Aunty Scroogey saw a news article today and thought that it will be worth sharing with you readers out there. Indeed, it’s an exciting time to be in Asia right now, and even more exciting to be in Singapore in the next 5 years or so.

This article is from Business Times dated 24 June 2010.

Asia-Pac millionaires’ millions surpass Europe’s

The heaviest concentration of wealth, however, is still in the US

By GENEVIEVE CUA

(SINGAPORE) Wealth among millionaires in the Asia-Pacific region has surpassed Europe for the first time, even as the number of millionaires hits parity with Europe.

The latest World Wealth Report by Merrill Lynch and Capgemini found that the size of the Asia Pacific’s wealth pie expanded by 30 per cent to US$9.7 trillion. Europe’s wealth at US$9.5 trillion saw an expansion of 14.2 per cent.

The number of high net worth individuals hit three million in the Asia Pacific, equal to Europe’s number.

The largest concentration of wealth is still in the US with US$10.7 trillion in assets. The number of HNWI (high net worth individuals) in the US at 3.1 million is within touching distance of the Asia Pacific.

In a statement, Bertrand Lavayssiere, Capgemini’s global financial services managing director, said: ‘The last few years have been significant for wealthy investors. While in 2008 global HNWI wealth showed an unprecedented decline, a year later, we are already seeing distinct signs of recovery, and in some areas a complete return to pre-crisis levels of wealth and growth.’

The report said the Asia Pacific is set to be the ‘powerhouse of HWNI growth in coming years’, driven by India and China. Last year eight out of 10 countries with the highest growth in HNWI population were from the region, led by Hong Kong with a stunning growth of 104 per cent.

Singapore, also among the top 10, showed an expansion of 32.7 per cent in the ranks of HNWI to over 80,900.

The Boston Consulting Group’s recent wealth report named Singapore as the market with the highest growth in millionaire households. Based on BCG data, there were about 122,700 households with at least US$1 million in net investible assets, growing about 35 per cent last year.

Merrill Lynch and Capgemini noted that market capitalisation was a powerful driver of wealth in Hong Kong. Market cap surged 73.5 per cent in 2009, after plunging 50 per cent in 2008.

The territory’s market cap to GDP ratio is about 11 times, compared to the global average of 0.8 times. ‘That ratio makes Hong Kong particularly vulnerable to losses in wealth when the market declines as it did in 2008, but also produces outsized gains in wealth when stock prices rise.’

Singapore’s market cap to GDP ratio last year was about 1.75 times.

India, whose high net worth population grew 50 per cent in 2009, has a market cap to GDP ratio of two times.

In terms of asset allocation, the wealthy showed a preference for stability, reducing holdings in cash in favour of fixed income. Equities’ allocation rose from 25 per cent in 2008 to 29 per cent but still falls shy of the 2007 weighting of 33 per cent.

The wealthy in Asia Pacific ex-Japan showed a marked preference for real estate, as investments jumped 56 per cent in the second half of 2009 to US$25 billion.

By the year-end, the allocation to real estate stood at 28 per cent compared to 23 per cent previously.

The region’s wealthy also had the highest exposure to residential real estate at 60 per cent.

Meanwhile the study found that the wealthy’s investor psyche has shifted towards caution and conservatism. Clients are also more engaged in financial affairs, opting to educate themselves on products, disclosures and investment risks before conferring with advisers.

Capgemini director of financial services solutions Foong Lai Kiun said clients appeared to have regained trust in their advisers and wealth management firms to some degree, but they have yet to regain trust in regulatory bodies that were supposed to monitor markets.

A small number of firms are understood to be seeking to incorporate behavioural finance into their advisory process. But the challenge is to develop a model that is scalable and profitable.

养兵千日, 用兵一时

Apologies once again for not writing as frequent as I would like to. Aunty Scroogey has been busy doing deals over the past few weeks. You see, Aunty Scroogey just loooooves volatile markets and the uncertainties in the last few weeks has been the kind that she adores. A good financial education should prepare the investor to spot opportunities in the market that typical “investors” shun (as you progress more and more into your financial education, you will find that most of these so called investors are really more like punters/speculators). Talking about preparedness, the old Chinese saying at the start of this post roughly means “train an army for a thousand days, to use it for a moment”. In short, one must prepare extensively for THE moment.

Aunty Scroogey herself has taken advantage of good investment opportunities in the recent few years and has reaped pretty decent returns. If you think that The Aunty has been very lucky all these years for those profits she earned, how wrong could you be!!! All these do not fall from the sky and land accidentally onto my lap. The Aunty’s training begun circa two decades ago when she was about 16 years old – that’s when she first started reading accounting books on her own. The ability to read financial statements is a very useful skill that any investor worth his/her salt can’t do without. Of course, there are some out there who would rather not invest the tremendous amount of time required and rely on brokers’ recommendations; but Aunty Scroogey’s advice is that where possible, you really should be trusting your own judgement instead of others.

