Retirement Planning

It is always best to start retirement planning as early as possible. This would allow your savings to grow due to compounding interests.

First of all, you would need to calculate how much you require every month when you retire. Take into consideration inflation or the purchasing power of your money in the future. For example, you might just require $1000 for basic necessities in the future.

To achieve this $1000, you might need to dig into your savings or from passive income. For planning purposes, you might retire at 65 and it is highly likely that you might pass away at 85, hence, you would need $1000 every month for the next 20 years which amounts to $240,000. If you do not have any passive income, this means that you would need to have roughly a quarter million in your bank account.

My recommendation would be a mix of both passive income and savings as you might live longer or that $1000 might no longer be enough for survival.

Every 10 year, our economy undergo several cycles of up and down. Of course, it is advisable for people to buy low and sell high. However, there is still a possibility to just buy low and sit on those stocks as stocks normally provides dividends. Let's imagine a dividend rate of 5%, this means that to get $12000 a year, you would need to put $240,000 in that stock.

It is obvious that dividend rates are not fixed as they are tied to the profits of a company. Hence, it would be advisable to put your money in different companies in different industries. Read the dividend payout of those companies that you are interested in, if they are paying 5% for the past 3 years, then it is probable that they would pay a fixed rate based on their share price for that year. However, companies usually pay a variable dividend rather than a fixed rate. Hence, based on the cyclical swing of the stock market, it would be better to catch those stocks that you had been eyeing during recessions and keep them for their dividends especially if those companies can afford to even pay 5% dividend rate during recessions.

Normally defensive industries like utilities and transport are good companies that pay good dividends. Others would be banking and REITS. Hence, collect these stocks early and re-invest your dividends for a bigger egg nest and future passive income.

Correction in sight?

For the past month, we have seen massive rally for Asian markets like STI. The question on our minds now is if the rally is sustainable. It does seem that the current rally is building up to be a bubble as there are news that the 1st quarter earnings although better than expected are still not much to shout at. Note that earnings for financials and major companies as compared to the previous year are weaker on a year on year basis.

For today, the index has started to take a dip. If the dip continues based on this week trend, it would show that a correction is in effect where current prices would most likely be off between 15% to 20%. I would say that having a correction is healthy as it allows the economy to catch up, and the markets would then moderate towards recovery.

The waiting game

Awaiting news of the stress test... So far, the markets lacked a clear direction on whether should it go up or should it proceed south. For the past month, markets had quite a huge upswing and I'm actually waiting for a correction to happen to buy in for the next upswing. Although analysts and reports are out saying that recession is not yet over, I would say that the world economy generally lags behind the stock markets couple of months and with data showing a slowdown in the decline of unemployment and sales, it shows that the recovery of the stock markets should be in sight. As recovery happens, the world economy would also recover in the next 6 months.

Gloomy updates

Christmas is coming and merry christmas in advance! However, although I see most indexes recovering from their lows in recent weeks, the big question would be whether the momentum can be sustained? However, in light of the festive period, I'm afraid to say that investors would probably be selling of their stocks in get cash for presents.

Note that other than Christmas, there is still New Year and Chinese New Year to contend with. Hence, I believe that attentions would turn to elsewhere rather than on the stock market. Market volume would likely be weak until at least after February 2009.

I believe that probably after Feb 2009 then we would see signs of retail investors coming back slowly and this would stabilise the market.

Value Cost Averaging

Recently, I came across a news article talking about value cost averaging. Basically, value cost averaging is a improved version of dollar cost averaging which requires some active monitoring to managing of your investment account.

Value cost averaging takes into consideration the performance of your funds before investing the appropriate monthly cash sum into the funds while dollar cost averaging would just invest the fixed amount of monthly cash sum into the funds. An example would be that a DCA strategy to invest a monthly sum of $200 into a US equity fund, but for VCA, if the funds underperformed like 1% as compared to last month, you would have to put in $200 + the additional 1% loss that you incurred. However, if the fund grow by 1% as compared to the previous month, you just need to put in $200 - additional 1% gain. Hence, this strategy buys low and sells high, and adjust accordingly to the performance of the fund.

