nation when David Cameron’s visit to the war affected areas created a bigger platform for global outcries and a potential inquisition waiting to happen. Whatever the outcome may be, Sri Lanka is still going to serve as a good investment hub due to many economic factors. As I have always believed, emotions and Investments are two things that are never best put together.

Perhaps, RED is the colour in the stock markets now. But with proper calculated risks taken on your investments, you may eventually be the one painting the town RED.

Written By,

Ashveen Chakravarthy Sekaran

December 3, 2013

Private Retirement Scheme (PRS)

                As the Private Retirement Scheme (PRS) fever kicks into the work place, I receive general inquiries from many on whether or not this scheme is worthwhile. As many would already know by now, I am rather inquisitive by nature. And as much as I would like to take the word of another as the absolute truth, I still love being Sherlock Holmes from time to time. Granted that me being Sherlock Holmes has gotten me into some sticky situations and tiffs in the past, all I can say is “well… it was a learning curve and was worth every bit!”. 

                So snooping high and low, I’ve managed to gather the needed information on the PRS. And to be honest, I am trying to figure out the actual purpose as to why the Securities Commission of Malaysia promoted this… Having done the number crunching, I can say that whatever was spent on setting this up was a complete waste. Let me lay it for you… For the purposes of the discussion, I shall weigh the PRS to the retirement scheme that I design for the simple reason of it being my own. The Private Retirement Scheme will be referred to as PRS while Ashveen’s Retirement Scheme will be referred to as Ash-RS (I was thinking of ARS but decided otherwise….. for obvious reasons…)

                First and foremost, let us look at the similarities:

Similarities of PRS and Ash-RS:

·         Purpose of building  long-term savings

·         Neither capital guaranteed nor protected

o   What this means is that even if this fund is offered by a mutual company which is a wholly - owned subsidiary of a bank, there is no guarantee or protection on your capital. So even if the mutual company were to go bust, the bank is not going to step in to pay up. 

·         Price is based on a daily unit price. Meaning it would follow the market index if invested in the capital market funds…. 

Sounds very much like mutual funds, don’t it? Well, here are the differences between the PRS and Ash-RS:

Differences:

Feature	PRS	Ash-RS
Sales charge	Up to 5%	Up to 6.5%
Management Fee	Up to 3% per annum	Up to 1.5% per annum
Trustee Fee	Up to 0.06% per annum	Up to 0.08% per annum
Withdrawal Fee	8% per withdrawal	none
Switching Fee	Min RM25 per switch	6 free switches, RM25 thereafter
Withdrawal	Account A: Upon retirement Account B : Once a year	No restriction
Private Pension Administrator (PPA) Fee	0.04 % per annum	none
Fund Types	Pre-designed	Flexible

                

            The funds in the PRS would be automatically split into two accounts called Account A (70%) and Account B (30%). Similar to that of the EPF, Account A can be withdrawn only upon retirement while Account B only ONCE a year with an 8% tax charged on it (which I personally find utterly ridiculous).  

                Investments are to allow a person to have financial freedom not just when they retire but also along the journey towards retirement. A young cousin of mine once asked me, “What is the point of saving when you don’t spend it?” As much as I would like to disagree, I’d have to completely agree with him. The investment that one chooses should give the flexibility to the investors on how to handle their money. As much as forced savings is the only way to ensure that one’s livelihood after retirement is preserved, that savings should also give allowance for certain unavoidable expenditures along the way. After all, we never know when an emergency may occur. 

                So, like I was saying, we need adequate flexibility in investments and the PRS has failed in that aspect. The features are really not that great either marking the launch of it rather insignificant.

By,

Ashveen Chakravarthy Sekaran

July 8, 2013

FinTips - To Change or Not To Change

 Words blazing, pictures scorching, fingers pointing, bombs flying, guns firing, scandals unveiling AND idiocity prevailing…. This is what Malaysia has been reduced to. The shenanigans being pulled by both parties are becoming obsolete as they desperately try to satiate the last bit of emotions vested in Malaysians.  But truth be told, emotions were long buried in this battle. What remains is a society that is striving to be vigil. And fighting an emotional batter with a vigil society would mark nothing but the defeat of the party, especially when one fails to realize that the power to Change or NOT TO Change ultimately resides in the public.  

As I flipped through Malaysia’s largest comic print, The Star Newspaper, I was utterly flabbergasted by the lack of substantial information needed to make decisions. Superficial news seemed to take the lime light while the key information was sidelined. Despite having more or less the same framework in their Manifestos, the ridiculing of each other’s manifesto seems to have a very childish connotation to it. To be honest, implementation is yet to be seen by both parties. The current ruling party is basically doing what they had neglected for the past 50 odd years, as if they had finally seen the light, and the oppositions have never been really given a chance to prove their dexterity. 