If you want your wealth to grow, and to last, you should put your hard earned money in the right places. If you commence your financial education today, I can guarantee that 5 years down the road, you will be more aware of your investment options and your risk preference and hence have a better idea of what to invest in. If you still have not started, then what are you waiting for?

In closing, here is a fantastic video presentation by one of the most respected persons in the financial world, Dr Marc Faber. I am about to watch this for the 3rd time now. Enjoy!

Apologies!!! Aunty Scroogey has not been able to write as frequently as she wanted to these 2 months, because of tax filings, work commitments and such. It was just about 2 days ago that she managed to catch her breath a little from running a backlog of errands.

8th March was International Women’s Day. To commemorate this day (even though it has passed), Aunty is for once, going to write about a woman-related topic – The Oxygen Theory. What is The Oxygen Theory?

I’m sure you must have watched over and over again, when you’re in the plane just before take off, the demonstrations given by the air crew, of what you have to do in case of emergency – where to exit, how to brace, how to put on the oxygen mask and etc. And you might have noticed too, that the instructions if you have an accompanying child, is to attend to yourself first then to your child. The reason is simple: if you are not able to last long, you won’t be able to take care of your child well.

As women, we often place the needs of our family before that of our own. Aunty Scroogey herself is guilty of this too sometimes.  Which is why, it is important that we plan our finances well, which brings us once again back to the topic of adequate financial planning. While setting aside for the children’s education, we also need to make sure that we have enough to fall back on during the later years, amidst inflation and escalating medical costs.  Indeed, it’s not easy being a woman trying to juggle so many things together. Give yourself a pat on the back, sisters!

Applying the Oxygen Theory closer to home, let Aunty Scroogey ask you something, and let yourself answer the question with 100% honesty. How often do you feel that getting rich is evil and wanting to have more money is dirty and greedy? The fact is, The Aunty herself used to think that way too. Until one day, she realized that there is a limit as to how much you can help the poor when you remain poor yourself.  Granted, there are people out there such as Mother Teresa who are poor and are still able to help the poor. But not many of us are like her, with no dependents nor possess the ability to ignore retirement plans. If your money doesn’t come from ill gotten gains, and it wasn’t obtained at the expense of some other people, I do not see anything wrong with wanting to have more so that in turn, many more unfortunate people benefit from your generosity. This too, is an application of the Oxygen Theory.

Live well,

Aunty Scroogey

Gong Xi Fa Cai!

May the Tiger Year bring you progress in your financial journey.

Over the past several weeks, Aunty Scroogey has seen hordes of people queuing up at the Toto booth, hoping to strike the jackpot. The Aunty just hope that these winners are equipped with adequate knowledge of how to manage their ‘big money’.

Click on these links to read about lottery winners who are eventually left penniless (or almost).

Jobless man blows $390,000 in 6 months
Teen spent all of her Lotto fortune in few years
13 million windfall long gone

We’ve talked about how to handle small money – that is, money that you earn on a regular, recurring basis, which may not be large in amount (eg monthly salary). And the best way to handle this would be to apportion it in the ratios 70%, 20%, 10% (http://thepeonies.com/relativity/) or whatever ratios that you are currently living on, say 60%, 20%, 20% or 80%, 10%, 10%.

How then do we handle big money such as bonus, lottery winnings or a windfall gain from selling your house? Assuming no debts to settle, it would be sensible to apportion it in the reverse of your small money ratio. In Aunty Scroogey’s case (where the small money ratio is 70: 20: 10), the Aunty typically uses her annual bonus in the following way: 70% – savings/investments, 20% – payment of income tax & charity donation, 10% – for purchase of frivolous items. The key point is, make sure you have a plan of how to deal with your big money before you lay your hands on it. Without a plan, you might just lose track of the amount you spent and before you know it, there’s hardly anything left. Do remember – financial planning is not an option, it is a responsibility.

This week, something happened. Something important – one of our regular supermarket clients Mrs Bagel (who owns a bagel shop) was chatting with our supervisor. Her landlord is about to increase the rent for her bagel shop by $500 to $4,000. It turned out that the landlord in question is neither a high flying white collar executive nor a scion of a rich family. He is a middle aged guy selling granny clothes next door (well you know, old fashioned clothes that only grannies would dare wear out). Doesn’t this remind you of the fruits seller?

I bet many of you out there feel frustrated that you can’t do any “proper” investments because you do not have the luck to receive big money such as the 8-months bonus payout your cousin Linda gets, or the humongous commission your brother John, who is a top grossing insurance agent, earns. And you’re probably vexed that your savings ratio (say 10% on $2,000), comes up to only $200 every month and you’re thinking: what in the world can $200 do in terms of investment? If that’s really how you feel, chances are you just might have overlooked the power of small money.

