5 January 2010
Expect the Unexpected
Happy New Year from MBMG - we'd like to welcome you back with an article that we provided to The Bangkok Post's "My Life" Christmas Day edition -
“Expect the Unexpected” 10 tips to keep your money safe in 2010
Everyone has had a tough time in the last two years except, of course, the “H1N1 vaccine for me - pay me my bonus now”, bankers !
We have seen unprecedented changes at a global level - global stock market falling sharply and strong bounce backs from the lows, along with the demise and restructuring of major US and European banks. There have been street and airport protests in Thailand, along with even more changes of Government.. and so it goes.
All of this craziness affects you personally - but what can we do about it?
As 2010 approaches, the team at MBMG has formulated 10 tips for financial stability in uncertain times.
Expect the unexpected - your world has changed
1) Build up your cash
The so-called ‘new normal’ doesn’t feel very normal at all. What used to be safe before is no indicator of the future. With unemployment rising throughout the world, many of us who thought that our jobs were safe should prepare for a change, just in case. Be aware of your employment rights, and factor that into your financial planning. If you are only entitled to only one month’s notice and/or severance from your current employer, be smart and start now to build your cash reserves just in case.
2) Understand the industry in which you work
Many industries now face a different paradigm – more than ever before employees should try to understand what has changed for the sector that they work in, and the company that they work for. Working in a declining (the polite word is ‘sunset’) industry won't get better by copying the ostrich and sticking your head in the sand. Those who retrain now, and look for the new opportunities now, will move themselves to the front of new growth industries such as energy recycling, clean technology, alternative energy (bio gas, biomass etc).
3) How safe is your bank ?
For a long time people trusted banks - all banks ! But look at what has happened to banks all around the world – more than 200 have gone broke since mid 2008. Now the banks don’t even trust each other and won’t lend to each other. That is why small businesses are still finding it so hard to borrow money at reasonable rates, why governments are still looking at further stimulus packages for economies next year.
So in 2010, why not look again at the bank that holds your money - how safe is it? How well run is it? How well protected legally is it? Thailand is more fortunate than most countries. The banking sector generally is in better shape than many other places. International banks in Thailand include the likes of HSBC and Standard Chartered, arguably the biggest and best run foreign banks in the world. But beyond that...take care.
4) Choose financial and banking products carefully
Picking the right banking partner is only part of the challenge. You also need to choose the right financial and banking products. As many Singaporean bank clients held structured bank deposits promoted by a number of Singaporean banks and underwritten by LehmanBrthers , many investors were wiped out when Lehman Brothers failed. Our advice - most investors should avoid nearly all structured products and investments. This is particularly so where the security of your capital is predicated on the survival of a particular bank or other institution where there is often no, or inadequate, investor protection.
5) Make sure that you have enough credit
Right now ‘free cash’ is king. Avoid borrowing unless you really have to. But if you know you will need to borrow make sure you do it early. Let’s face it.... when you really need the money, the banks won’t lend it to you. So join the counterintuitive movement and secure credit lines when you don’t need them. That way if the time comes and you need something to back you up in a hurry, you don’t have to go and beg when you are at your most disadvantaged. Borrowers should also explore the options available from the alternative banking sector. Also, don't rely on debt unless you have to, as debt will get more difficult to service if either asset values fall next year or interest rates start to rise
6) Interest rates that are ‘too good to be true’ generally are
Be sure that your returns on cash are obtained without compromising security or liquidity. Certain money funds invest in short dated bills and bonds from major governments, but pay higher deposit rates than bank deposits. Be very careful here....investors should look at alternative deposits.
7) Diversify and watch your investment portfolio
In an uncertain environment diversification is accepted to the the best answer .We wouldn't be surprised to see the Stock Exchange of Thailand Index (SET) below 300 points, the Down Jones Industrial Avergae Index (DJIA) below 5000 or gold above $2000 per ounce. The best way to capture opportunities and avoid risk is not to pick individual stocks,but to diversify acrosss investement asset classes
8) Look for opportunities
The Chinese word for "crisis" (we are told again and again) consists of the characters for "danger" and "opportunity." Sir John Templeton, international investor and mutual fund pioneer said “When the markets in the various asset classes are at their lowest, the opportunities are greatest” The trick is to be ready and poised for opportunities.
9) Be aware of currencies
This volatility will extend to currency markets too - Baht may well strengthen longer term against the main western currencies but there could well be periods of volatility and weakness - trying to exploit these movements is a challenge and opportunity for everyone
10) Be ‘truly aware’ and open minded
All too often our decisions are shaped by our experiences of the past. Normally, not bad advice. But this is the ‘New Normal’. It’s time to try to see and accept this as they truly are, not try to fit them into and old and redundant paradigm and expect trends of the past to be a precursor of the future. Stay sharp, be agile in your thinking and prepared to accept change for what it truly is....change.
A new paradigm and a new year.... time for a new mind set!