The general fear of the populace is the economy. The perception painted by the mass media is that Malaysia would become chaotic if the oppositions take over and order can only be maintained by the current ruling party. The mental picture is the following:

                              

 

 BEFORE

                         

AFTER

And my reaction to this:

Well, let me give you the lay-down on things. Current ruling party or oppositions, no matter who comes into power, the economy will go on. We are not going to be looking at an economic collapse per say but perhaps a temporary readjustment. There will be a shift in the market structure as new cronies will come to be. Even if the oppositions come into power, they will have a set of cronies working for them. Cronyism exists all over the world. Choosing another political team would not get rid of that. Ignoring such facts is nothing less than to live in absolute denial. But an increase in opposition strength would certainly entail a more competitive market structure and a reduction in monopoly. Many have the fear that we might regress 20-30 years back… Well, that is shear hogwash… As Malaysia has the infrastructure in place and with the  international businesses making Malaysia their “home”, such regression is almost impossible due to the formidable socio-economic structure that is in place.

When there is more competition, we would see a structured economy being formed that would set a check and balance system that would not just ensure quality but also sustainability. Quality would come to be when competition increases as all parties would want to ensure that everyone gets their money’s worth when it comes to products or services. Sustainability would form when the portfolio begins to offer more options for investors both locally and abroad. As both parties would want to perform their best to get into the good books of the public, just as how they have been slogging this past year, the nation’s economic scene would be geared towards a stable and resounding growth.

Whatever the outcome may be, both parties would be facing severe pressure from the public. The promises made have to be kept, or else, there may not be a future for the parties. As individuals, we have the choice to vote for, against or abstain. As how Malaysia has reacted towards voicing its opinion when it comes to non-islamic international issues, perhaps we may all just reflect that and abstain? At times, that just may seem to be the lesser of all evils. 

By,

Ashveen Chakravarthy Sekaran

April 26^th 2013

FinTips - Planning and Managing Your Retirement

  For many, retirement may seem something that is far away, leaving us with the thought of having lots of time to save our nest egg to have a comfy retirement. And NATURALLY, many would leave the saving part for TOMORROW… Sadly, most economist and financial planners would agree that the average person has not saved up enough money to retire comfortably.

  Even though the average person is currently working more hours, most of their income is spent to pay off their debts, leaving very little to put aside to adequately fund their retirement account. Plus, if we throw in factors like inflation and taxes, chances are your golden years might end up less shiny.

  So upon due thinking, I thought it would be interesting to share with you some ideas on planning and managing your retirement account. I mean, what is the worth of ideas if not shared?

1)      Start Early.

a.       The sooner you start the better. Simply because time would make your money grow, that is if  you choose the right investment mechanism.

2)      Identify your risk factor for your savings. There are mainly 2 types of risks related to retirement savings:

a.       Shortfall risk – Shortfall risk can occur either from not saving enough during your working years or from being too conservative with your investments. By investing too safely, you can run the risk of not having enough money when you retire as inflation would eat up your money.

b.      The risk of losing principal - The risk of losing principal is often associated with volatility or the price fluctuations within a specified period of time. Although volatility is inherent in the markets, TIME IS ON YOUR SIDE…

3)      Plan for your long term needs.

a.       We spend half of our health to gain wealth. And later, we realize that we’d be spending half of our wealth to gain back that health. So we need to plan for what is known as “non-market losses”, catastrophic things like health care and long term care. As the average cost of medical expense is increasing at a rate of 10% every year, we have to weigh the cost of long-term care premiums against the cost of paying for care out of our pockets.

4)      Your expense in retirement.

a.       Although some expenses may reduce when we retire, the cost of maintaining our lifestyle might not reduce. When given the option, many would like to maintain the same level of luxury or even take it up a notch (or few) upon retiring. But this is only possible if you have a constant stream of cash inflow. With the active source of income scraped off, the passive income has to be equal or in fact be higher than your pre-retirement earnings. Because let’s face it, just because you take a step back from working, you can’t expect the cost of living to take a step back too.

5)      Loaning Money

a.       KEEP YOUR MONEY FOR YOUR RETIREMENT! Learn to say NO when you have to. Most parents (especially Asian parents) feel that they are obligated (or as they call it their duty) to save up for their children and have a good amount of properties to present to their kids. Honestly, the kid would be able to earn his/her living and parents should (after providing the basic necessities for their kids) live their lives.  What’s the point of slogging when you don’t get the chance to reap what you sow? So parents, spend the money on yourselves and children, start standing on your own feet.

So, your lifestyle after retirement is basically yours to choose. If you’d like suggestions, feel free to contact me and I would be willing to lay out a few options. Remember; don’t leave till tomorrow what you can do today.

Prepared By,

Ashveen Chakravarthy Sekaran