During past global recessions, such as 1990-93 and 2001-02, we were busy with our careers. We had our jobs and were lucky to be spared from retrenchment. At its worst of economic slowdown, I had friends calling up to ask whether there were job openings. They were retrenched. At that time, we were still paying our mortgage on our property. In any case, we did not have much savings to even think of other investments. Whatever we had in cash, it went to reduce the mortgage so as to minimise interest payments.
When you were living frugally, you did not bother with how the stock markets were performing, much less where the global economies were heading. You would not read the newspapers intently to see whether your investments will lose their values overnight, because, there was not much investment to talk about, except for the single big property purchase. I did not even know about derivative products called the credit default swaps or the collaterised debt obligations. Both have surfaced recently to bring down big institutions such as Lehman Brothers and AIG.
It was only in recent years, we had a sum of money to invest. It was ironical. We were encouraged to think of growing our money for retirement. With inflation, interest earned on money placed in fixed deposit (FD) will not cover the inflation rate. Hence the need to see where else can we put our money so that we can earn decent returns. So we searched and were advised to place them in currency-linked investments, credit-linked notes, investment-linked insurance, equity unit trusts, etc that promised to pay incomes exceeding the FD interest rates. We were blind to the risk or consider risk was remote. In most exotic investment products, we did not understand the risk fully until they blew up in our face.
Now, the truth is that these investments have either bombed out or reduced in value in recent year. That is savings gone to waste. Retirement money is reduced. So with wealth, we lose them through some investment schemes. With little wealth, you will not have the heartache of investments losing their values but you will need to ensure that you are employed for constant stream of wages and salaries.
The lesson learned is to be conservative and not to put all savings or retirement money in one basket. If you are not certain of a product, then avoid it. There is no free lunch. High returns entail high risks. It is better to protect the principal sum of your money than to lose it. You may not be able to earn them anymore because of your age and health.
Written on 9/19/2008 6:02 PM
Copyright © 2008, the author known as LKT in Singapore.
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.