MAXIMISING SAVINGS Understanding infrastructure investments

Surviving in a country with a high cost of living

Recently, the local bank gave me a call telling me how little my money in the savings account is earning (0.05% per year). Looking around for higher interest rates, I realise that the Fixed Deposit services offered by OCBC Bank for example offers up to 0.65% for deposits between $5,000 and $20,000. In comparison, an alternative investment such as infrastructure investment with a clear exit marked out at a 2-year option can offer an approximate 20% interest rate.

Just to let you know DBS currently offers an endowment plan for a monthly deposit as little as $100 accumulated over the first five years, then kept in the account for another 5 years would offer you 4% returns per year. Considering that Singapore is experiencing 4% inflation rate now (April 2015), these rates do not protect the value of the money you and I have saved up.

Christopher Pua a licensed financial planner helps us do the sum here:

Using $20,000 as a reference, this is the IRR (Internal Rate of Return) for:

DBS: 2.5413% per year if client pays 5 years and gets returns over 10 years

In the event that the client pays 10 years plus reinvest the coupons from 6-10 years and get returns on 10 years, the IRR for DBS plan: 2.6555%

Comparing with an alternative investment that we heard about which has a returns of 24% over 2 years, the IRR: 11.3553%

What alternative modes of savings are out there?

In recent years, the term alternative investment has been buzzing around. Some offer very high returns of 20% per year, while some may offer a similar return but over a more conservative period of two years or more. Infrastructure Investment has crossed my path numerous times as many people around me are exposed to it. It helps the man on the street with just $10,000 to earn more interests from it. After surfing the 'Net for more information, I came across articles about alternative investments written by non-experts, who do little to explain the facts about what it is. Below is a more detailed article written for high level personnel in an organisation.

To read more click on: Understanding infrastructure investments - CEO Forum Group

Don't Throw Caution into the Wind

Of course your hard earned money is important. Alternative Investment is more for those with an appetite for certain level of risks. The key is ensuring certain safe-guards are in place such as title deeds recognised by the local government involved, insurance over invested capital by a huge insurance company, indication of promised returns on contract and track records of fulfilling the said returns.

One thing I have learned is that if your appetite for risks is not high, do not to go into one that doesn't stipulate a fixed period for your investment or offers a very high return for as short as one year. One of the good signs to look out for, for example, is a contract that says that you get 24% in 2 years with regular updates of the projects over these two years. On top of these, Westin AM (www.westinam.com) is one of those companies that regularly takes its investors (of up to a certain value) on trips to view the sites they have invested in.

For me, as a safety precaution, until I have made more investigations into the alternative investments, I will stay clear of like metals, real estate projects that promise future rental returns and any projects that offers 10% interest rate if I keep my principal sum with the project for as long as I keep the money with them. My aim is to get back my principal sum within a specified short term period like a couple of years. Many experts who have been benefiting from alternative investments mention that going for short term investments of 2-3 years may be the best offered so far. 

What you should know

Are they regulated by MAS?

Alternative investments are not regulated by the Monetary Authority of Singapore as they are not full-fledged financial products.

JP Morgan has done a great summary about what kind of yields you can expect from your various investments. Please go to https://careers.jpmorganchase.com/jpmpdf/1158630194855.pdf for details.

Why do they exist?

The market wants to satisfy the various appetites of investors out there. If you are risk-adverse then be contented with lower returns from banks. After all even MAS-regulated bank bonds carry risks and the unforgettable Lehman Brothers minibonds for example, caused such a panic across the globe when it crashed. So how safe is a regulated product? (If you get my drift.)

In investment planning, private bankers and financial planners would show a chart that includes allocating varies percentages of your portfolio to equities and alternative investments (about 10%). Hence as you can see alternative investment is not something that sprouts out of nowhere.

Alert List

Much has been said about the alert list on MAS. However, it is important to note that when a product is on the alert list, it is a simple way for the board to highlight to you that "note that this xyz product is not regulated by us" because they have received queries about it. Being on the MAS alert list doesn't necessary mean that the product or company had crossed the line. Perhaps to be fair to the mass who know little, and for the companies involved, MAS should perhaps restructure their alert list to separate the list of real scammers from the list where they merely wish to clarify facts.

Check Your Facts in Other Countries As Well

When it comes to alternative investment, a term such as "do your due diligence" is often brought up. It simply means you need to make enough research and information digging before putting your money on the product. Checking for any mentions of scammers or possible scammers online may not be the best way to go as you may be missing a gem just by doing so, should you read an unfair or biased report.

Why not broaden your research to other countries as well for products that are based overseas. For example, instead of looking out only for articles that list scammers in the light of the author, who may not be too informed himself, check websites across the globe like it is one of the approved funds for a Self-Invested Personal Pension (SIPP), a type of UK government-approved personal pension scheme for those who wish to manage their own investments using their pension. These SIPP products are similar to the CPF-approved unit trusts that we are allowed to invest with our CPF OA or SA accounts.

Look for Approved Certification

Ritz G5, one of the projects represented by Westin AM, for example was reported in the Business Times (Singapore) for having achieved one such a syariah-compliant certification called ISRA. This certification is a stamp of approval for being a legitimate fair value business where there is clear title ownership. And the owner has a stake in it without any interest payment. With this certification, it also opens up the project to Islamic fund houses across the globe. One such project that has achieved such certification is Ritz's Majestic Village in Natal, Brazil.

The IRR on this Ritz Majestic Village in Brazil: 19.4734%

Finally, the best you can do for yourself is to hear the developer for yourself by attending any talks they may be holding. It is a good way to see for yourself. You should also check with representatives of the companies for the safe guards that have been put in to protect your investments.

Please feel free to email us at simplybeauty28@gmail.com to link up with someone.


*Image courtesy of David Castillo Dominici/Free Digital Photos
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