I had created a simple spreadsheet should you require help in starting up a new VCA investment plan for yourself.

Value Cost Averaging Plan

Hence, value cost averaging is in fact looking at the targetted fund amount rather than the fund cost. The consideration is to reach the targetted value of the fund rather than having a targetted investment sum that you wish to put into a fund.

Stagnant markets

Recently, all major markets had been sluggish and most had dropped significantly. Some examples are STI from 3300 to about 3000 (10% drop), Brazil from 74000 to 67000 and Hang Seng had dropped till 24000. I had previously sold my Brazil fund at about 73000 for a profit of 20% as it is one of the couple of funds that is still in the black and that I think it is edging too fast up.

For the past few days, most markets are flat without signs of improving. The Brazil index is showing quite a large fluctuations (1%-2%) and just yesterday, it had pushed up to 68000 mark. However, it is still too early to determine if the Brazil index would drop after a day of gains till 65000. As for the rest of the market, investors might wish to put in some capital but note that recovery might not take place that fast even though I think it is already bottoming out.

Commodity boom and inflation

Funds for commodity and energy should be booming now with rising raw material prices and oil prices. However, as rice prices reaches a high, this might cause concerns for the economy. For the past month, we had witnessed rises in commodities, energy funds and also in the Brazil sector.

I had decided to lower my holdings in Brazil as it nears the high mark of 70,000 to cash in on my profits. I noticed that perhaps the high raw material prices are not justified according to demand and supply factors especially for oil. OPEC had stated many times that supply of oil is adequate and with oil traders and energy funds buying into oil, this artifically inflates the price of oil. In addition, this also applies to commodities. However, it is unsure how this stagflation plays out as people will soon realise that the demand for goods and services would fall with a gloomy economy looming.

Hence, I suggest a cut on all energy and commodities holdings as it seems to be a tad too high for now. Although there's no doubt that oil prices would keep going up in future, this surging rise in prices might be too much to take. For Brazil funds, there might be cut back at the 69000-70000 level and it is thought that the index at this level might not hold for too long with US economy weakening. For other sectors, I suggest DCA for averaging down or start buying as it seems that markets are recovering slowly.

Prices are rising!

Sorry to burst your bubbles, I'm not referring to the rising unit trusts nor index. However, what I'm referring to may be of very good news for investors dealing in alternative or niche areas like materials, energy and gold.

Currently, oil, gold and raw materials had hit their peak and we are unlikely to see the end of it. For oil, it is extremely simple, there's a very limited supply but yet the demand for it is growing. Hence, unit trusts dealing with energy are growing even though markets are still sluggish.

Recently, there's news regarding the reviewing of prices of iron ore by Chinese firms. It is expected that prices of ore would probably rise 60-70%. Thus, unit trusts dealing with materials are showing an upward trend too.

For the last week, I also noticed an upward trend in Latin American economies and as these economies are mainly dealing with raw materials, I deduced that their rise are probably due to increase in the demand for raw materials. The Brazil fund is doing quite well as a matter of fact as compared to other regional unit trusts. It is also interesting to note that Thai unit trusts are showing an upward trend. However, the return of Mr Thaksin back to Thailand is akin to a pebble dropping into a still pond and the ripples might be great enough to cause a trend reversal. However, if all goes well, the Thai economy might be on the rise again! Do note the situation before investing!

That's all folks! Currently markets are consolidating and the situation seems to be under control for now even though it is still a tad too quiet. Thus, my outlook is still cautious though I might look at some energy funds for the long term.

After the festive period

Finally, the festive period for the Asia region is over! This entails reviving interests in trading but retail investors might still be staying on the sidelines. In the short term, it is expected that major stock indices would still be hovering at current levels at +- 20%. An example would be the STI which I predict would hover between 2800 to 3200 at least for the next 3 months.

