I was unemployed for a month. I just got a new job with a 20,000 baht monthly salary. After paying for expenses, I have 8,000 baht per month left. I have 30,000 baht in savings. I want to know:
1.) With 30,000 baht in savings, what should I invest in?
2.) For 8,000 baht per month, what type of deposit accounts will give me a good return? I thought about investing in the Government Savings Bank (GSB) lottery, spending 6,000 baht per month for five years, as I think the return is pretty good. But I'd like to know what you recommend.
_ Tanongsak
ANSWERED BY... Teera Phutrakul, CFP, Chairman, TFPA With a savings rate of 40% or 8,000 baht a month you are doing exceptionally well compared to the national savings average of less than 10%. Since you are only 30 with a fairly long investment horizon of 30 or more years before retirement, I would not bother with the GSB lottery.
A good place to start is to set up an emergency or rainy day fund worth about six months of living expenses, or 72,000 baht in your case. Once this is in place you can look at something longer term like exchange-traded funds (ETFs). Essentially, ETFs are open-ended index funds that are listed and traded on exchanges like stocks. They allow investors to gain broad exposure to stock markets of different countries, emerging markets, sectors and styles, as well as fixed income and commodity indices, with relative ease on a real-time basis and at a lower cost than many other forms of investing.
I'm 28. I can save around 5,000 baht per month now and definitely more in the future. I invest in a form of dollar cost averaging in equity funds, contributing around 3,000 baht per month. I have around 100,000 baht invested in stocks. I also invested in a trigger fund. I've been doing this for 10 years consistently. I would like to know if this is a good idea, assuming I can handle the risk appetite. And if I keep doing so, how much savings will I have when I retire?
_ Sinchai
ANSWERED BY... Teera Phutrakul, CFP, Chairman, TFPA When I was your age, I hadn't the foggiest what dollar cost averaging was and trigger funds were not invented back then. I am sure not many 28-year-olds are as keen as you are about investing.
As a rough calculation, if you can invest 3,000 baht a month over the next 10 years in a stock fund with an expected return of 10% per annum, you should be able to add one zero to your original 100,000-baht investment, making you a millionaire by the time you turn 38. And if you can keep this up until you retire at 60, your total portfolio should be worth 10.2 million baht.
The only reservation I have is the latest craze for the so-called "trigger" funds. Essentially, these are equity funds that have a predetermined return in mind, usually 10-15%. Once the fund achieves its target return, it is dissolved and the principal plus the profit are returned to the investors. Nice idea in principle. Who does not want to make a quick 15% profit? But my argument is why stop at 15%? Why not 100%? The SET index posted a 100% return during 2009 (up 65%) and 2010 (up 40%). I think many of these trigger funds are selling themselves and their investors short by taking a short-term view of the stock market.
More importantly, this is only half the story. If you read the prospectus of these trigger funds carefully, it does not say anything about potential losses. Let's not forget that markets can move both ways! If the fund loses money, there is no trigger mechanism to limit the downside loss. In a worst-case scenario, investors in these trigger funds could lose 100% of their principal. During the subprime crisis in 2008, the SET dipped by 50% in one year. And during the tom yum kung crisis in 1997, which started in Thailand, the SET decreased five consecutive years from 1994-98. The average downtime for some markets is a year, but it can be much longer and if you are a short-term investor you will lose a lot if you bail out at the wrong time.
And believe me, the vast majority of investors always sell at the wrong time.
In short, forget about trigger funds; it's a marketing gimmick. Stick to dollar cost averaging, invest early, invest often and use low-cost index funds as the core of your portfolio.
The Thai Financial Planners Association is the Certified Financial Planner (CFP) trademark licensing authority in Thailand. It is a self-regulated, non-profit group of financial advisers and experts from various organisations set up to give advice to investors. Questions can be submitted through wealthcare@bangkokpost.co.th or the TFPA webboard, www.tfpa.or.th