At the end of October last year 2007, the FTSE 100 was 6,721. Just a year later, and now the index is 3,890. That’s a fall of 42%!
US, London and Japan stocks are far from alone. Share prices have plunged round the world, and have recently fallen so fast that there’s the smell of blind panic around. What’s more, now the great and the good among the politicians and central bankers are competing with each other to tell us how bad the recession will be, and how long it will last. In other words, this might seem to be about as bad as it gets – Sir John Templeton’s fabled point of “maximum pessimism” - which is just when contrarian investors start coming into their own.
But while sniffing out shares that have fallen right out of favour isn’t too difficult right now, there’s a much bigger problem out there. Hedge funds are in forced sale mode! Stock markets may be in fire-sale territory (even longer-term bears such as Jeremy Grantham believe stocks are now closer to being undervalued) but a lot of the big sellers are the hedge fund managers. They bought stocks with borrowed money, and are now having to offload them.
While we can’t yet know exactly what’s being sold, we do know there’s plenty more stock still in the pipeline. The hedge fund industry has been staggering through its worst time in two decades, with an average loss of 17% this year. That beats the performance of most global stock markets, but it’s still not exactly great for a concept that was supposed to be able to sidestep declining markets (though to be fair, ‘short-selling’ bans haven’t helped recently).
Now the heat is really being turned up. Some 8,000 hedge funds with more than $1.7 trn in assets are “being caught in a vicious cycle” say BusinessWeek’s Matthey Goldstein and David Henry, “as worried investors pull out their money”. The problem lies in the mix of plunging markets and massive de-leveraging, i.e. paying down debt, across the financial system. Over the three months to September, another $179bn was wiped off the value of hedge fund assets by falling asset prices, according to Hedge Fund Research.
Spooked by the market falls, and keen to have ready cash at hand, investors have been pulling their money out at a rapid rate, with almost $31bn being withdrawn over the quarter – which means hedgies need to sell more assets to repay clients. On top of this, as markets fall, lenders are also cutting credit lines to their hedge fund customers or are making ‘margin calls’, i.e. demanding that those funds come up with extra cash to back up their borrowings.
And as if that wasn’t enough, the Lehman Brothers bankruptcy is still tying up tens of billions of dollars-worth of hedge fund assets. Lots of money managers had “parked” cash and other securities at the investment bank's prime brokerage operation. But these accounts are now frozen.
But it’s about to get even worse...
That’s more than enough bad news for any industry to cope with. As many as 30% of hedge funds will be shutting up shop “in a Darwinian process”, says Emmanuel Roman at GLF Partners, and the US authorities will force-feed regulation onto the rest: “there need to be scapegoats, and they are going to go hunt people”. That will make business even harder, and lead to even more forced selling.
In London, out of 450 hedge funds, more than 100 could be at risk, says Miles Costello in The Times. New York Professor Nouriel Roubini, who has been spot on about how bad things were going to get, agrees that hundreds of hedge funds will fail. “We've reached a situation of sheer panic. Yet I fear the worst is ahead of us. Don't be surprised if policy makers need to close down markets for a week or two in coming days”. This is pretty apocalyptic stuff. But the cavalry isn’t about to appear over the horizon.
US Treasury Secretary Henry Paulson confirmed to Bloomberg yesterday that unregulated firms like hedge funds won't initially get government aid as “we're focused on regulated financial institutions.” So “you can argue that it could be worse than Wall Street because no one is coming in to save the hedge funds”, says Hank Higdon at Higdon Partners.
Why you shouldn't go bargain hunting just yet? What does this mean for the ordinary investor?
Well, because of the hedgie effect, share prices could easily fall some way further than anyone expects. “The market’s going to overshoot on the downside”, says Peter Boockvar at Miller Tabak, who sees the Dow tumbling to 5,000 next year, more than 40% below today. “When that occurs, I’ll be a raging bull”. So it’s a brave man, or woman, however contrarian, who’s prepared to dip more than a very small toe in the market with the hedge funds in forced sale mode for some time to come. I certainly wouldn’t be buying any funds, passive or actively managed.
Period.
King of the Birds, Lord of the Skies
Gather ye rose buds while ye may, old time is still a flying;
and this same rose that you see today, tomorrow will be dying.
CarpeDiem: Seize the Day!
- Dead Poets Society
Showing posts with label Money Matters. Show all posts
Showing posts with label Money Matters. Show all posts
Friday, October 24, 2008
Tuesday, October 21, 2008
Shares may well be cheap...but they may get a lot CHEAPER!!!
Is this a good time to buy back in to the market? I am sure at some point many will be asking this question.
With share prices crashing around our ears, there’s clearly no lack of doom and gloom around at the moment. But if you’re a bit of a contrarian thinker (means people go left, you go right), who likes selling when markets are frothy and sneaking back in when everyone else is dumping stock in panic, you might be thinking it's time to buy.
Shares have dropped such a long way, it’s very tempting to start thinking about finding some bargains. But WAIT!! Are you aware what is the next scary thing thats about to unfold?
Hedged funds!
Yeah right. What’s happening on the hedge fund front may mean it’s not quite that simple and easy for you to time an entry now to buy back … really.
Yes, stocks are cheap now, but they will get cheaper, a lot cheaper soon...heehaaa :)
With share prices crashing around our ears, there’s clearly no lack of doom and gloom around at the moment. But if you’re a bit of a contrarian thinker (means people go left, you go right), who likes selling when markets are frothy and sneaking back in when everyone else is dumping stock in panic, you might be thinking it's time to buy.
Shares have dropped such a long way, it’s very tempting to start thinking about finding some bargains. But WAIT!! Are you aware what is the next scary thing thats about to unfold?
Hedged funds!
Yeah right. What’s happening on the hedge fund front may mean it’s not quite that simple and easy for you to time an entry now to buy back … really.
Yes, stocks are cheap now, but they will get cheaper, a lot cheaper soon...heehaaa :)
Monday, October 20, 2008
"Claypot" Laksa?