In finance, you need to remember a very important concept – wealth takes time to grow. This concept forms one of the most basic fundamentals of successful financial planning. Over a period of 30 months or 2.5 years, your $200 a month would’ve turned into $6,000. If market risk type of investment appeals to you and you’ve taken advantage of the opportunity of low stock prices brought about by the collapse of Lehman Brothers, and bought say, the shares of Olam International Ltd, which were trading at less than $1 a share at the peak of the crisis, you would have gotten 6 lots of shares (1 lot = 1,000 shares, for simplicity we’ve rounded up figures and assumed no brokerage charges). Olam shares are now at more than $2.50, which means that you have a gain of $9,000. Not bad for $200 a month eh?

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Scroogey greetings to all of you and here’s wishing that 2010 will be a better year if 2009 had not been. And since its the first Scroogey post of the year, Aunty Scroogey thought it will be great to start off with something positive. How about talking about the power of debt?

Debt? Positive? You must be thinking – did something go wrong somewhere? How can debts be considered positive? Ah well….. that depends on what you do with the debt. You see, financial debt is a very powerful thing; and its a double-edged sword. It can crush you and take over your life or it can help to make you rich. VERY rich.

If you’re a guy, think of it as a razor blade, which you can use to shave unsightly stubs and make yourself look clean shaven and attractive. But if not careful, you could cut yourself and end up with a scar. Same goes for debt. If you take on credit card debts or other form of financial debts as a means of financing (meaning you don’t pay in full when bill is due) for consumption such as buying new tech gadgets, branded goods, travelling, etc, then that’s akin to cutting yourself with the razor blade.

However, it’s a different story if you use debts for making a good investment, that is, acquire a good asset that generates enough recurring cashflow to service your debt and at the same time, provide you with positive leftover cashflow. Eg. a vending machine with remaining life of 12 years costs $5,000. You put $1,000 as a downpayment and finance the balance $4,000 with a 3-year loan that charges you 8% per annum, making loan repayment just under $140 per month. Total takings from the machine averages $400 a month, and servicing costs is $500 per annum. Assuming no other costs, your net cashflow is $2,620 per year.

The above example has been made simple to show you the use of debt to help increase your cashflow. The additional cashflow of $2,620 is only from 1 machine, but assuming that you have 10 of the same machines averaging $400 sales a month, it works out to $26,200 a year. A vending machine might not have any upside potential (meaning sell it at a higher price), but if the asset in question is a piece of real estate that not only gives you positive net cashflow every month, but also the chance to sell it off at a higher price down the road, would you still think of having debt as a negative thing? In fact, this is exactly how the rich gets richer – that is, with the help of debt.

A young lad whom The Aunty spoke to recently said he wanted to be a real estate tycoon when he reaches 50. And I asked how does he plan on achieving that? He says he will start by buying the tallest office building in the central business district. I told him those things cost lots of money (something like a few hundred million) and he says it doesn’t matter, he will save till he has enough to buy.

Ahem…. assuming he is going to save $20,000 a month (errr…..yeah I know, but let’s assume shall we?), he will need to save for 10,000 months or 833 years just to buy an office block that costs $200 million. I am dead sure he won’t live that long. And we have not even factored in inflation yet during that 833 years.

While it may sound like getting a loan to finance a good asset providing decent cashflow sounds like the sensible thing to do, one must not simply jump into it without the use of a secret weapon – that is, financial knowledge. Remember, debt is a double-edged sword. I can’t emphasize enough how important it is to equip oneself with the necessary financial knowledge in order to use such a powerful tool. In the real word, lives have been lost, businesses folded up and families torn apart when people who do not have adequate knowledge use the sword wrongly.

How about you – is the debt you have making money for you or do you fall on the wrong side of it? How about setting a new year resolution this year to start your financial education if you have not done so? Regardless of what profession you’re in, a financial education is useful when it comes to planning your own financial journey.

Here is an interesting video to summarize what Aunty Scroogey wrote in this blog entry.

Aunty Scroogey has always emphasized that financial planning it not an option, it’s a responsibility. Just last week, the Aunty came across a Business Times article about the retirement village concept. One particular line caught her attention – A recent study by the Lien Foundation revealed that Singaporeans’ greatest fear is to be a burden to their family and friends. Among their top five wishes is to spend their final days at home, but with medical and nursing support nearby.

