SMART MONEY More about Surviving in an Expensive Country

Surviving the Odds

Times have changed and it has become more expensive to keep a certain lifestyle as compared to 10 years ago. Suddenly one finds that the regular pay check is not going to be enough to cover daily expenses like medical bills, food and transport. Many complain that over the years, fees and charges for these have gone up, but not our salary. 

Instead of griping and hoping our employers will one day raise our salary, or living pay cheque to pay cheque, why not look out for investment opportunities that bring you some passive income with money that is sitting idle in the bank and collecting less than 1% a year and worse still fixed deposits that lock in your money for more than five years. This is the reason many have plucked themselves out of their comfort zone to try their hand in forex or shares trading over the years. Alternative investments or lending baaed crowd funding is one platform some brave individuals have explored. It may appear like it doesn't require intensive daily monitoring like trading in shares, but an investor still needs to keep track of economic and political conditions of country or district where the project is based. Keep up with news about government policies and how things are done in the country as these would usually apply in the business model. Do this before putting your buck there, and check out friends who have benefitted from it over a few cycles and make sure quarterly updates on the projects. Better still make a trip to the place in question to view and meet the right people. Before delving further, go with caution and know when to stop reinvesting or injecting fresh funds. It is good to know that MAS has placed such kinds of lending based fund raising under Singapore Crowd Funding arm. For details, please go to 

http://www.mas.gov.sg/Search?q=base+lending&page=1_20.

Christopher Pua a licensed financial planner helps us do the sums here:
Definition of Alternative Investment
Though I have heard of seasoned investors who opt out of the insurance to earned a few more percent of interest rates because of they have done their due diligence and are confident in the business model.

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

DBS:
One of DBS products offers an endowment plan for a monthly deposit for as little as $100 accumulated over the first five years. Keeping the accummulated savings 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), this rate does not protect the value of the money you and I have saved up.

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 a lending based crowdfunding 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. The link below is be far the best explanation on infrastructure related alternative investment by someone who is in the business. Many times articles are written by non-experts, who do little to explain the facts about what it is.

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. In checking out alternative investments the key is in 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
- an indication of promised returns on contract. Eg. A contract that says that you get 24% in 2 years with regular updates of the projects over these two years. 
- track records of having fulfilled the said returns over the years it has been in the business.
- keep a look out for irregularities yourself whether it is in the contract or change of the way things are done.

What you should know

Are they regulated by MAS?

Alternative investments that involved lending baed crowd funding is now regulated by the Monetary Authority of Singapore. However, there are practical limits to the enforcement of local requirements for those that do not have any presence in Singapore. Thus, it is all the more important to exercise vigilance before participating in such offers. If you are eager to experience the yield, be sure that it is with what you can set aside to lose should any unforeseen circumstances creep in. For details, please go to to http://www.moneysense.gov.sg/understanding-financial-products/investments/guides-and-articles/crowdfunding.aspx

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. But do note that after all even MAS-regulated bank bonds carry risks and the regettable 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. It is not a new buzz word, but simply one that has been kept within the circle of enterprises and high net worth investors over the past decades. For the man on the street who has done nothing more than putting his/her money in the bank to earn the less than 1% of interest, it requires a mindset change or paradigm shift, and a desire to step out of your comfort zone.The more you procrastinate the later you reap your benefits. So perhaps it is time to act. But also know when to stop.

Other Than Fact Checking
Just like we love to check out product reviews before putting our money on certain household item or on a new mobile phone, one of the great ways to sniff out good investment deals is in checking out where savvy investor friends or friends of friends put their money to get more returns.

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. Simply put, it means get local news articles about the town where the project is based. A company of good repute would invest the time in collecting such news for their investors. 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, should you read an unfair or biased report.

Also 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

The Business Times (Singapore) once reported on Ritz G5 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, hear the developer for yourself by attending any talks they may be holding. It is a good way to judge for yourself. You should also check with representatives of the companies for the safe guards that have been put in to protect your investments.

*Image courtesy of David Castillo Dominici/Free Digital Photos

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