Year of the OX

Gong Xi Fa Chai to all who are looking forward to the Lunar New year tommorrow.

Today, the radio was full of quotes like, the last trading day of the rat year, last working day of the Rat year, traffic news ont he last working day of the lunar new year etc etc....

Rat year was almost like a Rat race. So many highlights. Bad news after another in the Financial markets. The good news was change of Presidency in US and a ray of hope for change.

Why is the world rejoicing so much about him being the President. Apart from the fact he is Afro-American, I think personally think its because we all want a change.

Somehow in the sub-conscious it is registered that the reason for the bad economy or the bad times is because of Bush. Is'nt it the same people who elected Bush twice.

Anyways, we all love change, whether it is a change in year, change in status, change in market, change in presidency. (We just celebrated the English New year and still as excited to celebrate another one)

Its the hope that keeps us all going. The hope that this year will be better than last one.

I too hope that the Year of OX will give me better business opportunities, better friends, better position, better revenues & better relationships and wish that all of you have a good year too.

I am now signing off the watch the last trading day of this Rat year, on NYSE. Swarna

Planning for the Golden Years

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In the present financial crisis, we are talking about liquidity, mortgage issues, bad debts etc. Let's talk about a huge problem not discussed much.

Retirement funds, Government pension funds.

World over, pension funds, managed by govt., and fund houses, are having serious problems. Some funds are also closed as the fund size it has shrunk that it is not worth to have a fund manager to manage it.

Normally, during recession, the people to be hit hard are the people planning to retire or those who thought they could retire but the money in the funds or stocks have plummeted so low that they can't think of retiring.

What is the Meaning of Retirement?

The Meaning of Retirement as per the Oxford Dictionary is "Stop working, Give up your regular work because of age.

These days, word retirement has become a luxury to most people. There are a few reasons but the most important reason is NO FINANCIAL PLANNING DONE FOR RETIREMENT WHEN YOUNG.

In Asia typically, children, family come before planning for retirement. At least some parents have the privilege of children who are supporting them in retirement. We can't take that for granted when we retire.

WE NEED TO PLAN TO BE FINANCIALLY INDEPENDENT WHEN WE ARE OLD.

When I talk to a 40 year old about retirement, most of the time the only answer I get is, that's not a priority now. I need to provide for my family, plan for my child's education, buy a home, car etc.

When I talk to a 50 year old, then they saw, RETIRE? I think I can't afford it. I need to work.

When one is 60 years old, it's too late to talk about planning to save for retirement. You only have to learn how to live with what you have. Because, at that age, I guess staying employed or getting a job is not going to be easy. There could also be health issues.

And the life span has increase over the years and its no surprise if one lives up to 90 year now.

When we talk about retirement planning there are 3 factors. TIME, AMOUNT NEEDED & and METHOD.

• TIME: The best time to start planning is when you are in your 40s. Earlier the better. So that the amount you set aside is small but will grow over a period of time.
• AMOUNT: How much do I need to retire?

As a thumb rule, typically, you need to plan for at least 60% of your current expenses. So arrive at the amount you need for your basic needs, find the future value as what you get for $1 now, may cost you $1.5 in 10 years time and finally, the number of years you need the money. Each of us has different needs. So the final number varies.

• METHOD:

TOP up your CPF: You can top your CPF to get tax benefit and also set aside extra money for retirement. However, remember to put the money in the Special account so that you don't use it up for house, education etc.

SRS: Supplementary Retirement Scheme is a good way to set aside money and get tax exemptions too. The amount that you can set aside depends on your Annual income.

Regular savings. You can set aside a regular amount as savings.

Rental Income: You could invest in rental generating properties which generate income for you on a monthly basis.

The challenge is how to grow the money to match the amount you want at retirement. This depends on the Risk appetite.

OPTION 1: Investment Linked Investment plans

Typically, these plans are taken when one is young and the units are accumulated and when the person is reaching retirement the plan can either be terminated or partially cashed out

Pro	Con
The insurance costs are less when young and hence there are more units purchased. Dollar cost averaging also helps the accumulation of units.	The mortality cost increase with age and also the policy charges can be expensive as the age increase. If the market is low during redemption, then retirement plan has to be deferred till the market picks up. NON GUARENTEED RETURNS

OPTION 2: Regular Savings Plan

Typically, these plans work on dollar average concept so that you accumulate more units when the price of the unit is low and eventually you can redeem it when the person is reaching retirement age. It can be either be terminated or partially cashed out

Pro	Con
Long term dollar cost averaging can give good returns on investment.	If the market is low during redemption, then retirement plan has to be deferred till the market picks up. NON GAURENTEED RETURNS

OPTION 3: Annuities

Typically, these plans can be started at age 40 by either investing lump sum or by regular investment. This money is let to grow with the company and at a pre-determined age say 55 or 60 yrs old, the company will give out monthly payout of the money accumulated.

Pro	Con
GUARANTEED PAYOUTS.	As the risk in such products is low, the returns of such products are low.

So which option is better?

Let's look at why the pension funds have failed. Almost all Pension funds are exposed to Equities. So they are cyclical. Some years they are up and some years they are down. Also, the returns are not guaranteed. So if you are lucky to retire when there is a bull run, then you get good returns on your pension fund. But if you are not, then you have to wait for the markets to recover. Can you predict how the market is going to be when you retire?

This is my view. Any suggestions or comments.....

Outlook for 2009

Hi all, Hope you had a good holiday and are back to work fully recharged.

Someone mentioned that there was huge hoarding in Mumbai near the Exchange, " Thank God, 2008 is over".

Well, 2008 was a year of surprises. Century old institutions collapsed. Almost everyday there were fresh news of financial turmoil.

Cycle of Life. Everything in life follows a cycle. I am going to concentrate on the cycles related to Money.

There are three major cycles-Economic cycle, Stock market cycle, and real estate cycle that affect our life financially. Commodities pricing, inflation, interest rates have effect on the economic cycle predominantly.

Economic cycle is now in recession. So this year we are going to see negative growth. In layman terms is it means, factory shut downs, pay cuts, job loss and unemployment, and increase in robbery, theft etc. This year can be traumatic for many.

The stock market started to crash from July 2007. At that time, economy was doing very well. Companies were still showing profits, good bonuses etc. From July 2007, the stock market has lost almost 60%.

The real estate cycle in Singapore, is still relatively high although the peak was sometime in May 2008 for private property and Oct 2008 for HDB. I think most Asian countries had the same pattern. Europe and US have different timings.

Now while comparing the 3 cycles and its relationships, The stock market cycle is always ahead of the economic cycle, and the real estate cycle lags the economic cycle.

So if you are looking for investment opportunities, its never possible to time the market, however, the stock market is comedown a lot since july 2007. So 2009 should be a good year to get in. Now, the question of the recovery package not being effective, interest rate cuts and inflation will only show up as volatility in the stock market. So it could be a roller coaster ride but for the long term it should generate positve returns.

Do post your comments or views so that it will benefit all.

Have a wonderful day..... Swarna

Disclaimer: This is not any recommendation. Any investment done has to be done based on Risk Profile