I dined out at the Food Republic (Vivo City) last night, and had a really interesting encounter with this stall that sell one of our favourite local dish - LAKSA!
The signboard read: "Claypot Laksa: $6.90"
Wow! That's steep for a bowl of almighy but ubiquitous laksa, I thought.
Wait a minute, I just had one last week near Katong, for a mere $4.00. Served in a plastic bowl.
But wait another minute, I also just had a bowl of Laksa last last week near my good old neighbourhood coffeeshop, for... $3.00. Sadly, it was also served in plastic bowl.
So now I understand:
Between Laksa and "Katong" Laksa, the different is $1. (or the real different is actually just the word "Katong")
Okay, now between "claypot" laksa and "Katong" Laksa, the different is ... $2.90 !!! (or the real different is just the word "claypot")
Now it set me wondering:
1. Does laksa really taste better in claypot? I doubt so.
2. Does eating Laksa in Katong cost $1 or 2 more?
3. Will it be cheaper if it is Sengkang Laksa?
4. Must I pay more if my Laksa is prepared elsewhere, but sell and served in Katong?
I am sure by now you get what I am hitting :)
No no... is it really better if it is actually "COOKED" in a claypot?? I doubt so too.
So, those diners that paid $6.90 for that touted bowl of heavenly milk noodle is actually paying for the container (claypot) ... yeah ... just the vessel that hold the ordinary, everyhwere-available laksa. I find it laughable and pathetic.
Remember: Anything that is written "Claypot" is not really that "Claypot"... if you know what I mean.
Laksa in a claypot does little to enhance the flavour. It does enhance the bottomline for the laksa seller though...that I am very certain.
What a ripped-off!!!
The signboard read: "Claypot Laksa: $6.90"
Wow! That's steep for a bowl of almighy but ubiquitous laksa, I thought.
Wait a minute, I just had one last week near Katong, for a mere $4.00. Served in a plastic bowl.
But wait another minute, I also just had a bowl of Laksa last last week near my good old neighbourhood coffeeshop, for... $3.00. Sadly, it was also served in plastic bowl.
So now I understand:
Between Laksa and "Katong" Laksa, the different is $1. (or the real different is actually just the word "Katong")
Okay, now between "claypot" laksa and "Katong" Laksa, the different is ... $2.90 !!! (or the real different is just the word "claypot")
Now it set me wondering:
1. Does laksa really taste better in claypot? I doubt so.
2. Does eating Laksa in Katong cost $1 or 2 more?
3. Will it be cheaper if it is Sengkang Laksa?
4. Must I pay more if my Laksa is prepared elsewhere, but sell and served in Katong?
I am sure by now you get what I am hitting :)
No no... is it really better if it is actually "COOKED" in a claypot?? I doubt so too.
So, those diners that paid $6.90 for that touted bowl of heavenly milk noodle is actually paying for the container (claypot) ... yeah ... just the vessel that hold the ordinary, everyhwere-available laksa. I find it laughable and pathetic.
Remember: Anything that is written "Claypot" is not really that "Claypot"... if you know what I mean.
Laksa in a claypot does little to enhance the flavour. It does enhance the bottomline for the laksa seller though...that I am very certain.
What a ripped-off!!!
Wednesday, August 6, 2008
BTITR – What’s the Plan & Strategy?
I start by stating a statement coined by a professor from NUS as a disclaimer: “A theory that explains all things explain nothing”. To me, a layman with a basic degree only, I would say that “A knife that claims to cut all things actually cuts nothing”. So here am I, trying to offer some strategies for balancing between protection and investment, all with your hard-earned money. Truth be told, there is no "one-knife-cuts-all" solution here.
Please do not take any advice wholesale. The suggestions here are NOT the “be all - and all”. Take what is good or make sense to you, and then apply them. The rest may just be bullshit, for all you know. Sometimes, advises dished out are all over-rated, even from the professionals. Really. So be warned, beware, and be careful. Here we go and roll!
Previously, I established that BTITR is a much preferred option than the traditionally “leaving-it-all” to the insurance company track. So, how much do we allow the insurance company to earn? Or rather, how much insurance you think you need in order to have peace of mind? This is tough, and I am not going that direction. Rather, I choose to do a case study for the sake of illustration.
My subject: Mr X, 35 year-old male, non-smoker.
Assumptions: Earn about $5,000 take home
Using my previous approach, I assumed that if an agent Y approached Mr X with a $300,000 whole life plan (limited pay in 25 years), his premium is $8,700 (That will be $761 per month if you pay monthly!).
His total premium will be $8,700 X 25 years = $217,500.
His projected cash values by then is $286,011.
So technically, Mr X gets back all his premium paid plus a modest gain of $68,511. Not bad for a 25-years “investment”, you may say.
I humbly beg to differ.
So, lets suppose Mr X meets agent Z this time, and offer him instead a BTITR track, how will it pan out? Let do the numbers:
Cost of $300,000 Term Plan, 25 years: $1,800 p.a.
Total premium paid by end 25 years : $1,800 X 25 = $45,000 (gone down the drain)
Balance unused cash flow: $8,700 - $1,800 = $6,900 (or $575 per month)
Invest it into a no-frill Regular Saving-Investment Plan in unit trust for 25 years, at nett rate of 6% p.a. (after deduction of 1.5% sales charge and 1.25% p.a. fund management fee).
The future value factor (for 6%, 25 years) is 58.1564.
Meaning if you invest $6,900 equivalent yearly into an investment that yields 6% p.a. for 25 years, you will get $6,900 X 58.1564 = $401,279!
Now, you have got to subtract the cost of term insurance protection from the above.
Hence, nett returns is $401,279 - $45,000 = $356,279!
So, would you take $356,279 or $68,511?
Your call.
The bottomline is:
Do you think it is realistic to ask somebody to put aside $8,700 a year for anything worthwhile? The answer is YES!
Do you think it is practical or wise to sink the entire amount into a whole life insurance plan?
The answer is NO!
