Your Money Matters
A guide to saving and investing
By Trevor Keidan
• PHNOM PENH - One only has to drive along Norodom Boulevard to see that Cambodia's banking sector is thriving ... and growing. It seems that almost every week a new bank or banking branch is being opened, built or planned.
Many Cambodian and Cambodia-based banks are now offering retail banking services such as checking accounts, savings accounts, loans, debit cards and credit cards. And, while most of us are familiar with everyday banking services, some of us are less familiar with saving and investment.
To begin with, it is important to differentiate between saving and investing. Put simply, saving is the act of putting aside a portion of our income or earnings now to accumulate an amount that we can spend later.
Most of us save because we either want to buy or achieve something. For example we might want to save to buy a car. Or, we might want to save to start our own business.
However, our first priority should really be to save for a ‘rainy day' or an emergency.
Setting up an emergency fund is simple. It is merely a savings account that offers easy access and (preferably) a high rate of return. Such accounts are offered by most high-street banks, and it is just a matter of choosing which account suits us best. Here are some of the features we must look at when looking for a savings account:
• Interest Rate What is the amount of money the bank will pay us as an interest rate on our money? This is usually stated as an annual yield in percent.
• Fees What fees and/or penalties will the bank charge us for transactions and/or if our balance falls below the minimum balance requirement?
• Balances What balance earns what interest? Often banks will pay different interest rates for different balances.
• Payments How will our interest be paid? Some banks calculate payments based on a daily balance while others will use the average of all the daily balances in the month.
Armed with the correct information, we should be able to choose which savings account suits our objectives. And with that in mind, we can now turn to investing.
OUR INVESTMENTS SHOULD BE AIMED AT FINANCING OUR
It is important to realise that investing can earn significantly higher returns than those achieved from standard interest rates in ordinary savings accounts. It is also important to realise that there is an element of risk when it comes to investing. This risk, however, can be managed through the use of careful research and diversification of investments.
As a general rule, we should invest for the long term as opposed to the "quick fix" in the knowledge that investments can go up as well as down. Our investments should be aimed at financing our longer-term goals such as a house purchase, children's schooling or our retirement.
As any financial adviser will tell you there are literally thousands of different types of investments geared to suit each and every type of investor. So to begin with, we will focus on the most common - funds, stocks and bonds:
• Funds When we buy into a fund we are effectively "pooling" our financial resources with those of others. This "pooling" of resources enables the fund to own thousands of different types of investments from stocks to bonds to property and even cash. This allows us to diversify our portfolio and spread the risk amongst the fund's numerous investments. We can also choose a managed fund that has a professional adviser tracking and managing our investment.
• Stocks When we buy stocks, we are actually buying into a share of a company's profit, losses and assets. Many (but not all) stocks pay out a dividend, which is a share in the company's profits that is divided among the company's stockholders and paid to us quarterly. In addition, should the price of the stock go up, we would stand to make a profit by selling our stock on the stock market. However, there are many factors influencing a company's stock (or share) price, so it is advised that investors obtain the advice of a professional financial adviser or stockbroker.
• Bonds The principle of bonds is as follows: We effectively loan our money to an agency or company for a set period of time. In return for using our money for the agreed amount of time the agency or company pays us interest on the amount we have lent. This interest can be paid out as a fixed interest or fixed income - hence the expression fixed-income investments. In addition to the income payments we will also receive the full-amount of our loan upon maturity of the bond. As a general rule we should plan to hold bonds until they mature.
Trevor Keidan is managing director of Infinity Financial Solutions. Infinity Financial Solutions provides impartial, tailor-made personal financial advice to clients in Cambodia and Southeast Asia. Should you wish to contact Trevor, please send an email to [email protected] . Trevor welcomes comments and questions about his articles or any other financial matters.