Performance of my portfolio is not doing great owing to the global downturn and sentiments are still shaky although I had been doing monthly injections on funds like BRIC, Chinese and Korea as they are still projected to have reasonable growth this year. My strategy is still on doing dollar cost averaging for at least the next year.

Lastly, happy chinese new year to all the readers!

Emergency Fed Cut

Yesterday emergency Fed actions to cut the prime rate by 0.75% is indeed a little too late. It's equivalent to an electric shock to a non-beating heart, even though the heart is temporarily revived, who knows when it would stop again. And the US market probably needs to undergo structural changes akin to a heart operation in order for any recovery.

Currently, sentiments are so bad that regardless of what the fundamentals say, investors would probably not touch any stocks. Hence, even if good news like higher earnings were reported, Dow are still falling. If only drastic measures had been taken earlier, the downturn would not be so bad. Gauging the performance of DJ after the rate cuts had been announced, it does seem to slow the fall but there's still no rebound in sight yet. Thus, this electric shock did not even revive the heart and more shocks would have to be prescribed in order to revive the US market.

I would advise to stay out of everything as cash is king now.

A safer way to invest

A bad start to the year 2008 with uncertainties being certain. There are basically 3 things which I am concerned about. Firstly, recessionary pressure on the US economy which with the rest of the world having not decoupled from the US markets will cause growth in emerging markets to tamper down. Secondly, rising fuel prices. This means that production costs would increase resulting in a lower profit margins or in fact, this simply means that growth will be strifled. Thirdly, runaway inflation in growing economies which can be seen in China where food prices especially meat had risen much too fast due to affluence.

In actual fact, all these would slow growth in 2008 and the impact remains yet to be seen. However, I am still optimistic in the long run but neutral in the short term. My strategy is now changing due to unpredictability in the markets by adopting the DCA (Dollar Cost Averaging) approach. I had set up a regular savings plan to invest a few hundred monthly in a BRIC fund which I still have faith would be the growth engine of the world.

This approach enables me to average the up and down swings of the market that is too unpredictable but would enable me to reap a profit a few years down the road once market stablises and is on the upswing. In this way, I would be able to stay invested and yet adopt a passive approach. In the meantime, there would still be capital accumulation using savings from monthly salary for lump sum cash injections if required.

I believed currently this strategy is safer to spread out risks and yet taking a wait and see approach in the short term.

Bad news

A slowly recovering market is now hit by more bad news with the death of Ms Bhutto. Usually, this kind of bad news affects geographical markets like India and US. However, investor's confidence is at a all time low, thus, any bad news will trigger a sell down. In addition, as stated in my previous post, this period is the festive season which denotes low buying interest among investors which would not help a falling market.

There's too much uncertainty in the markets currently and I expect it would continue this way till Feb 2008. Currently, I would avoid India, US and Thailand like plague. India due to its proximity to Pakistan, US with its close ties to Pakistan and Thailand for uncertain political outlook in the near future with the Thai army not ruling out another coup.

As a note, I like to take this chance to condemn the person behind the assasination. This is not an act of terror, it is pure murder and regardless of race or religion, YOU would not be forgiven. In addition, I suspect that all these killings are political in nature rather than a spread of terrorism.

Festive Season

It's the festive season but markets do not look at all fanastic. All gains reaped during the previous 2 weeks had pared back down. The Fed's quarter point cut has not gone down well with investors although I do feel that a half point cut would be too much as all economic indicators show a slower growth rather than a recession.

Another reason for the fall would be the lack of buying interest during this festive period as most investors are taking a holiday break. In addition, some investors would have locked in profits for some Christmas shopping. Usually during festive seasons, the lack of buying interest would cause indicies to fall as without much demand, the price of individual stocks would fall.