Do you think $8,700 p.a. (about $725) is a huge chuck to cut out for financial planning?
The answer is YES and NO!
No because $725 is only about 14.5% of nett take home income. This $725 comes with a $300,000 coverage some more. I exclude gross income, cos that money goes separately into the CPF OA, SA and MediSave for other utilization (housing, partial retirement and medical needs etc.). Our former Prime Minister Mr Goh CT suggested that Singaporeans should look to saving at least 1/3 of their take home pay for retirement.
Yes, it is really too much, if it all goes into a single whole life insurance plan. It is not only too much, in my opinion, it is wastage. And as always, buying whole life plans only benefits the one who sells it, not so much the one who buys it.
If you can, fire-proof your plan with 2 additional plans:
1. CPF (MediSave) - Approved Hospital & Surgical Plan (Reformed MediShield)
2. Personal Accident Plan
I personally think that if you have about just $272 per year to spare (just another $22 per month), build in a Personal Accident Plan (PA). It gives another $300,000 of death, disability and dismemberment coverage, with extra hospital income and funeral expenses.
Good news is that you can use up to $800 per year for CPF-approved reformed medishield plan. Such plan covers you lifetime with no limit for life, just an annual limit of $500,000.
With that, you are quite earthquake-proof as far as personal risk management is concerned. For more details if you want to know if you are adequately prepared for retirement or protection, email me at thereisonlyonepcm@gmail.com
Good luck in your planning.
Please do not take any advice wholesale. The suggestions here are NOT the “be all - and all”. Take what is good or make sense to you, and then apply them. The rest may just be bullshit, for all you know. Sometimes, advises dished out are all over-rated, even from the professionals. Really. So be warned, beware, and be careful. Here we go and roll!
Previously, I established that BTITR is a much preferred option than the traditionally “leaving-it-all” to the insurance company track. So, how much do we allow the insurance company to earn? Or rather, how much insurance you think you need in order to have peace of mind? This is tough, and I am not going that direction. Rather, I choose to do a case study for the sake of illustration.
My subject: Mr X, 35 year-old male, non-smoker.
Assumptions: Earn about $5,000 take home
Using my previous approach, I assumed that if an agent Y approached Mr X with a $300,000 whole life plan (limited pay in 25 years), his premium is $8,700 (That will be $761 per month if you pay monthly!).
His total premium will be $8,700 X 25 years = $217,500.
His projected cash values by then is $286,011.
So technically, Mr X gets back all his premium paid plus a modest gain of $68,511. Not bad for a 25-years “investment”, you may say.
I humbly beg to differ.
So, lets suppose Mr X meets agent Z this time, and offer him instead a BTITR track, how will it pan out? Let do the numbers:
Cost of $300,000 Term Plan, 25 years: $1,800 p.a.
Total premium paid by end 25 years : $1,800 X 25 = $45,000 (gone down the drain)
Balance unused cash flow: $8,700 - $1,800 = $6,900 (or $575 per month)
Invest it into a no-frill Regular Saving-Investment Plan in unit trust for 25 years, at nett rate of 6% p.a. (after deduction of 1.5% sales charge and 1.25% p.a. fund management fee).
The future value factor (for 6%, 25 years) is 58.1564.
Meaning if you invest $6,900 equivalent yearly into an investment that yields 6% p.a. for 25 years, you will get $6,900 X 58.1564 = $401,279!
Now, you have got to subtract the cost of term insurance protection from the above.
Hence, nett returns is $401,279 - $45,000 = $356,279!
So, would you take $356,279 or $68,511?
Your call.
The bottomline is:
Do you think it is realistic to ask somebody to put aside $8,700 a year for anything worthwhile? The answer is YES!
Do you think it is practical or wise to sink the entire amount into a whole life insurance plan?
The answer is NO!
Do you think $8,700 p.a. (about $725) is a huge chuck to cut out for financial planning?
The answer is YES and NO!
No because $725 is only about 14.5% of nett take home income. This $725 comes with a $300,000 coverage some more. I exclude gross income, cos that money goes separately into the CPF OA, SA and MediSave for other utilization (housing, partial retirement and medical needs etc.). Our former Prime Minister Mr Goh CT suggested that Singaporeans should look to saving at least 1/3 of their take home pay for retirement.
Yes, it is really too much, if it all goes into a single whole life insurance plan. It is not only too much, in my opinion, it is wastage. And as always, buying whole life plans only benefits the one who sells it, not so much the one who buys it.
If you can, fire-proof your plan with 2 additional plans:
1. CPF (MediSave) - Approved Hospital & Surgical Plan (Reformed MediShield)
2. Personal Accident Plan
I personally think that if you have about just $272 per year to spare (just another $22 per month), build in a Personal Accident Plan (PA). It gives another $300,000 of death, disability and dismemberment coverage, with extra hospital income and funeral expenses.
Good news is that you can use up to $800 per year for CPF-approved reformed medishield plan. Such plan covers you lifetime with no limit for life, just an annual limit of $500,000.
With that, you are quite earthquake-proof as far as personal risk management is concerned. For more details if you want to know if you are adequately prepared for retirement or protection, email me at thereisonlyonepcm@gmail.com
Good luck in your planning.
Saturday, November 24, 2007
The Final Countdown...
.Name: Elvis Presley aka the King
Earnings: US$49 million
Earnings: US$49 million
Occupation: Musician
Died: Aug. 16, 1977
Age: 42
Cause: Heart attack
.
.
Thirty years after his death, this handsome aka the King once again reigns supreme. Plans to overhaul the once-lethargic estate are paying off big-time for publicly traded CKX Entertainment, which owns the bulk of the empire. (Presley's daughter Lisa Marie retains a 15% interest.) Attendance and spending at Graceland are up thanks to a new ad campaign, renovations at the sprawling complex and a new premium VIP tour program. The Presley estate has also inked new licensing deals with Cirque du Soleil, American Greetings and Hershey's.
