Tan Kin Lian's Blog: Decline in interest rate

Monday, February 18, 2008

Decline in interest rate

Dear Mr. Tan,
Aviva has decided to redeem the BIGe account and return the money to the investors CPF account. Where can I invest to earn a decent return, that can offset the high rate of inflation?

REPLY
If you keep money in the bank, you earn interest at 1% to 1.5%. This is lower than the rate of inflation. Your other options are:

1. Buy equities (shares) to earn a long term yield of 6% to 8%
2. Invest in foreign currencies to earn a higher interest rate
3. Invest in REITS, which gives a good dividend yield

If you are investing for the long term, say 10 years or more, you do not have to worry about the current uncertainty. It will clear off in 6 to 12 months.

You have the option to wait before investing in equities. During this time, you will earn a low rate of interest. You have to accept it as the cost of being risk adverse. But you must be ready to move in, when the market turns.

15 comments:

Anonymous said...: If one is more conservative with CPF money, one can also consider investing in Singapore Government (SGS) bonds.

The SGS 20-year bond is being reissued on 3 Mar 08 and I expect a yield of at least 3%. This is better than the 2.75% AVIVA was giving. Go by tender for a yield of say 3% so that you get allotted only if your tendered yield is met. Who knows, you may even get more than 3%!

But one needs to consider that bonds are long term. This may not be an issue, depending on your age or investment objectives.; February 18, 2008 12:05 PM
Anonymous said...: I beg to differ from Mr. Tan's view.

May I suggest you keep your money in the bank to earn the 1% to 1.5%. Do not be greedy and later regret because your cash is locked in ETFs, equities etc and the market goes south and south.

Contrary to what Mr. Tan believes, the current uncertainty will NOT clear off in 6 mths or 12 mths. It will go down for 1 year and may continue to go down for the next few years and beyond.

Don't waste your time to average down. That is a waste time strategy unless if you are lucky to have lots of spare cash, like Mr. Tan. If you are investing for a long time, say 10 years, it is better to wait for the bottom and buy a lot of cheap deals.

This is the Great Depression of the 21st Century. Many companies will go bankrupt. Banks will be the hardest hit for the next 4 to 5 years. Many funds are cashing out of China, whose growth will come to a standstill after the Olympics. Americans has no money to spend, they are busy paying off their multi-trillion debts. Property prices will come crashing down. Asia and worldwide will decline as US declines.

Cash is king. Being safe in turbulent times is better than taking risk and be sorry.

You guys don't even know the extend of the sub-prime fiasco and think it is just another bad day in the world market.

If I were holding on to any investments now, I would rather cut loss and hold cash. There are more bad news coming in the new few months and even more worse news at year end.

This is a big iceberg and you are only looking at the tip. The worst is yet to come.

R.; February 18, 2008 7:32 PM
KYH said...: Or, if you don't want the hassle of tendering, you could buy from Fundsupermart. Their indicative yield for the 20-year bond is 3.27% today (18 Feb).; February 18, 2008 7:54 PM
Anonymous said...: Anonymous 7:32 PM,
Your view is very extreme. I have actually read a lot of this view even during the bull run, they always mention "DOOM" is coming. There're other views that are very bullish too. As for the most expert views, current turmoil will be eased Q2 2008. But, who knows the truth? Most so called "expert" also make mistake, but then who knows the truth? Is it Anonymous 7:32PM? I don't think so.; February 19, 2008 12:02 AM
Anonymous said...: Actually I think the second half of 2008 will be worse than the first. Only time will tell.

Pegasus; February 19, 2008 1:41 AM
Anonymous said...: To: Vins et al

Apparently you and many others are thinking of bull runs or recovery. Either you have a vested interest or you totally clueless.

Do you even have an inkling of what is happening?

Now it is a worldwide margin debt.

Structured products are sold based on nothing or items that are worth close to nothing. Layers upon layers are repackaged and resold to financial institutions and government entities. Trillions of dollars are dumped into an abyss with absolute no returns. This is a fact. Asset value are declining and this adds to the increasing debt. It is an endless cesspool.

My goodness, guess you guys are still hoping for good old times. Any signs of recovery, it's for institutions to dump the overvalued entities to you.

Go and read the monkey story that Mr. Tan has put up earlier.

R.; February 19, 2008 1:44 AM
Priyadi said...: to anonymous 7.32pm:

even if you put all your monies into saving account and getting 1.5%pa guaranteed, you are still exposed to external risk (inflation). you can't somehow avoid every risk. whatever you do, you are taking risk. what happens if inflation hits 10%? you are still losing about 8.5% of your money real value.

diversify. don't put all your eggs into ETFs. properties (REITs) and commodities should give us better returns than equities during bad times.; February 19, 2008 10:45 AM
Anonymous said...: Well, Mr. R , i agree with you in part the financial institutions are slow coming in revealing their exposure to the subprime, this may spook the markets for long time to come. But lately many owned up and came clean. This could be the part of the iceberg we have been waiting and if I am right(guessing)we will soon see some light.Of course the hang over will continue to cause some jittery. Right now it is not for the faint hearted.Anyway, faint hearted never win but they get to keep their capital(cash)
However, it is better sitting on the top of the fence to have a better view so we can act with our head and not succumbing to fear and 'irrational exuberance"
Mr. R, are you a fan of Ravi Batra. He wrote nothing but doom, doom.He wrote about the doom of Alan Greenspan too.