I expect the next 2 weeks to be not that fanastic unless a sudden good news appear. There would probably be some chance to buy in during the last week of the year. However, things might pick up in the 1st quarter of 2008 when economic results are shown during these period.

Lastly, have a great holidays!

Market Recovery In Progress

Hi folks, I'm back from HK!

Tis the Christmas season, and so the retailers are having a great time. If you had managed to heed my advice and bought some UT last week, you should be making some money by now to spend on Christmas presents. As of last week, you would be able to see a positive mood on the stock indices. The momentum of the gains of last week had somewhat slowed down this week, however, it is still a recovery in progress till the end of the month.

However, we would need to take note of the macro-economic conditions and the pull out of investments seen in unit trust. For macro-economic conditions, economic data especially the job data had indicate that the US economy is not too bad. US would probably not go into any recession but might face slower growth. For asian markets, most of asia should be going into 2008 with strong growth but GDP growth might be curbed to prevent inflation from getting out of hand. China had declared a tighter monetary policy to curb inflation and the impact on the stock market would be negative in the short run but in the long run, Chinese stocks are still expected to post strong returns. For Korea, talks had continued on the FTA and things are looking up.

The pull out of investments in mutual funds is somewhat of a concern, as it shows that many investors are cashing out during this period. Using micro-economic terms to explain, this pull-out might drive down demand causing price of stocks to drop which in turn would be reflected on the price of the unit trust. However, it seems that the stock markets are still holding up well even with the cash out.

My advice would be to enter the market now as you had not done so last week as recovery would continue for some time with emphasis on Latin American, China, SEA economies. Even European funds look interesting for those looking at diversification.

HK Trip

This past few weeks had been riddled by correction woes with most funds dropping by as much as 25%. I would be going to HK this Wed for a business trip. Thus, I would take a look and observe the investment climate to gain insights for China investments and provide updates next week.

Market Analysis

Last week, I talked about the duration of the correction. There are basically two factors affecting markets for this week. First is China's move to increase the reserve ratio to lower liquidity and secondly is the effect of the subprime crisis with highlights on Citibank and other European banks.

The first factor might be good in the long run to cool current fast rise of the index in both Shanghai and Hongkong although it might come as a shock to most speculators as the rate of fall is sharp. However, I do feel that somehow, China is going to push to allow their investors into Hongkong soon as previously, prices are much too high due to speculation of China's fund entry. Now, it should be priced at a relatively discounted rate of approximately 15%-20% which should be a good entry price for Chinese investors. Barring any unfortunate news, we might see an uprising trend either next week and in the last week of Nov which might push up global indexes.

For the 2nd factor, it's time to tally up losses so as to clear up the situation of how US and European banks current stand in terms of losses. Huge losses by Citibank is ringing alarm bells and this would prompt US/European banks to further anaylse the impact of the sub prime crisis and take measures to moderate these losses. However, we are also able to see stronger profits for retail stores and consumer electronics and this might be the silver lining. Nevertheless, it is still not worthwhile to put your bet in US markets although I suspect that with the strong growth of the global economy, US most likely would not go into a recession.

My advice for this week would be to start taking positions maybe next week when an uptrend starts forming.

Market Correction

Seems like today, the market correction is upon us. For high risk unit trusts especially China fund, today's price might cause your capital to drop by as much as 7%. Based on current trend, tomorrow might show a rebound but the ride might be tough ahead.

As an investor, this correction might be long overdue as hang seng had been hitting new heights almost every other day and it's time for a breather. In addition, big brother USA is not doing that well as seen by Citibank's problems. However, barring some very bad news, recovery might take place after 1-2 weeks.

If major asian indexes does not recoup its losses and in fact drop further on wednesday, you might want to wait a while before buying in more as the downtrend might continue. I do not advise buying in at the moment though even if you take a long term approach to investing and do not want to time the market. I do note that it's quite impossible to predict the lowest point of the market but it is still possible to buy when the market shows sign of recovery to ride on the tide up.

