After much thought, I finally think that if the government is not going to take any concrete actions to help and guide us through a potential economy downturn, then we ourselves must take some course of action. What I mean by taking action does not mean take to the street. We have already cast our votes, so now we need to let the bastards play their game, and see if there is a nice ending to the soap opera ‘Blow Up My Sodomizing Ass Off’
In the meantime, we must take steps to protect ourselves…
Tun Dr Mahatir did mention in point 5 of his article MALAYSIA AND A WORLD IN TURMOIL.
The mainstream media hardly ever mention the turmoil that the world is facing. Certainly no in-depth analysis has been made. Only Malaysian Business has asked whether we are prepared for the worldwide catastrophe that must bring chaos and problems to our economy, finance, politics and social life. The rest seemed blithely unconcerned. Certainly the people are not being prepared for the inevitable.
If you read most of the international journal, you will see that most indicators are pointing downwards. Whether it would happen or not, I do not think we should take the chances and leave it to the government or even the opposition to help us. We have to help ourselves now.
While we can’t control the politics at the moment, we can however control or protect ourselves financially, economically and socially.
I would like to share what I think the least or rather the most we can do to protect ourselves should the doom and gloom lingers longer than expected.
Hedge your property loan interest rate.
House or property is one of the largest assets that one would ever buy. And in order to fund that sort of purchase, one would leverage on a loan. If you understand leveraging, it is one of a double edge sword. If the interest rate is in our favor, we will profit from it, if not, we would bleed financially and would maybe sell it at a lost because we can not cover the interest payments.
If ever 1998 was a lesson, many home or property owner had to sell their property at a lost because not everyone could manage the 13% interest rate.
AIA or most insurances are offering fixed rate loans at 6% give or take. If you have not refinance your properties, I believe this is a good time to do so. Refinance it at the fix interest rate, so should ever the economy turns south and the interest rates turns north, your monthly installment does not go anywhere.
Buy into Unit Trusts
In the stock market, one of the sacred rule is never never ever average down your stocks. Meaning if the price of a stock is dropping your don’t buy that stocks and average down the price that you bought.
Example, you bought stock A at 1000 shares at $1 and when stock A goes down to $0.50 you buy another 1000 shares, thus average your buying price to be $0.75.
Because of the volatility of stock markets, it would take your a long time before the price would pick back up to your average buying price. The averaging down strategy in the stock market will only work if you have very big buying and holding power.
However, having said that this strategy works really well in unit trusts.
You see, unit trusts are cheap and affordable thus we can use this strategy to capitalize on a downward market. If you couple this strategy with the Dollar Cost Averaging strategy ie you buy unit trusts every month. When the market turns back up, which normally takes 5 years, you not only be earning from the dividends but also capital appreciation when the market picks itself up.
Big fund managers has the purchasing power to average down on good blue chip stocks and possibly weather the financial storm that would be coming. So in a way when we buy into unit trusts, we are actual lygiving them more purchasing power to weather the storm.
Another reason is that, that are the expert. They know where to make the money from… Don’t you think that they are also speculating on the oil futures as well?
Buy Term Insurances
Forget endorment or investment link plans insurances. You are paying high premium to have part of your money in investments and a part of them as insurances to cover whatever it is that you are covered for.
Insurances are not meant to be an investment. It is as it is… An Insurance. Buy insurances to cover hospitalization, disability and death. Or enough to cover your current liability with a little bit on the side your help your love ones.
Go for term plans. They are cheap and the coverage are bigger. $10 a month can cover you for $50,000. That is $120 a year. Keep the rest in cash, rather than paying premium. The extra cash will help you in many ways that you can imagine. Save part of the cash so that when the economy picks up you would cash to capitalize on opportunities.
When the market picks up, then maybe one should think about endowment or investment link insurances. But I don’t think it is this time.
Get yourself a VISA Debit Card
Budgeting means shit if you can’t follow it. It is said that only 5% of people who actually do budgeting will follow their budgeting plans. Budgeting is only as guide and it is as good as the person following it.
One way to get into your budget plan is to get a debit card. Top up the amount that you have budgeted for that month and once you spend it all that it’s for the month. It’s crude but it does work.
If possible, get two debit card. One for groceries and other household necessities and the other for your entertainment budget. Night out with the family, partner, or love ones.
Get Credit Cards that offers Rebates
The current trend for the credit card industries is affiliating with certain companies and offering rebates to the consumers. Citibank seems to be affiliating with some of the key consumer industry like Shell and Giant.
Get the credit card that affiliate with the companies that you frequent to. A rebate earn is a rebate save…. hehe
Most of these credit cards are giving free annual fee. And if they ever want to charge you just threaten to cancel it, you will get another year of free annual fee.
Forget about the treatpoint or loyalty bonus. Have you check what they offer as point redemption lately? Does not really help you in any way… financially that is.
Now do this only and only if you can control your spending. Having a credit card means taking short term credits and that will really kill financially rather than helping you if you are not careful.
Apply for the EPF Monthly Housing Withdrawal
This is one of a great way to get cash, but while it is not always a good idea to touch your pension fund. I believe it should be a good time to do so.
There are two reasons why you should do this for the time being. Firstly, it is your money and in times like this the money should be in your possession rather than in the government’s hand. When recession hits, not only could the government use their oil money but they could also use our pension fund to help fund big projects. While it might not happen, it could see how our pension fund is linked in many ways to the government.
Secondly, it’s a good time to keep your cash. When you withdraw from your pension fund, the idea is not to spend it… if possible. The ideas is to keep and grow your cash. The reason is simple. When the economy does picks up and it will in due time. We would have the money to capitalize on the opportunity.
‘Cash is King’ as they say… If there was one lesson that I had ever learned in 1998 during the Asian crisis, it was about a man who kept his money before the financial crisis hit us in 1998 and in 2001 when the market was picking up, he dump a lot of his cash into the stock market and bought up a lot of blue chip stocks like Maybank, Tenaga, at about RM5 bucks or less… And now he just enjoys himself all the way to the bank…
While I do not think that one should do the same without any knowledge of the stock market, the point that I am trying to get here is that at the point when recession could hit us. It is a good time to keep cash.
Learn a new skill or improve your current skills
If past experiences has ever taught anyone is that when recession comes, companies keep people who has exceptional skills. We are not in recession yet, but when we are, you will be the last one laughing.
But should the inevitable comes and you get retrenched, you have your new found skills to support you.
There are many seminars around to help you improve your skills or learn a new one. Go ahead and listen to some of the free seminars available, see which one clicks on you. But please please please be wary. Do not get caught up with the sales pitch or be sold to a dream of making big money once you learn the skill.
When you learn a new skill, it’s like crawling. You need to crawl, then walk and only then can you run. So after attending some of the seminars you are not getting the result that you want, do not give up. It’s not that you have failed, it’s just that you have not mastered the skill yet.
Continue to learn from the fellowship from the same seminar. Hopefully good friendship will be build there. As they say, you succeed also depends on who you know…
Be Prepared
Well, I think I have put down some of the things you can do and take action to protect yourself and be prepared for doom and gloom. This is the least we can do to protect ourselves financially, economically and socially.
I was a scout before and the motto has always been ‘Be Prepared’… We must always be prepared for the worst but we can also be prepared for the good times to come. ‘Winter never fails to turn into spring’ Thus when winter comes we are ready and when spring comes I hope that everyone will be able to enjoy and take opportunity of the blooming greens.
