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Your Money Matters: Weathering global financial crisis

Analysis

By trevor keidan

PHNOM PENH - Whoever coined the phrase ‘one man's loss is another man's gain' might well have had the events of last week in mind.

However, in a week when banks, bankruptcies and bailouts were the order of the day, it still remains to be seen just who will be the winner and who will be the loser - the United States taxpayer or Wall Street?

While the collapse of Lehman Bros - The United States' fourth largest investment bank - is tragic, it does not signal a "terminal"  end to global financial investing as we know it.

After all, as past experience has shown us, periods of loss are often followed by periods of gain - as was the case last Friday.

In times like these when financial uncertainty and market volatility are inevitable, it is important for investors not to panic. Instead we should follow the lead of the United States government and take a more measured approach to the situation.

It is also important to remind ourselves of some of the basic principles of investing. We must continue to do our research, invest for the long-term, react rationally and diversify. We should also be looking at the value plays and the buying opportunities that might arise as a result of the uncertainty.

For example there might be stocks (especially those of blue-chip companies) that we thought were expensive during the good times that have come down in price now.

They are still good companies and investments. In fact the likelihood is that their stock price will go up over the long term even if the stock market as a whole does come down in the short term.

Similarly, we might want to modify our stock preferences. Instead of buying for capital gains we may want to buy stocks that pay out annual dividends.

This means that we could potentially receive annual payouts (as a percentage of the stock) as well as capital gains when it comes time to sell. (These stocks are usually particularly popular during periods of market volatility, and this popularity could potentially lead to an increase in their stock prices - so we would have the "best of both worlds" when it comes time to sell.)  

In the same vein, if we are not already regularly contributing to a fund, we should perhaps consider starting now. When we invest in a fund, we buy units. When the value of the fund drops - as is normally the case during times periods of uncertainty - so does the cost of the individual units that we are buying. This means that we are able to buy more units for our dollar.

Buy low, sell high

Simply put, we accumulate more units at a lower cost now to sell at a higher price (hopefully) later. This in turn will increase our gains. (One of the best ways to invest in a fund is on a monthly basis with regular contributions).

In addition, when it comes to funds we might want to consider an international portfolio by investing in a global fund. After all, even though Europe and the United States may be suffering a downturn, Asia, South America and the Middle East may well continue to grow.

Similarly we may want to investigate investing in funds with interests in emerging markets such as those in Southeast Asia.

And then there's gold ... a traditional "safe bet" in uncertain times. Gold loves uncertainty and, true to form, recent events have seen the gold price rise to more than US$900 per ounce last week before correcting.

It closed at about $870 at the end of trading last week. It has increased by about 20 percent over the course of a year.

There are a number of ways we can invest in gold from the literal purchase of gold bullion and jewellery to investment in gold mining stocks on the New York (and other) stock exchanges.

Perhaps one of the easiest ways to invest in gold is to invest in Gold ETFs (Exchange Traded Funds). One that is listed on the New York Stock Exchange is called SPDR GOLD SHARES (GLD). This ETF was released in 2004 and is designed to reflect the price of gold.

And although there is no surefire way of knowing what will happen next, all the indications are that the uncertainty will continue. And if it does, it could literally "pay us" to be prepared.

So please remember think before you act and be rational.

After all, Your Money Matters!

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 tkeidan@infinsolutions.com .  Trevor welcomes comments and questions about his articles or any other financial matters. 

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