Friday, November 23, 2007
Countdown from 2
.Name: John Lennon
Earnings: US$44 million
Occupation: Musician
Died: Dec. 8, 1980
Age: 40
Cause: Murder
.
Lennon's posthumous income was buoyed considerably over the past year thanks to resolutions of long-standing lawsuits. In February, the remaining Beatles and their heirs settled a trademark dispute with Apple Inc., reportedly for as much as $100 million. (The Beatles' commercial interests are overseen by a firm called Apple Corps.) Two months later, the band finally resolved a 30-year battle with record label EMI over alleged unpaid royalties. Both pacts clear the way for the Beatles to begin selling their iconic catalogue of hits online.
Thursday, November 22, 2007
Countdown from 3
.Name: Charles M. Schulz
Earnings: US$35 million
Occupation: Cartoonist
Died: Feb. 12, 2000
Age: 77
Cause: Colon Cancer
.
Peanuts might be the understatement of the century. Snoopy and his posse, featured on some 18,000 cartoon strips during Schulz's 50-year career, are the lynchpin of a massive merchandising empire that encompasses television and newspaper syndication, as well as hundreds of performances of You're a Good Man, Charlie Brown each year. United Media, on behalf of Schulz's widow, oversees a portfolio of sterling deals, including a 20-year-long campaign with Metlife (Schulz coined the term "security blanket"). One out of every five Hallmark cards sold features a Peanuts character. And in October, Warner Home Video won exclusive rights to distribute Peanuts videos.
Tuesday, November 20, 2007
Countdown from 4
.Name: George Harrison
Earnings: US$22 million
Earnings: US$22 million
Occupation: Musician
Died: Nov. 29, 2001
Age: 58
Cause: Throat Cancer
.
.
The "Quiet Beatle" enjoyed a substantial bump in his post-mortem income thanks to one-off settlements from Beatles lawsuits with Apple and EMI. Harrison's estate also gets royalties from the modest sales of his solo work, plus deals like Cirque De Soleil's Beatles-themed Las Vegas show. Harrison's heirs can look forward to more consistent and sizable royalties once the iconic Beatles catalog finally hits Apple's iTunes, likely sometime next year.
Monday, November 19, 2007
Countdown from 5
.Name: Albert Einstein
Earnings: US$18 million
Earnings: US$18 million
Occupation: Scientist
Died: April 18, 1955
Age: 76
Cause: Natural Causes
.
.
The world's most famous celebrity scholar has become a leading trademark in child education thanks to the Disney-owned Baby Einstein brand of videos and toys. In recent years, the brand has targeted toddlers with the hit animated series Little Einsteins. All royalties from Einstein's name and image go to Jerusalem's Hebrew University, which was bequeathed the estate. Word is that Lionsgate is developing a film based on the personal life of the Nobel prize-winning genius.
Sunday, November 18, 2007
Top 5 Dead Celebs' Earnings
Do you know: The thirteen celebrities on Forbes’ latest list earned US$232 million during the past 12 months – all from beyond the grave! Yeah, right, dead but still churning the earnings!!
Now, to qualify for a spot on the seventh annual Top-Earning Dead Celebrities list, the star’s estate had to earn at least US$3.5 million between October 2006 and October 2007.
With US$49 million, Elvis reclaims the top spot after being bumped to No. 2 last year by Kurt Cobain, who debuted on the list at No. 1 but didn’t make the cut this year. Here are the five biggest posthumous moneymakers...
1. Elvis Presley (died 1977) - US$49 million
2. John Lennon (died 1980) - US$44 million
3. Charles M. Schulz (died 2000) - US$35 million
4. George Harrison (died 2001) - US$22 million
5. Albert Einstein (died 1955) - US$18 million
.
If you noticed, the top 1, 2 and 4th spots are taken by dead musicians/ singers. Now you know why I tried so hard to get into the NUSS Karaoke Competition, right? But then again, looking at the age and ways they died, I rather be the dead scientist.
.
I will put up their individual profile over the next 5 days. Enjoy.
Now, to qualify for a spot on the seventh annual Top-Earning Dead Celebrities list, the star’s estate had to earn at least US$3.5 million between October 2006 and October 2007.
With US$49 million, Elvis reclaims the top spot after being bumped to No. 2 last year by Kurt Cobain, who debuted on the list at No. 1 but didn’t make the cut this year. Here are the five biggest posthumous moneymakers...
1. Elvis Presley (died 1977) - US$49 million
2. John Lennon (died 1980) - US$44 million
3. Charles M. Schulz (died 2000) - US$35 million
4. George Harrison (died 2001) - US$22 million
5. Albert Einstein (died 1955) - US$18 million
.
If you noticed, the top 1, 2 and 4th spots are taken by dead musicians/ singers. Now you know why I tried so hard to get into the NUSS Karaoke Competition, right? But then again, looking at the age and ways they died, I rather be the dead scientist.
.
I will put up their individual profile over the next 5 days. Enjoy.
Monday, September 10, 2007
Difference Between Poor & Broke
I've never been poor, only broke.
Being broke is only a temporary situation.
Being poor is a frame of mind.
Mike Todd
Being broke is only a temporary situation.
Being poor is a frame of mind.
Mike Todd
Monday, July 30, 2007
Doing What Makes You Happy
Albert Schweitzer is quoted as saying, "Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you'll be a success."
Eagleboy's version: Money doesn't bring you happiness. But happiness brings you money. The happier you are, the more energy you have to jump over obstacles, & make some decent money. But the question remains: How to be happy? Here's one way:
Can you imagine doing what you love? I can.
Can you imagine following your dream? I can.
Can you imagine following your dream, doing what you love and creating an income by doing such? I can.
What if I told you that it could be done? But what happens if I told you that it would take hard work & effort? Wouldn't that decrease your excitement? Sian Liao (means bored already)? What if I told you that you are going to come up against roadblocks, would you still continue? Sibeh Sian Liao (means very bored already)!
