Invest wisely
By PATSY KAM
Diversifying investments during these lean times.
PRICES of diamonds, luxury yachts and even airliners are dipping this recession and even the super-rich may not be spared.
But this shouldn’t come as a shock, really. After so many years of easy money, people have forgotten about the credit cycles that accompany the boom-bust cycles of stock markets and the business cycle.
Various sizes of
According to Choong Khuat Hock, 47, director of fund management company Kumpulan Sentiasa Cemerlang, credit cycles of tight money go hand-in-hand with recession when bad debts weaken the capital structure of banks and collateral values diminish. This usually follows periods of easy credit and loose lending standards.
“The financial markets will continue to do badly this year,” he predicts.
Since
Given the dismal scenario, Choong advises people not to rush out to buy assets.
“Gold is a good investment if you want to diversify but it’d be silly to put all your eggs in one basket. Investing in foreign currency is tempting but it’s still highly speculative – given the global recession, people will still run back to US currency.
“There will surely be a decrease in consumer spending and less spent on luxury items. But healthcare and consumer staples will continue to do well.”
Going into other types of investments at this time may seem attractive but you need to be sensitised to major trends. For example, the price of Korean antiques rose sky-high as that Tiger economy grew in the 1980s and 1990s, and there was a demand for Stalinist memorabilia when the
During tough times, people will be less likely to pay for expensive luxuries, so it’s quite possible to pick up some “lifestyle investments” at bargain prices. Generally, it’s recommended that any such investments form only a small part (usually no more than 15%) of a balanced portfolio for investors with fairly substantial net worth.
Midas touch
Like our forefathers before us, when the going gets tough, people may start hoarding gold as it’s a good hedge against inflation as stock markets decline.
However, Choong foresees a deflation this year so gold prices may come down. When everyone is going to be strapped for money in the coming downturn, cold hard cash in hand seems better than investing in gold.
Still, gold is a viable option for those who are looking for somewhere to park their money as its fundamentals are strong.
Based on data by the World Gold Council, gold has remained less volatile against most commodities and precious metals in the current credit crunch.
According to Maybank’s website on
Its value has remained more or less stable and, as an asset, it has a relatively low-to-negative correlation with other asset classes like currencies, bonds and Treasury bills.
Considered the most liquid of global assets, gold doesn’t depend upon any government’s or company’s promise to repay, nor is it directly affected by economic policies.
Prices have undeniably been affected by the current global market, but JP Morgan has raised its price forecast for gold for 2009 on expectations that investors will buy into bullion as a haven from risk.
Gold investments in
Account holders can withdraw their gold in cash or physical gold form.
Alternatively, investors can make their gold investments via gold exchange-traded funds (ETFs) listed overseas. The gold shares are backed by physical allocated gold bullion and are traded in US dollars.
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