Fed Meeting on 31 Oct

This week can be considered the gambling week with the Fed meeting on the 31 Oct 2007. Many people might invest on Wednesday should they think that the Fed might lower interest rate again on 31 Oct, conversely, many people might also sell their investments should they feel that the Fed would not take any actions.

However, this is what I feel might happen. The Fed would most likely not lower their interest rates and this would enable US$ to rise. Although this might be contrary to expectations that US interest rate would be lowered, the Fed chairman would reassure the public that they would monitor the situation and take immediate action to lower interest rate if neccessary like previously. Thus, stock index might not neccessarily drop with such encouraging comments and even if it drops, the magnitude of the drop might not be that great as Fed has indicated that they are going to cut rate in future rather than now.

I would still remain with my stance of adopting a wait and see attitude as I'm advocating the viewpoint of an investor rather than being a speculator to time market movements. Note that after the Fed meeting, sentiments and market trend would be clearer for the investors to analyse where to put their money in.

Recently, the Chinese funds are currently stagnating with regards to their performance 3 months ago. For these past few weeks, the best performer should be the korean funds. The korean market (Usually the KOSPI) is tracking the Japanese market (NIKKEI) and recently with major Japanese firms releasing good financial results, this would have positive impact on the Korean market as they basically follow the trend of the Japanese market. The Latin America economies are tracking the US market which is currently mired in uncertainty, so their performance are also not that great for these past few weeks.

Markets Update

Seems like global markets are weak for this week and last week. It would probably be weak till the situation becomes clearer after the Fed meeting on 31 Oct. There's a high possibility that Fed would not cut rate so fast prompting a further drop in market indices in the world. Currently, I expect most investors to cut their holdings or adopt a wait and see approach.

For those planning to buy in funds or increase their holdings, I would suggest to hold your horses and wait for the uncertainty to clear up first as fund prices are different from stocks in that they appreciate or depreciate gradually compared to stock prices, thus, even if you would not get the price at rock bottom price, you will still manage to ride the upward wave up.

Funds Market Analysis (Oct 15 - Oct 19)

Some market updates here.

On the horizon, I expect a short term correction during these 2 weeks for the Chinese markets or at least in the near future. HSI had been breaking records every so often and I guess some profit taking is bound to take place. In addition, there is pressure from rising oil prices that would cause profits to suffer. Thirdly, although the Chinese government is optimistic about economic growth in general, they had to implement some highly unpopular policies to cool down their overheated economy to prevent prices from spiralling out of control.

Technology funds are worth looking at as growth and earnings are strong. In addition, as most people are still traumatised by the tech bubble burst, this sector is often neglected. Currently, one of the drivers of the US economy is the technology stocks after being hit by the sub-prime crisis. Overall, the US economy still looks ok but their stock market is still badly shaken. As discussed previously, many analysts are still predicting further Fed cuts before the end of the year if they didn't already done so on 31 Oct 2007. I however look unfavourably on further rate cuts as a sign of weakness of the US market which requires intervention to bail out speculators that place their bet on the wrong horse. Thus, I still view US as a region where I would not go into.

With weakness of the US market, other regions like Brazil and Mexico that are of close proximity to the US market are also hit. The performance of Dow and Nasdaq seems to impact how the Brazillian and Mexican stock market perform, but growth for Latin American markets are still favourable in the long term. For short term investors that has an investment horizon of less than 3 months, probably you should take a look at Asian economies that are offering better returns.

I would look more closely at Korea for this quarter as first of all, the growth of the economy is going to be better than expected. Secondly, I'm optimistic that Korea would most likely conclude the FTA with Europe by end of the year even though talks are still ongoing and the representatives are saying that it might not be concluded by end 2007. For funds dealing in Korea, market volatility is not as great compared to China, India and Latin America but still returns a modest growth of 20% a year. Korean funds are expected to do generally well till first quarter of 2008.

However in general, the global economy still looks good from now till 1st quarter of 2008 with minor dips along the way.