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Originally Posted by teatree
Hello, new to the forum here. I was reading about the investment advice some of you gave. If I have 250k spare cash right now, what would be a good investment vehicle? I'm pretty risk-averse, although I have the capacity to take on more risk, just need a bit of convincing. Anything beats leaving money in the bank.... I don't need the 250k, so I don't have a fixed time horizon for this investment.
What do you guys think of perpetual bonds? Its a pretty hot thing in Singapore right now?
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Let's have a peek at the macro picture and your investment objectives.
You said you are "pretty risk averse" and you "don't have a fixed time horizon" for the money. Let's therefore use a 3 year time horizon. Before I go further, I would like to snuff out the idea on buying perpetual bonds first because this is the
most vulnerable asset class in any interest rate hikes.
The US economy is showing tentative signs of improvement. The policy makers in the USA will look at a whole load of economic indicators but I would say unemployment rate, GDP growth rate and inflation rate would carry greater weightage. At this stage, it does seem that Yellen will get to be appointed as the next Federal Reserve Chairman. Based on the various reports and articles, I would rate her as "pro growth" and not "anti inflation". Her bias would be to err on policies and decisions that would stimulate growth and not snuff it out prematurely. Based on recent reports, the Fed is now considering buying short term treasuries in order to keep short term policy rates low whilst it weans off its current USD85 billion a month bond buying programme, namely on the the long end of the curve i.e. the policy makers are attempting to ensure short term rates stay low in order to spur economic activities even as the Fed begins to taper its bond buying programme. Therefore, what they are saying is that they are willing to tolerate inflationary pressures in order to spur economic growth and lower the unemployment rate. When will the so called "tapering" happen - whilst it's anybody's guess, market consensus now seems to be 2Q14 rather than 1Q14. The US equity market accounts for roughly 50% of total global equity market.
EU has stabilised but it is still a long way off from resolving its structural issues. Unemployment is expected to stay high in EU and any growth is expected to be tepid at best. The EU equity market account for roughly 25% of total global equity market. The balance 25% comprise the equity markets of the rest of the world (Japan, China, Asia, etc). Yes, our part of the world is that small.
Japan has tried hard to stimulate its economy. It had some initial success under what the market has termed "Abenomics". The policy makers will continue to try to stimulate growth but their structural problems are not easy to resolve e.g. rapidly ageing society, high costs of labour, losing out in innovation to the Koreans, etc. China is attempting to restructure its economy to be less driven by export growth but domestic consumption led based on press release after its latest plenary session.
If you buy the above scenario, then it would appear that economic growth from the US would lead global demand growth. That is one reason why US equity valuations are so lofty now despite the fact that economic indicators out of the US have been rather subdued albeit positive thus far. As the Asian economies are relatively sound (India, Indonesia and perhaps Malaysia to a smaller degree being the exceptions), I would expect the Asian economies to ride on this resurgent growth out of the US, chiefly Korea and China.
As I am focused on the Singapore market and I believe in only investing in what I understand, I would wait with my cash and buy only when the market pulls back from current high levels. It's OK even to allow your money to sit in the bank for months whilst you wait for this moment because any correction will allow you to gain entry at a few percent to low deca percent below current levels. Since you are risk averse, buy
blue chips (to prevent getting scammed by the Blumonts of this world) which are growth oriented e.g. the local banks, consumer goods, etc. Start doing your research now and monitor a list of stocks for a good entry point. Only buy bonds
after the initial market reaction to the Fed tapering programme. Many local bond issues have been taken up by Private Banks in the last year or so ..... for their clients who went in search of yields i.e. the professionals are concerned about potential rate hikes and therefore drop on bond prices and therefore did not bid aggressively on the recent local bond issues. Longer dated investment grade bonds are assessed to be the most vulnerable to the Fed tapering programme as opposed to shorter dated, non-investment grade issues.
Start doing your homework now to shortlist some stocks. I don't have a list of stocks to recommend you because your investment objectives and risk appetite may be dissimilar to mine. I am holding on to my stocks and selling short dated call options on them to earn additional income whilst I wait for the Fed tapering. In fact, everyone in the market is waiting for the Fed tapering which is regarded as the most significant event for the market. In the meantime, my own view is that the market will be range bound until the Fed tapering happens. I just don't see any other catalysts or good news in the horizon that will drive the market up. However, there could be unexpected tail risks or the so-called black swans that could occur out of the blue to cause the market to plunge.
My own philosophy is to stay on the sidelines if I don't have a firm conviction ..... I am not a fund manager. I don't need to stay invested at all times and I have no index to beat. I am merely here to earn (not lose) passive investment income to grow my portfolio which will fund my retirement lifestyle.
Hope this helps and good luck!