21st century Economy Politic Quadrant

The Economy-Political Quadrant may seems like telling where to keep or invest your money despite good or bad time.

It indeed works very well during 20th century. Unfortunately comes to 21st century, not only has the year changed, personal finance arena has changed drastically as well.

Gold has been speculated so much that it MAY no longer be the standard of money.

There used to be only 'property' in the city. Now there are satellite towns, suburbs ... agriculture lands and even dust bins ( recycle ) have become valuable estates too. While property remains the right category to invest into whenever economy is booming, but predict the right future seems like tougher than buying lottery.

Government bonds used to be de-Facto action when a country is stable. But in today's world, a country is as smart as a taicon's finance. One day they are the LARGEST, the next day they are GONE.

Stock market used to be the back bone of a country's economy. However, the market of derivatives has become so HUGE that the REAL and PHYSICAL is NO LONGER more real than VIRTUAL

So in 21st century, the element of Stock-Property-Funds-Gold is really questionable. However, one fundamental that doesn't change is that

you will have to identify what to do at what time that is BEST for YOU !

Hope you will find your own very best Economy-Political Quadrant soon !

Economy Politic Finance Quadrant

There are 2 BIG main external factors affecting our investment decisions

• Economy
• Politic

When the time is really bad (economy downturn and politically unstable), its best to park your money under something that is really stable, ie Gold. Which is by definition usable anywhere you go in anytime.

When its good time, invest direct to the stock market would yield very good return.

When the economy is not so good in a strong country, the government bonds or related money market would be able to yield higher return than just gold.

However, the most dispute solution in good economy unstable country is investment in property. This is mainly due to easier rental and higher chance of capital gain.

By simply moving money around depends on the political and economy situation, one was able to achieve more than 12% compound return for the past 20 years. That is equivalent to a 10X return.

But by no mean this is easily done. Some of the concerns include;

• how would one know exactly when economy/politic turns good/bad ?
• is Gold the ONLY option ?
• property may not easily liquidated
• how to choose which property or stock market ?

. . . which can be explored further.

Recession over, what's NeXT ?

Sometimes I feel very depress when my prediction comes TRUE.

For those who don't know yet, zzzz is going through a transition where political power could potentially shared between 2 parties; instead of just one-side-say-it-all like the past 50 years. Unfortunately, the initial phase of this transition has ended in a way when our new Prime Minister has strategically resolved it.

At the moment New Economy Model was presented, I immediately sensed the game err they plan to play. Because exactly the same game plan has been played in USA before. While it is true that zzzz CAN become a developed nation by adopting those moves but it has also been proven that such finance structure is NOT sustainable. Just see what has happened in USA and what is happening in Europe.

Although as if recession is over now, actual effective inflation experience the SHARPEST rise in last 2 months, as high as 25% to 50% if you visit hypermarket often. That is not the worst. What is happening now is that major manufacturers are deceiving consumers in large scale openly. While their products have inflated severely, they run advertisements and promotions as if their products are ON OFFER ! All these are done as part of the exercise to smoothen the transition into a developed nation, hence they have government support behind the scene at all cost. Ahem ... at consumer's cost that is. While these are nothing new to those who have seen it all, but sadly ... there are more consumers falling into it than realizing it at all.

As mentioned in what can we do when bully by the big boys, there is probably nothing much we can do to STOP anything now. So there are just a few things we can probably watch carefully and ride on so that we can get a piece of the pie too ...

• Property will rise drastically. Wherever you are staying right now and despite how much you like it, it may become more worth while to sell it off in the next 10 years. So do plan ahead where you may want to stay 5-15 years later. This may become your LAST and ONLY ticket when the nation is developed and you are still under developing.

• Double your salary in the next 2-3 years. If you wait till the wave carries you, you will always stay behind. You salary WILL increase AFTER the effect of inflation fully kick in. But by then, your increased salary will mean much less. So you really have to think for yourself now. If you are really royal to your employer, your employer should have seen this coming too and take care of you but did it ?

Other than that, derived finance products like futures, options and forex will over shine proper financial planning so much that a lot of weird and ad-hoc theories will surface out. Most people will no longer be able to differentiate what the real proper investment is. On the other hand, that is due to more and more improper investments will actually obtain real returns for the new few years. So if all you care is to get more money, then it should fine temporary.

Hence, MalPF only has one advice to all. Be deviated all you want, just remember to engage an exit strategy and keep yourself in high cash flow condition.

Conspiracy of Location, Location, Location !

Have you ever heard of someone telling you the 3 most important things in property investment ?  Then he repeated saying the word "Location" 3 times ?

Well I have!  I have heard that so many times since so young that it was imprinted in my head without proper judgment.  You know, say the lie 100 times and it would become the truth. 
A lot of people got into real estate and their first few years ended up paying high lesson fee TOTALLY WASTED on this so call principal Location, Location, Location !  A Conspiracy !

First of all, have you ever heard seller saying the location is not that good ?  And therefore they are selling the property at a lower cost ?  - - -  N O ! - - -  Every location "can be" a good location.