Is your dream and love for your passion so powerful that when family and friends tell you that "it can't be done" you are still willing to move ahead and stick to your convictions? I know what I am talking about here. I have been through that kind of circumstances twice before. Let me share this with you my friend. My life has been filled with roadblocks, obstacles and negative people. But that was my past. My present is different now, and my future is even better.
So, here's the question: What are your dreams & passion? More importantly, what are you willing to do or sacrifice to follow your passion? Success and happiness can be yours. Especially success, if you are doing what makes you happy.
Focus on things that can bring you lasting joy & satisfaction, as opposed to the short-lived thrill of splurging at the Great Singapore Sales. That's because as much as I love to shop (and I suspect I'm not alone), economists have yet to find a connection between sales at Best Buy & true happiness. In fact, a lifestyle based on constant consumption probably won't make you happy.
Why? When we spend money on certain material goods or status items, there is a ''no natural stopping point.'' There will always be a bigger house, a fancier car, a more expensive watch to go after. But when it comes to "intrinsic needs", like food, rest, relationships, health, most people can naturally reach a point of satisfaction.
Thus, focusing more on quality of life, as opposed to stuff, appears to be a better goal. To many, that may means cutting down on that 15-hours-a-day job; coming back early instead of entertaining clients till midnight; slowing down; pay-cut; not taking that promotion etc. That's call surrendering money to regain personal time.
I read an article recently about someone who decided it was worth giving up a raise and a promotion to have more time with her baby daughter. She decided to switch jobs, taking a significant pay cut, to reduce her three-hour daily commute and 12-hour-plus workdays.
This is what she said (I quote):
"What I gained was really worth the money I gave up," she says, estimating the total loss at $10,000 a year, including lost matching funds to her 401(k). "I got a life."
In addition to the sanity and the flexibility her new job provides, "I get home in time to play with my daughter and even relax a little."
The biggest payoff was when she and her husband learned recently that she was pregnant, "and instead of freaking out, we are only filled with joy. That is worth giving up untold amounts of money for!"
It's so easy to drift through life, thinking of money as a merely financial matter and happiness as an emotional one. Truth is: the two are connected, and our view of money & how we spend can change our life for the better. Our view of our pay & how we appear to impress others can alter our health & overall well-being.
Someone told me that I shouldn't do the things I don't understand, & spend money I don't have, to impress people I don't like, for reasons I don't know. I encourage you to invest more in your own happiness.
Don't just follow the crowd.
Don't just follow the herd (unless you are a cow).
Follow your heart.
And please don't follow me (home) too, unless you are cute & gorgeous.
Eagleboy's version: Money doesn't bring you happiness. But happiness brings you money. The happier you are, the more energy you have to jump over obstacles, & make some decent money. But the question remains: How to be happy? Here's one way:
Can you imagine doing what you love? I can.
Can you imagine following your dream? I can.
Can you imagine following your dream, doing what you love and creating an income by doing such? I can.
What if I told you that it could be done? But what happens if I told you that it would take hard work & effort? Wouldn't that decrease your excitement? Sian Liao (means bored already)? What if I told you that you are going to come up against roadblocks, would you still continue? Sibeh Sian Liao (means very bored already)!
Is your dream and love for your passion so powerful that when family and friends tell you that "it can't be done" you are still willing to move ahead and stick to your convictions? I know what I am talking about here. I have been through that kind of circumstances twice before. Let me share this with you my friend. My life has been filled with roadblocks, obstacles and negative people. But that was my past. My present is different now, and my future is even better.
So, here's the question: What are your dreams & passion? More importantly, what are you willing to do or sacrifice to follow your passion? Success and happiness can be yours. Especially success, if you are doing what makes you happy.
Focus on things that can bring you lasting joy & satisfaction, as opposed to the short-lived thrill of splurging at the Great Singapore Sales. That's because as much as I love to shop (and I suspect I'm not alone), economists have yet to find a connection between sales at Best Buy & true happiness. In fact, a lifestyle based on constant consumption probably won't make you happy.
Why? When we spend money on certain material goods or status items, there is a ''no natural stopping point.'' There will always be a bigger house, a fancier car, a more expensive watch to go after. But when it comes to "intrinsic needs", like food, rest, relationships, health, most people can naturally reach a point of satisfaction.
Thus, focusing more on quality of life, as opposed to stuff, appears to be a better goal. To many, that may means cutting down on that 15-hours-a-day job; coming back early instead of entertaining clients till midnight; slowing down; pay-cut; not taking that promotion etc. That's call surrendering money to regain personal time.
I read an article recently about someone who decided it was worth giving up a raise and a promotion to have more time with her baby daughter. She decided to switch jobs, taking a significant pay cut, to reduce her three-hour daily commute and 12-hour-plus workdays.
This is what she said (I quote):
"What I gained was really worth the money I gave up," she says, estimating the total loss at $10,000 a year, including lost matching funds to her 401(k). "I got a life."
In addition to the sanity and the flexibility her new job provides, "I get home in time to play with my daughter and even relax a little."
The biggest payoff was when she and her husband learned recently that she was pregnant, "and instead of freaking out, we are only filled with joy. That is worth giving up untold amounts of money for!"
It's so easy to drift through life, thinking of money as a merely financial matter and happiness as an emotional one. Truth is: the two are connected, and our view of money & how we spend can change our life for the better. Our view of our pay & how we appear to impress others can alter our health & overall well-being.
Someone told me that I shouldn't do the things I don't understand, & spend money I don't have, to impress people I don't like, for reasons I don't know. I encourage you to invest more in your own happiness.
Don't just follow the crowd.
Don't just follow the herd (unless you are a cow).
Follow your heart.
And please don't follow me (home) too, unless you are cute & gorgeous.
Monday, April 2, 2007
Money Rules to Live By IX
The miracle of compound interest
I called it the 8th Wonder of the World. This is a concept best illustrated by this classic example.
Let's say I give you a cent today, and promise to double the amount every day for a full month.
How much money would I be giving you on the 31st day?
The answer: $10.7 million.
