Financial Investments

One of our friends recently commented that we have not blogged for quite a while. Well, I have been spending some time looking at investment opportunities and I am going to share some of my thoughts.

General Outlook

Is the financial crisis over? Well the general consensus is “yes”, at least until the Greece/Euro issue came in. The outlook now is less certain.

I read a book (actually I browsed through it at a bookstore) a while back about the Singapore stock market. The author believed in this thing called the “Jacob’s Cycle” — 7-year bull, 7-year bear cycle. (Yes, the term has its roots from the Bible.) The author predicted then that 2008 would be the end of the 7-year bull, which began in 2001.

So, are we in a 7-year bear? Maybe.
Does that mean we should not be investing? No. Even within a bull or bear cycle, there will be fluctuations and hence opportunities.

Investing in Stocks

I will not cover whether we should invest in equities (stocks) or bonds or property. Each investment product has its pros and cons. For this post, I will only focus on stocks because that is what I have been looking at recently in the last 2 weeks.

Quoting from one of the articles in Monday’s Straitstimes “…UBS contends that Dr Vijiaratnam and his daughter wanted an annual return of between 5 per cent and 8 per cent – a figure not achievable with low-risk investments such as investment-grade government bonds or fixed deposits…”

For the case above, “much of the cash was invested in currency funds such as the American dollar, euro and Japanese yen” aka fixed income. While investing in currency is generally safe, it does not apply to Singapore. The traditionally safe currencies do not appreciate significantly against the Singapore currency due to the way the Singapore currency is managed, and the gradual appreciation of the Singapore dollar. With management fees taken into consideration, one might be better off investing in goverment bonds.

For relatively safe investment with 5-8% returns, and yet still fairly liquid, I would prefer to invest in Singapore equities. (Safe is of course a function of risk appetite.) In particular, for “safe” investments, I would be look at returns from dividends which should be safer than returns due to capital gains.

A good website I found is Investment Moats. The author has some fairly detailed analysis and a dividend tracker.

A good stock to buy for dividend income, for example, would be Starhub. While there is some risk of the share price dropping further in the near term, the returns from dividends should make up for it. (From what I remember, the target is to distribute dividends of 5 cents per quarter for the next 2 years.) There is also some risk that the company may not be able to meet its dividend payout target, but that is not important to me. (4 cents per quarter is still good returns.)

So, if you are looking for relatively safe investments with reasonable returns, do consider investing in dividend stocks