Year-End Bonuses

Last week's Sunday Times, there was this article that feature how some Singaporeans are planning to spend their year-end bonuses. This comes from the back of the recent announcement on the amount of bonuses civil servants can expect to get. (For more information, check out the article here)

With this in mind, I would like to offer my own opinions of how you should spend your year-end bonuses as a reference. Please take this advice at your own risk. :)

1) Credit Card Debt

If you have outstanding credit card debt, it would be advisable to clear them first and as much as possible. The reason is because of the high interest rate charged, a whopping 24% per annum and do note that it is compounded daily which means the daily interest is 0.066%. (Refer to Section 3f) Let's do some calculation here. Assuming you owe $100 at the start of Jan 1, you would have owed a total of $113 at the end of Jun. Take note that this amount has not even take into account any charges and fees that the bank would put in depending on your payment behavior. So first and foremost, I would recommend that you pay down your credit card debt as soon as possible.

2) Credit Line

If you have outstanding credit line, this would be the next place you use your bonuses on. Credit line is similar to a credit card only thing is you are immediately charged interest when you draw money from it. So although the interest is low about 17% per annum, the compounding effect starts immediately. And again depending on your payment behavior, the existing interest rate can change and new charges added to it.

3) Renovation Loan, Mortgage or Term Loan

Next on the line is these three types of debt. For these types of loans, it can be tricky as they may have many terms and condition if you want to pay down the principal or terminate the loans early. My advice is to ask the respective product managers and inquire about these terms and condition before deciding where to use your bonuses to pay down the principal.

4) Financial Literacy

Before you start making investments after you have paid down any debt, it is strongly advisable that you invest a small sum of your bonuses on increasing your financial literacy level. Spend some money to attend seminars and buy books to read up on the current trends and types of investment. Have a better understanding of how it works, what are the cash inflows and outflows and also when these cashflows occur. Having a good understanding would help you to make a more informed decision on how to invest your year-end bonuses which you have used a year long period of sweat and quality time with your friends and family to exchange it.

5) Investments

After you are familiar with the respective investment products, it is time to 'dip your toes' a bit and 'dive in' when you are confident. Most importantly have fun during the process and also take note of your emotions when you are investing.

SGX buying out ASX

SGX buying out ASX is definitely one of the mega blockbuster acquisition for this year. Judging from paper, there is a lot of opportunities for synergy, the first and most obvious is the economies of scale that comes with such massive acquisition.

The access to capital provided to corporates if they raise their capital through the SGX-ASX entity would be tremendous. If this acquisition does take place successfully, the behemoth size would be able to suck a lot of investors and companies from the region to trade and raise capital through the exchange.

But before this acquisition takes place, there are many hurdles to clear and the biggest would be those coming from regulators. As of now there are a lot of opposing voices from the Australia politicians. Then there is also the large hurdle coming in the form of shareholders from both SGX and ASX.

For investors on both side, these are the things they need to think of.

1) What is the probability that the acquisition will take place?
2) If it take place how fast can SGX complete the acquisition?
3) How fast can SGX create the needed synergies to create value and justify the price it pays?
4) Is ASX worth the price that SGX offered?
5) Would it be possible that SGX might offer a higher price to persuade more stockholders of ASX to agree with the acquisition? (If such a scenario do come up, the dilution effect may hurt the current shareholders)

For investors, my suggestion is to read up on mergers and acquisition, understand what are the possible scenarios that can occur, its respective probabilities that it may occur and decide from there whether they should dispose the stock and when to dispose the stock. And if they decide to hold in which scenarios should they dispose the stocks if things go worse.

In the business world, finding examples of failed mergers and acquisitions are far easier than successful mergers and acquisition. Because in order to integrate a corporate entity into another entity, there are a million and one way it can go wrong for instance, system integration, assimilating two cultures together, the power struggles, the standardizing of policies and so on. All these would take a very long time and only after all these are completed successfully, then the talk of achieving synergy can occur.

So only time will tell if the acquisition would be successful.

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The risk of buying raw land

Buying raw lands came up as hot topic in Singapore news as a group of investors have trouble with their investments with raw lands and other investment products.

When I was at the Asian Investment Fair last weekend, which was held at Suntec City, I also have an adviser sharing with me about the benefits of investing in raw land. The raw land project that was shared with me was situated in one of the state in US, quite far away from Singapore.

Through the discussion with the adviser and based on my limited knowledge of investing in raw land, I find that it can be very risky, although given the natural risk-return matrix, the absolute return can be as high as 25% compounded.

Some of the risks I noted is the following:

1) Change in zoning law
2) Litigation Issues
3) Population Trend/Potential Demand
4) The direction of development from the developed city.
5) Laws of ownership and form of ownership

Like all investments, there are a lot of things that investors should study when investing in real estate, especially raw land. I personally feel it is better to be down personally to do some scouting and research, before one commits to such investments. Now although the costs can be high, at least it buys some assurance and build your confident in the investment.

As like all investments, I urge investors to do as much research as possible before they commit their hard earn money. Investors have to note for every large return, there will be huge risk behind. Study hard and ensure that you have reduce that huge risk to the minimum before you commit.

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Should I invest in Gold?

"Should I invest in gold?" I think that is the question that is ringing in any investor's mind. Gold has broke the USD$1100 barrier when I am writing this and some people are predicting that gold will reach the price of USD$2000.

Recently I read this book "Guide to investing in Gold and Silver" and inside it puts a strong case for investing in Precious metals, mainly gold and silver. Why I said it is strong because it uses history to tell us that precious metals should feature in most people's portfolio. In this book it also shows us that there are cycles but these cycles is a derivative of certain numbers that we need to work to get it. I strongly urge everyone who is concern about their financial future to read this book.

There are many ways to invest in Gold and Silver and the bank that has such investing facilities available is UOB, based on my current research. You can either open a savings account that is counted in grams or ounce depending on which precious metal you are investing, or own certificates, bullion coins or gold bars. Each will have its pros and cons. You may visit UOB website to have a look and figure out which investment tools will fit your need.

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Dealing with Retrenchment

Dealing with retrenchment is something out of most people's mind during a boom time. As such most recent graduates would not have any idea how to deal with retrenchment.

Do you know how to deal with retrenchment? Do you know that the preparation for a possible retrenchment is done during the boom time? For instance, controlling your budget and preparation for emergency funds.

Retrenchment is going to be very common now given the short span of boom and bust cycle, as such it would be good to equip yourself with the knowledge of dealing with retrenchment.

For more information on how to deal with retrenchment, please click here.

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