Do you know that sometimes property at the right side cost much higher than the left side even though at the same location, same build up, same type of buildings ?  - - - Yeap !  You Bet ! - - - Usually by 2 different developers.

Why is there always a few units in the Golden Location not able to sell out or always make a lost in resell ?

If Location is really the Number 1 factor in property investment, all the above should not happen at all.

This miss conception is originated from the developers.  Whenever developer launches new projects, they will make a big deal about the location.  No doubt at the time they promote the project, the location could be a great place.  However, eventually whatever highways promised earlier may not be built later.  Sometimes even after the high way is built, the effect is negative rather than value increase.

Even if nothing happens to the original location, but when the same developer is launching another new project, guess which is the better location ?  Yeap !  The new one !  Not your older location.

Hence, this location factor is purely a speculation in real estate investment.

Like any investment, what really matter is its real worth and its current price.  If the price is lower than its worth, its a good buy.  Else its a good bye !

No doubt location is a factor, but it is NOT an important factor at all !  Most of the times it is merely a Personal Flavor factor.



Prime location property is easier to rent and sell out but more expensive and usually not available.

Secondary location is cheaper and readily available but harder to rent or resell out.

So give and take, the pros and cons of different location even out each other and do you need to compare properties between two locations ? - - N O ! - -  Not really. 

Different locations carry different characteristics and require different investment methodology.  But the principals remain the same ;

1.  Identify, calculate and verify a property's real worth
2.  wait and buy the property at big discount
3.  ensure continuous net cash inflow ie. Rental - Repayment = positive
4.  appoint experience management or agents at that particular location

So if you purely treat real estate as an investment, you don't really need to worry too much about the location as long as the 4 steps above are strongly adhered to.


There are only 2 decisions that may be affected by location ;

1.  Get a location near you or a location that you love personally.  That way, should the investment goes south, you may temporary enjoy the non tangible personal qualitative returns - a personal flavor as mentioned above.

2.  Location can be the reason NOT to buy a property, but it should NEVER be the reason you put money into it.

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Property as an investment

Just a reminder that Car Loan interest rate is about 1.9X more than the House Loan.  Meaning a 3% car loan is almost as high as a 6% house loan.  Think again if you think car loan has a lower interest rate.  (click here to read more).

The fundamental of investing in property is not much different than buying a business to earn you passive income.  However, the nature of brick and mortal business is an Active Income generator, not a passive one.

VS

So you would need to be extra careful when using property as your finance tool to gain "Passive Income".

In simplest term, you HAVE TO make sure

1. you can rent your property out to fully pay for the monthly loan repayment
   
2. you budget in the fee you pay for professional to maintain your property including

Lawyer

Real Estate agents

Renovation

Interior Design if needed etc.

Without these 2, you cann't start property investment at all.  With this, there is no guarantee you can win big yet but at least you would at least pay less to learn the lessons.

Stock vs Gold vs Property

Below I share some historical trends for Stock Market, Gold and Property.  They are not directly correlated but each is good enough to represend some form of global historical trend.  So they are good enough as an overview and for layman entry level comparison.

Stock market

Property

Gold

Comparison 1 - 1975 to now

Gold has earned 3.5x

Stock market 8x

Property 10.7x

Comparison 2 - origin to now

Gold 28x ( since 1930 )

Stock 800x  ( since 1944 )

Property  16x ( since 1960 )

normalize above return by the difference in years become

Gold  35.9% 

Stock  1250%

Property   33.33% 

However, stock starts at 1 in 1929 and therefore give too large a gap in above comparison.  So I decide to use 1960 where stock index is at 20.  If I use this 20(1960) instead of 1 (1944 ) for stock, then I get

Gold  35.9% 

Stock  83.33%

Property   33.33% 

Gold Trend in Longer History

Comparison 3 - lowest valley to highest peak

Gold's peak at 1000 at 2007

Property peak at 181 at 1996

Stock dip to 1 in 1984

Gold  40x ( min 1923 max 2007 )

Stock  800x  ( min 1984 max 2008 )

Property  22.6x ( min 1960 max 1996 )

Gold  47.62% 

Stock  2352.94%

Property    62.85% 

Like wise stock's number is too crazy so I use 20 instead of 1 for stock and result this:

Gold  47.62% 

Stock  117.65%

Property    62.85% 

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I am not too excited about any of these return rate because past performance does not guarantee future profits.  However, after looking at these graph I am very excited because I think I see some repeated trends in stock market.  It seems QUITE predictable from this graph alone.  However, I cannot figure out any "Patterns" for Gold and Property.  Therefore I am quite sure what I need to do for stock investment, but not the others.

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so my final word on this comparison is you should only read this for 'fun' or at most a guide only.  Remember that global trend and all these 'overall' figure does NOT really affect you.  Because you will NEVER buy the whole world.  You will only buy a few stocks or just 1 or 2 properties.  The unique buys you make for yourself determine the REAL profit for your very self.  Global trend does NOT mean you have no chance to out beat it.