Minibonds cost my mum $100kOn the surface, the problem to the author seems to be "nobody knows where the bottom is, whether stock prices would plunge further." To me, it seems to me that the real problem is that the author is simply fearful of buying equities. So where do her fear comes from ? It comes from her losses made in equities when she sunk most of her available funds before the spectacular crash in August. If I am having 50% paper losses in my portfolio, I will definitely be afraid of buying equities at this point of time too even though logically, this is the best time to buy equities since it is so undervalued now. That is why it is important to know when to buy equities.
By Jessica Cheam
One night three months ago, when I was in Hong Kong on a work assignment, my mother rang me up.
'I lost $100,000 of my retirement savings,' she told me, her voice trembling.
My initial reaction was one of disbelief.
You're joking right, I asked her.
It's just paper loss, right?
Convinced that my mum was exaggerating her investment losses, I told her to wait for the economy to turn around.
No, it's gone, she insisted.
It turned out she was right.
The hefty sum she had invested in the now infamous Minibond notes, which she bought from ABN Amro Bank just a year ago, is now as good as worthless, sucked into this void called the financial crisis whose magnitude seems to be growing by the day.
When I first heard the news, a flurry of questions ran through my mind: Why weren't you more careful, didn't you read the terms and conditions, didn't you realise the risks involved? I interrogated her.
After all, the $100,000 was the result of decades of blood, sweat and tears. It was money painstakingly saved for her retirement from her job as a factory worker, slogging her way up to senior manager.
I felt sick to my stomach that I was powerless to prevent that money from vanishing from the face of the Earth, and that my mum, who's 52, had to postpone her retirement for a few years - all due to Wall Street's reckless ways.
She had meant to put the $100,000 in a fixed deposit account but ABN Amro's sales staff convinced her that the Minibond notes were 'exactly like fixed depo-
sit' with a 5 per cent return, capital guaranteed. The rest is history.
But just a few months ago, whoever would have thought, much less my mum, that a 158-year-old institution like Lehman Brothers would collapse?
The day it filed for bankruptcy - Sept 15 - was also the day that symbolised the end of an era and the beginning of another: One of previously unimaginable uncertainty and volatility for investors, which makes investing now seem like a game of roulette.
These days, I've found myself asking questions such as: In these troubled times, where is our money safe? Is it worth investing at all? Where do you begin to look?
You might think putting it all in a bank and saving till the storm is over is the safest thing to do.
But even then, I know of people who felt their money was threatened when United States lending giant Citi ran into trouble last month. These people actually closed their Citi accounts and put their money in what they deemed were 'safer' local banks.
In such unpredictable times, it's anybody's guess which big financial institution is going to fail next - and whose money it will take with it.
Already, the recession is spreading and US automakers have just been saved from complete breakdown by a lifeline on Friday. So amid all this grim news, I contemplated what my next financial 'action plan' should be.
Should I just hibernate until the next upturn? Or venture like a brave soldier into the war zone that is the markets?
I know of a few courageous (or foolish) friends, who are riding on the volatility of equities, hoping to make a quick buck.
One has actually made a killing from repeatedly buying a property blue chip firm whenever it dips under $3, then selling it when it rebounds.
Even my mum, undeterred by her Minibond episode, seems determined to recoup her losses by dabbling in the market to earn a few thousand dollars here and there. 'At least I'm making my own choices now, and not giving it to someone to lose it for me,' she reasoned.
I had tragically sunk most of my available funds into equities before the spectacular crash in August and failed to join the stampede out of the market. The only comfort I take out of this is that I know I'm not alone.
I thought about the choices of an investor in the current climate: With stocks looking so cheap, the temptation is to average down our investments, or invest in blue chips that are looking very attractive.
The problem is, nobody knows where the bottom is, whether stock prices would plunge further.
This is exacerbated by the fact that confidence in credible companies is being shaken, the latest being Wall Street grandee Bernard Madoff, who will go down in history as 'the man who conned the world' in a US$50 billion (S$72 billion) scam.
Even if we buy blue chips today, are they really as infallible as they look?
As the financial crisis unfolds into a global economic one, even bets I had put on China and India funds - the only economies still growing, albeit at a much slower rate now - have been sliding in value.
So do I move them to safer funds? Or leave the money there?
So many questions and no easy answers. In my quest for some clarity, I turned to some financial experts for advice.
One of them told me that in these times, trying to make money in the next three to six months 'is very, very tough'.
If you need the money, keep it, he said. If there's any spare, the possibility of multiplying your money is there, but invest your money in batches - not all at once - and put it in quality companies.
For what is already invested, one needs to look at it fund by fund, stock by stock, relooking at the fundamentals.
If the stock is deteriorating, there's no guarantee it won't fall further - so get rid of it, at least you will get some money back.
If a company is backed by good fundamentals and a strong history of riding downturns, stick with it.
When things look up again - as they certainly will, it's a matter of when - you'll make your money back or at least break-even your investments, he added.
You could still consider government bonds, gold, fixed deposits and foreign currency investments.
The thing to remember, he said, is to assess your own risk appetite. You might want the returns, but can you take the risks?
I've asked myself this many times, and lately I've found my impulsive investing inclinations being tempered by something called practicality.
With home prices coming down, next year could be a good time to buy my first property - which brings me to the old adage, that investment is safest in 'bricks and mortar'.
I'm sure there are good investment bargains out there, whether in stocks, funds or in homes. The prudent thing, I've learnt, is to exercise the utmost caution and map out every worst-case scenario that could happen with any investments you make, and read all the fine print.
I wish I could turn back time and give the Minibond investment my mum had made the same circumspection.
But it's too late now.
It is a high price to pay, but an oversight both my mum - and I - will never make again.
This article was first published in The Straits Times on December 21, 2008.
True enough, no one knows when the stock market will bottom or whether stocks will continue to plunge. Thus it is important not to buy everything at one go but spread out your entry points and buy more equities if it gets cheaper.
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