Don't believe? Check it out: It all adds up
Day 1 $0.01
Day 2 $0.02
Day 3 $0.04
Day 4 $0.08
Day 5 $0.16
Day 6 $0.32
Day 7 $0.64
Day 8 $1.28
Day 9 $2.56
Day 10 $5.12
Day 11 $10.24
Day 12 $20.48
Day 13 $40.96
Day 14 $81.92
Day 15 $163.84
Day 16 $327.68
Day 17 $655.36
Day 18 $1,310.72
Day 19 $2,621.44
Day 20 $5,242.88
Day 21 $10,485.76
Day 22 $20,971.52
Day 23 $41,943.04
Day 24 $83,886.08
Day 25 $167,772.16
Day 26 $335,544.32
Day 27 $671,088.64
Day 28 $1,342,177.28
Day 29 $2,684,354.56
Day 30 $5,368,709.12
Day 31 $10,737,418.24 !!!
Each day, the "interest" I paid you the previous day earns more interest. At the beginning, the amounts are nominal, but by the end we're talking big bucks. Look carefully, and you will realise that it is compounding at an interest rate of 100% per day!
Of course, no one's going to double your money every day. But this concept explains how people who save relatively small amounts over the years can build rather substantial nest eggs. After a few decades, their actual contributions represent only a small part of their burgeoning wealth - it's mostly their returns that are earning returns.
But this also illustrates how debts can quickly balloon out of control. If you're paying interest, rather than incurring it, and you're not diligent about paying off the finance charges in full every month, the unpaid amount will incur additional interest charges, increasing the total amount that you owe. This is why so many families who incur credit card debt eventually find themselves in trouble as the amounts they owe explode past their ability to pay.
There are plenty more nifty and helpful money concepts, but these nine are among my favorites. Please feel free to add on to the list as you deem necessary.
I called it the 8th Wonder of the World. This is a concept best illustrated by this classic example.
Let's say I give you a cent today, and promise to double the amount every day for a full month.
How much money would I be giving you on the 31st day?
The answer: $10.7 million.
Don't believe? Check it out: It all adds up
Day 1 $0.01
Day 2 $0.02
Day 3 $0.04
Day 4 $0.08
Day 5 $0.16
Day 6 $0.32
Day 7 $0.64
Day 8 $1.28
Day 9 $2.56
Day 10 $5.12
Day 11 $10.24
Day 12 $20.48
Day 13 $40.96
Day 14 $81.92
Day 15 $163.84
Day 16 $327.68
Day 17 $655.36
Day 18 $1,310.72
Day 19 $2,621.44
Day 20 $5,242.88
Day 21 $10,485.76
Day 22 $20,971.52
Day 23 $41,943.04
Day 24 $83,886.08
Day 25 $167,772.16
Day 26 $335,544.32
Day 27 $671,088.64
Day 28 $1,342,177.28
Day 29 $2,684,354.56
Day 30 $5,368,709.12
Day 31 $10,737,418.24 !!!
Each day, the "interest" I paid you the previous day earns more interest. At the beginning, the amounts are nominal, but by the end we're talking big bucks. Look carefully, and you will realise that it is compounding at an interest rate of 100% per day!
Of course, no one's going to double your money every day. But this concept explains how people who save relatively small amounts over the years can build rather substantial nest eggs. After a few decades, their actual contributions represent only a small part of their burgeoning wealth - it's mostly their returns that are earning returns.
But this also illustrates how debts can quickly balloon out of control. If you're paying interest, rather than incurring it, and you're not diligent about paying off the finance charges in full every month, the unpaid amount will incur additional interest charges, increasing the total amount that you owe. This is why so many families who incur credit card debt eventually find themselves in trouble as the amounts they owe explode past their ability to pay.
There are plenty more nifty and helpful money concepts, but these nine are among my favorites. Please feel free to add on to the list as you deem necessary.
Sunday, April 1, 2007
Money Rules to Live By VIII
The time value of money
This is one of my favourite. It boils down to a relatively simple proposition: that the dollar I get today is worth more than a dollar I'm promised sometime in the future. If money has a way of shrinking, this is it. I remember I use to pay 35 cents for a cup of coffee in coffee shops. Now, the same 35 cents gets me only one-third of that cup. Put it simply, that same cup of coffee is now going at 90 cents. That's about 257% over a period of 28 years! Inflation, they call this phenomenon.
There are several reasons for this. One is the "bird in the hand" reality: the dollar I get today is real, but the dollar I'm promised in the future likely will be worth less (because of inflation), or I might not get it at all (you might renege on your promise to give it to me, or die, or cease operations if you're an employer or business). Also, the dollar I get today can be invested to create more dollars in the future.
Turn this around, and you'll see why lenders charge interest for loaning money, and why the interest rate depends on your creditworthiness. Lenders want to be compensated for the erosion in their dollars due to inflation, and for the risk of lending money to you.
The higher the perceived rate of future inflation and the more lenders doubt your promise to pay the money back, the more interest they'll charge to compensate for the risk.
This is one of my favourite. It boils down to a relatively simple proposition: that the dollar I get today is worth more than a dollar I'm promised sometime in the future. If money has a way of shrinking, this is it. I remember I use to pay 35 cents for a cup of coffee in coffee shops. Now, the same 35 cents gets me only one-third of that cup. Put it simply, that same cup of coffee is now going at 90 cents. That's about 257% over a period of 28 years! Inflation, they call this phenomenon.
There are several reasons for this. One is the "bird in the hand" reality: the dollar I get today is real, but the dollar I'm promised in the future likely will be worth less (because of inflation), or I might not get it at all (you might renege on your promise to give it to me, or die, or cease operations if you're an employer or business). Also, the dollar I get today can be invested to create more dollars in the future.
Turn this around, and you'll see why lenders charge interest for loaning money, and why the interest rate depends on your creditworthiness. Lenders want to be compensated for the erosion in their dollars due to inflation, and for the risk of lending money to you.
The higher the perceived rate of future inflation and the more lenders doubt your promise to pay the money back, the more interest they'll charge to compensate for the risk.