If you’re like me, and prefer not to add on to the financial burden of your loved ones when you’re in old age, then what better time to prepare yourself for it than now, when you’re robust and healthy? For those who have taken the first step, good for you. For those who would like to start planning but are unsure of what to do, a good way to kick start would be setting aside some money every month as savings. You’ll need a structured, discipline approach to it rather than saving money by the I’ll-see-what’s-left-at- the-end-of-the-month-after-all-my-spendings method. Refer back to this for the 70% 20% 10% method of allocating your hard earned money.

Then there are some of us who have gotten a little further ahead and have accumulated a nice tidy sum from the monthly savings set aside. What do you do with the money in order to make it grow? Well….. until you can answer these questions here , neither you nor your financial advisor/planner can determine what sort of investments would be appropriate for you? Would you much prefer to take market risks or credit risks?

Managing your own money isn’t any rocket science; it just takes lots of discipline – there are people out there who are not highly educated but yet manage to grow their networth to a comfortable level. People such as the secretary and the fruits seller.

And in the midst of all these, if you feel that you’ve benefited from someone’s actions/money/teachings/advice, let’s not forget those who are struggling to earn a living. You might want to think about how you can give back to society, and if you are making monetary contributions, you should ideally, formulate your own guidelines as to what sort of beneficiaries you would like to donate to.

This is Aunty Scroogey’s final blog entry for 2009. In the coming year, the Aunty will be writing more specific topics such as equity investments, bonds, property, charity, etc. Live well, and have fun while on your financial journey.

This may sound odd to some people but the fact is, giving is also a part of the wealth equation. Personally, Aunty Scroogey feels that all she has, is by the grace of other people, and it is therefore important to give back to society. Throughout the years, other people’s actions / money / teachings / advice have benefited her; likewise, she would like her actions / money / teachings / advice to benefit other people as well. One doesn’t need to be filthy rich like Bill Gates in order to make a contribution to charity; there are no hard and fast rules as to how much to contribute so long as it is a comfortable amount to the donor.

Aunty Scroogey has her own set of guidelines when choosing a charity to contribute to. For example, the Aunty doesn’t donate to individual needy persons but prefers to donate to organizations working towards a specific cause to benefit the general public. Of course, you will need to know and feel comfortable with the organization in question on how they handle donations.

Giving back to society also does not stop at just monetary contribution. It could also be in some other forms such as volunteering your time for a cause. Aunty Scroogey’s neighbour – an energetic young girl gifted in photography and design – volunteers her time and skills to design websites for charity groups free of charge. One of the reasons that Aunty Scroogey writes this column is to reach out to people who keep falling onto the wrong side of debt and help them break out of the poverty cycle.

Here’s an exercise: take a moment and reflect, while you are on your financial journey, in what ways (yes, I’m sure there are more than one) are you able to make someone else’s life better?

This is an article about saving money on electricity. Question: How do you like
(a) the idea of having your food cooked while you’re sleeping/shopping/at work etc?
(b) Better still, how do you like idea of (a) above and at the same time incurring little/no electricity charges or gas usage while your food is being cooked?

Yeap, such a thing exists in real life. It’s called a thermal pot, and it basically works like a huge thermos flask.

Aunty Scroogey loves soups and frequently uses one to cook soup. All you need to do is put your ingredients into the pot, bring it to a boil and then put the whole pot into the thermal container (if you’re paranoid, you may want to simmer for another 10-20 mins before removing from fire). Soup is ready a few hours later; but I usually leave it to cook overnight. If you’re like me and like your soup piping hot, just bring it to a boil again before serving.

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Broadly speaking, investors are rewarded for 2 main types of risks that they take – market risk and credit risk:

Market risk
Very simply, market risk refers to risk of price movements of your investments. For example, the risk that share price of Company XYZ will plunge after you’ve bought its shares; or the risk of interest rate going through the roof after you’ve committed to a mortgage on an investment property. Or maybe you’ve converted some Singapore dollars into Australian dollars, and the exchange rate has now moved against your favour – that’s also market risk. If you are someone working in the financial world, one way to measure market risk is using the variance at risk or VaR technique. However, since this column is intended for retail investors who are largely laymen, we shall not be discussing the technique since it involves a great deal of complexity.

It should be noted that given the uncertainty of market directions in general (there is no guarantee that you will get your original capital back), the reward for engaging in market risk – that is, capital gain – typically far exceeds that of credit risk. As we mentioned in the last blog post, high returns normally accompany high risks, low risks low returns.

Many retail investors are familiar with the concept of market risk but few know how to deal with it. Most financial planners would advise that during your younger years, it would make sense to allocate a bigger proportion of your investments in taking market risks such as buying shares; reason being, you would most likely have time to ride out market volatility in the long term (that’s one of the ways to deal with market risk). Likewise, as you advance towards old age, it would make more sense to switch progressively into credit risk-type investments, given that there is limited time to withstand volatility.

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