Here is a story that ran in The Straits Times on 21 Dec 2008 about a lady who lost $100,000 from her retirement savings through her investment in Minibonds. The writer, Jessica Cheam, said that her mum’s voice was trembling as she talked about the loss.
According to the story, “the hefty sum she had invested in the now infamous Minibond notes, which she bought from ABN Amro Bank just a year ago, is now as good as worthless, sucked into this void called the financial crisis whose magnitude seems to be growing by the day.”
She had meant to put the $100,000 into a fixed deposit account but ABN Amro’s sales staff convinced her that the Minibond notes were ‘exactly like fixed deposit’ with a five percent return, capital guaranteed. The rest, she said, is history.
I’d like to reproduce below some of her other thoughts about the collapse of the global financial market and it’s implications for investors like you and I:
“These days, I’ve found myself asking questions such as: In these troubled times, where is our money safe? Is it worth investing at all? Where do you begin to look? You might think putting it all in a bank and saving till the storm is over is the safest thing to do. But even then, I know of people who felt their money was threatened when United States lending giant Citi ran into trouble last month. These people actually closed their Citi accounts and put their money in what they deemed were ‘safer’ local banks. In such unpredictable times, it’s anybody’s guess which big financial institution is going to fail next – and whose money it will take with it.
“Already, the recession is spreading and US automakers have just been saved from complete breakdown by a lifeline on Friday. So amid all this grim news, I contemplated what my next financial ‘action plan’ should be. Should I just hibernate until the next upturn? Or venture like a brave soldier into the war zone that is the markets? I know of a few courageous (or foolish) friends, who are riding on the volatility of equities, hoping to make a quick buck. One has actually made a killing from repeatedly buying a property blue chip firm whenever it dips under $3, then selling it when it rebounds.
“Even if we buy blue chips today, are they really as infallible as they look? As the financial crisis unfolds into a global economic one, even bets I had put on China and India funds – the only economies still growing, albeit at a much slower rate now – have been sliding in value. So do I move them to safer funds? Or leave the money there?
“So many questions and no easy answers. In my quest for some clarity, I turned to some financial experts for advice. One of them told me that in these times, trying to make money in the next three to six months ‘is very, very tough’. If you need the money, keep it, he said. If there’s any spare, the possibility of multiplying your money is there, but invest your money in batches – not all at once – and put it in quality companies. For what is already invested, one needs to look at it fund by fund, stock by stock, relooking at the fundamentals. If the stock is deteriorating, there’s no guarantee it won’t fall further – so get rid of it, at least you will get some money back. If a company is backed by good fundamentals and a strong history of riding downturns, stick with it. When things look up again – as they certainly will, it’s a matter of when – you’ll make your money back or at least break-even your investments, he added.
“You could still consider government bonds, gold, fixed deposits and foreign currency investments. The thing to remember, he said, is to assess your own risk appetite. You might want the returns, but can you take the risks? I’ve asked myself this many times, and lately I’ve found my impulsive investing inclinations being tempered by something called practicality. With home prices coming down, next year could be a good time to buy my first property – which brings me to the old adage, that investment is safest in ‘bricks and mortar’. I’m sure there are good investment bargains out there, whether in stocks, funds or in homes. The prudent thing, I’ve learnt, is to exercise the utmost caution and map out every worst-case scenario that could happen with any investments you make, and read all the fine print.”