Saturday, March 31, 2007
Money Rules to Live By VII
The role risk plays
Every human endeavor carries some risk, and investments are no exception. What differs is the amount and type of risk and how you're compensated for taking it.
The 30-day Government Treasury bill, for example, is one of the "safest" investments around if you're solely concerned with getting back your original investment. The T-bill is backed by the full faith and credit of the government. But the average return on a 30-day T-bill over the past years is just 3.34%. That's just above the historical 3% inflation rate for the same period; if you factor in taxes, you probably lost money! Don't forget: GST is gearing up to 7% soon!!
Large-company stocks, by contrast, returned an average 10.4% annually during the same period. That handily beats inflation, but as everyone who has invested in the past decade knows, stocks aren't a sure thing. There were plenty of years along the way that the market for large-company stocks dived, and if you invested all your money in a single stock -- say, Enron -- you could be wiped out. That's called market risk.
Here's what you should take away: You'll almost certainly need to take some market risk if you want to grow your wealth and beat inflation over time. But you should also be wary of anyone who "guarantees" a high return on an investment. If you're earning much more than the going rate on a T-bill, you're taking some risk, and you should understand that risk before proceeding.
Every human endeavor carries some risk, and investments are no exception. What differs is the amount and type of risk and how you're compensated for taking it.
The 30-day Government Treasury bill, for example, is one of the "safest" investments around if you're solely concerned with getting back your original investment. The T-bill is backed by the full faith and credit of the government. But the average return on a 30-day T-bill over the past years is just 3.34%. That's just above the historical 3% inflation rate for the same period; if you factor in taxes, you probably lost money! Don't forget: GST is gearing up to 7% soon!!
Large-company stocks, by contrast, returned an average 10.4% annually during the same period. That handily beats inflation, but as everyone who has invested in the past decade knows, stocks aren't a sure thing. There were plenty of years along the way that the market for large-company stocks dived, and if you invested all your money in a single stock -- say, Enron -- you could be wiped out. That's called market risk.
Here's what you should take away: You'll almost certainly need to take some market risk if you want to grow your wealth and beat inflation over time. But you should also be wary of anyone who "guarantees" a high return on an investment. If you're earning much more than the going rate on a T-bill, you're taking some risk, and you should understand that risk before proceeding.
Friday, March 30, 2007
Money Rules to Live By VI
Throw no good money after bad
"Sunk costs" are expenses that have already been incurred and can't be recovered to any appreciable extent. "Sunk cost fallacy" means an irrational belief that a further investment of time, money or effort will somehow resurrect the value that's already disappeared.
A classic example is the investor whose stock has plunged because the prospects of the company have worsened. The investor wouldn't buy the same stock today, yet continues to hang on to the shares rather than sell them and take the loss. The investor may offer the excuse that he or she wants to at least "break even" before selling, but of course the stock market doesn't care about the investor getting the money back, and all the wishing in the world won't bring the stock price back up.
By hanging on to the shares, the investor is giving up the opportunity to invest elsewhere at a profit -- an opportunity cost.
Remember: Sometimes it is better to flee and hide, so that another day you may come back and fight.
"Sunk costs" are expenses that have already been incurred and can't be recovered to any appreciable extent. "Sunk cost fallacy" means an irrational belief that a further investment of time, money or effort will somehow resurrect the value that's already disappeared.
A classic example is the investor whose stock has plunged because the prospects of the company have worsened. The investor wouldn't buy the same stock today, yet continues to hang on to the shares rather than sell them and take the loss. The investor may offer the excuse that he or she wants to at least "break even" before selling, but of course the stock market doesn't care about the investor getting the money back, and all the wishing in the world won't bring the stock price back up.
By hanging on to the shares, the investor is giving up the opportunity to invest elsewhere at a profit -- an opportunity cost.
Remember: Sometimes it is better to flee and hide, so that another day you may come back and fight.
Money Rules to Live By V
Why supply and demand rule
For the most part, prices are set by the interaction between supply and demand. If demand for something suddenly shoots up and the available supply of that something doesn't change, then prices will increase. If demand drops or supply increases, though, prices typically fall.
Here's an example. Say rock star Brittany Amber Tiffany is photographed wearing a cap with the brand name of a Health Care company. Suddenly, all her fans and half the people reading local magazine decide they, too, need the Health Care company's hat. The companies that stock these hats figure out a good thing when they see it, and double, then triple, the price. The hat actually worn by Brittany sells for a mint on eBay, earning a notice in mainstream newspapers and furthering the craze.
The Health Care company wants a piece of this action and starts cranking out hats by the ton. Suddenly you can find one in every Cold Storage and Robinson. The retailers can no longer command a premium for having a rare item (thanks to the increase in supply). In fact, the hats start seeming a heck of a lot less cool, lowering demand; Cold Storage and Robinson slash the price still further to get rid of their unwanted supply.
Only a big increase in supply or a sustained decline in demand is likely to affect prices.
Supply and demand have a lot to do with our incomes, as well. If we have rare skills that are in high demand by employers, we can negotiate higher pay. If, on the other hand, there are a lot of people that can do what we do or the employer need for what we do is limited, our incomes are likely to be stunted. Think about that, and stay relevant or risk losing your rice bowl.
For the most part, prices are set by the interaction between supply and demand. If demand for something suddenly shoots up and the available supply of that something doesn't change, then prices will increase. If demand drops or supply increases, though, prices typically fall.
Here's an example. Say rock star Brittany Amber Tiffany is photographed wearing a cap with the brand name of a Health Care company. Suddenly, all her fans and half the people reading local magazine decide they, too, need the Health Care company's hat. The companies that stock these hats figure out a good thing when they see it, and double, then triple, the price. The hat actually worn by Brittany sells for a mint on eBay, earning a notice in mainstream newspapers and furthering the craze.