Zhumeng:); February 19, 2008 10:57 AM
Anonymous said...: Mr R.

What have you got against Mr Tan, using emotionally charged words like "monkey story that Mr. Tan has put up earlier".

You are of course entitled to your own opinion, but so is Mr Tan.

You would be more credible if you express your views in a mature and gentlemanly way instead of taking pot shots at Mr Tan and speaking in a patronising manner, like "Do you even have an inkling of what is happening?"

Mr Tan has taken effort and time putting up this blog and giving free advice and many people are benefitting from him.

By all means, express your views even if it differs from Mr Tan's but do it fairly.

Thank you.; February 19, 2008 4:41 PM
Anonymous said...: Yup..financial regulators should start to prevent multi-layering... The subprime linkages seems like a tracert from my ip(Structured product) to www.yahoo.com(underlying asset)... so many layers....; February 19, 2008 11:50 PM
Anonymous said...: To Anonymous 4:41pm

1. Hey friend, I was responding to Vins, not Mr. Tan.

2. Secondly, Mr. Tan did put up a monkey story - if you had bothered to read his earlier posts and it is a pretty good one too. The title of the post is "Greed makes monkey of men". For what reason do I want to insult Mr. Tan???

3. I did express my views fairly. If I agree with Mr. Tan, I would say so, if not I would put it up right in front to say I have a different view. I am suggest that investors and would be investors take a more prudent view of their investment and the overall investment outlook. Do not rush in to invest simply because someone said that it is a good time or CPF going to lock in your money.

4. You may not like what I said about the impending total and absolute meltdown of the financial markets, that the market havoc that is coming and everyone who invest now and who are invested will lose their money, but these are my views and I still maintain them: "You will lose everything if you are invested now. Cash is king."

5. If you are trying to stir up some trouble, do so after making sure of your facts.

Thank you for reading.

R.; February 20, 2008 2:27 PM
Anonymous said...: To Zhu Meng

I am not a fan of anyone.

Below is an extract from a George Soros interview recently in Jan 2008.

<<
Soros warns of worst crisis since WW2

23 January 2008, 9:19am

Billionaire investor George Soros said the world was facing the worst financial crisis since World War II and faced the end of a 60-year 'super boom'.

* Soros and Greenspan warn 'US faces crisis' Nov 2007
* Wall St 'still not priced in recession'

He warns the current financial crisis resembles other crises since the end of the second world war at intervals ranging from four to 10 years.

But he added: 'There is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency.

'The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.'

Writing in the Financial Times, he says each time credit expansion ran into trouble authorities intervened to stimulate the economy.

This 'moral hazard' encouraged more borrowing and expansion and led to widespread belief in 'market fundamentalism' in the Eighties - 'regulations have been progressively relaxed until they have practically disappeared'.

'The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves.

'Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.'

He says this lead to the subprime crisis and the contagion from that to investment banks and insurers. He believes a recession in the developed world is 'inevitable' but that the economies of China and India should remain strong.

The biggest danger would come from a developed world on the back foot may raise tariffs to protect economies and send the global economy into recession 'or worse'.

>>

Don't be fooled by the current "containment" of the financial crisis. When that "bag" burst, you will not even have time to react.

Get out while you can.

R.; February 20, 2008 2:47 PM
Anonymous said...: Mr R

Thank you for drawing my attention that Mr Tan earlier wrote about a "monkey" story.

I now apologise for misintepreting your intentions towards Mr Tan.

However, I stand by my comment that you had been speaking in a patronising manner. This is from phrases you used such as "You guys don't even know the extend of the sub-prime fiasco", "Either you have a vested interest or you totally clueless" and "Do you even have an inkling of what is happening?"

The issue is not whether I like or agree with your views; it may well end up that you are 100% right. The issue is you tend to talk down to people. But I am glad that you have refrained from doing so in your last two posts.

Stirring up trouble? How? - You post anonymously and so do I!

Y.; February 20, 2008 10:26 PM
Anonymous said...: Hi, i have benefited from the exchanges.I do agree sometimes we do get carried away and may appear patronising and opinionated .How can we, when we are not privy to any information.In fact the information we shared is trash and is strewn all over the place.It is for everyone to pick and use wisely or otherwise We all could be right or wrong. We are guessing at best. No crystal ball gazing but dismal science at its worse.

Zhumeng:}; February 20, 2008 11:20 PM
Anonymous said...: The results of the Singapore Government (SGS) 20-year bond which is reopened on 3 Mar 08 is out today (27 Feb).

The cut-off yield is 3.39% which is not bad considering that it is almost (99.99%) risk-free.

Good for people considering safer investments as part of their portfolio allocated for fixed income investments, including CPF Ordinary Account.; February 27, 2008 1:32 PM