The Health Care company wants a piece of this action and starts cranking out hats by the ton. Suddenly you can find one in every Cold Storage and Robinson. The retailers can no longer command a premium for having a rare item (thanks to the increase in supply). In fact, the hats start seeming a heck of a lot less cool, lowering demand; Cold Storage and Robinson slash the price still further to get rid of their unwanted supply.
Only a big increase in supply or a sustained decline in demand is likely to affect prices.
Supply and demand have a lot to do with our incomes, as well. If we have rare skills that are in high demand by employers, we can negotiate higher pay. If, on the other hand, there are a lot of people that can do what we do or the employer need for what we do is limited, our incomes are likely to be stunted. Think about that, and stay relevant or risk losing your rice bowl.
Money Rules to Live By IV
Every money decision has a cost of its own
"Opportunity cost," very simply, means what we give up in order to get something else. In every choice, there's an opportunity cost. If you decide to go to university, for example, you're giving up the income you could have earned by working full-time during those years plus whatever you could have purchased with the money used to attend school. You also may take on loans to pay for school, which will have to be paid back with future income that could have gone for other purposes.
The good news, of course, is that even with opportunity costs, university is a slam-dunk for most people. Statistically, the average graduate makes 70% more over his or her lifetime than someone who stops with a "A-level" Certificate or Diploma.
If, however, you train for a career that has little demand and wind up making the same amount as a Diploma holder, or trailing huge amounts of student loan debt you can never repay, you may regret the money spent on school and the foregone income.
Understanding that our choices have opportunity costs, and examining what those costs are, should help us make better economic decisions.
"Opportunity cost," very simply, means what we give up in order to get something else. In every choice, there's an opportunity cost. If you decide to go to university, for example, you're giving up the income you could have earned by working full-time during those years plus whatever you could have purchased with the money used to attend school. You also may take on loans to pay for school, which will have to be paid back with future income that could have gone for other purposes.
The good news, of course, is that even with opportunity costs, university is a slam-dunk for most people. Statistically, the average graduate makes 70% more over his or her lifetime than someone who stops with a "A-level" Certificate or Diploma.
If, however, you train for a career that has little demand and wind up making the same amount as a Diploma holder, or trailing huge amounts of student loan debt you can never repay, you may regret the money spent on school and the foregone income.
Understanding that our choices have opportunity costs, and examining what those costs are, should help us make better economic decisions.
Thursday, March 29, 2007
Money Rules to Live By III
The Pointlessness of the Hedonic Treadmill
No, this isn't the latest workout device at your gym. The hedonic treadmill means that we quickly adjust to improved circumstances. A raise at work or a new possession may make us happy for a little while, but we soon take our situation for granted. Our expectations continue to rise: if only I could get another raise, or a better car, or a bigger house. Should those expectations be satisfied, again we'd adjust and quickly want more. Ours is a generation that spend too fast and commit to much. On the contrary, I have a friend who, despite being very successful, refused to upgrade to a BMW or a Merc recently. He could if he wanted to. When I asked him lately why he changed his 5 year-old 1600 cc Nissan Sunny for a 2000 cc Honda Accord instead of a Lexus or Beemer, his reply was, "I want to upgrade slowly; I want to feel the joy of improvement, but slowly". I know eventually I will get to see his Lexus or BMW one day, but I am sure he is pacing his commitment well. May his tribe prevails!
This has a lot of implications for personal finance and the economy, but here's something to consider: Maybe we need to look beyond our wallets for true happiness. Like my friend, feel the gradual improvement; display delayed gratification instead of jumping into instant consumption, turbo-charged!
That's it for now. 3 more rules tomorrow, so watch this space.
No, this isn't the latest workout device at your gym. The hedonic treadmill means that we quickly adjust to improved circumstances. A raise at work or a new possession may make us happy for a little while, but we soon take our situation for granted. Our expectations continue to rise: if only I could get another raise, or a better car, or a bigger house. Should those expectations be satisfied, again we'd adjust and quickly want more. Ours is a generation that spend too fast and commit to much. On the contrary, I have a friend who, despite being very successful, refused to upgrade to a BMW or a Merc recently. He could if he wanted to. When I asked him lately why he changed his 5 year-old 1600 cc Nissan Sunny for a 2000 cc Honda Accord instead of a Lexus or Beemer, his reply was, "I want to upgrade slowly; I want to feel the joy of improvement, but slowly". I know eventually I will get to see his Lexus or BMW one day, but I am sure he is pacing his commitment well. May his tribe prevails!
This has a lot of implications for personal finance and the economy, but here's something to consider: Maybe we need to look beyond our wallets for true happiness. Like my friend, feel the gradual improvement; display delayed gratification instead of jumping into instant consumption, turbo-charged!
That's it for now. 3 more rules tomorrow, so watch this space.
Money Rules to Live By II
Scarcity makes your choices for you
It's lovely to believe in a world of endless abundance, but the reality is that at any given point in time our resources have limits. Whether it's oil in the ground, our time here on Earth or the cash in our pockets, there's only so much available to be spent.
People who ignore this reality are the ones who run out of paycheck before they run out of month, or who extend their unsustainable spending by relying on credit cards, home equity loans and other reckless borrowing. Their refusal to make the sometimes-hard choices needed to responsibly manage money means that they will have even fewer choices in the future. The money they spend on stuff and on interest can't be invested in other goals, like retirement, so odds are pretty good they'll wind up old and broke.
Recognise and respect this reality. They help define perimeter for spending. It's a friend, not foe.
It's lovely to believe in a world of endless abundance, but the reality is that at any given point in time our resources have limits. Whether it's oil in the ground, our time here on Earth or the cash in our pockets, there's only so much available to be spent.
People who ignore this reality are the ones who run out of paycheck before they run out of month, or who extend their unsustainable spending by relying on credit cards, home equity loans and other reckless borrowing. Their refusal to make the sometimes-hard choices needed to responsibly manage money means that they will have even fewer choices in the future. The money they spend on stuff and on interest can't be invested in other goals, like retirement, so odds are pretty good they'll wind up old and broke.
Recognise and respect this reality. They help define perimeter for spending. It's a friend, not foe.
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