Liquidity

This is the most important thing to take care of while planning your finances. Simply speaking liquidity is the ability to convert your assets into money.

This is very important especially in emergencies. The reason is simple - a large number of problems can be solved by ready cash. This is more important for people in their first few years for various reasons. One is that they have settled into a rhythm and so "unexpected" expenses suddenly crop up. Second is that often people have a lot of responsibilities and hence they need money to fulfill them.

Scenarios

Lack of planning

I remember that in my first year after marriage, money was chronically short. The reason was not that my I was a spindrift (nor my wife for that matter). It was just that there a number of expenses that we had not accounted for. We would forget to pay some of our bills in time. The rent would have to be paid and suddenly our account would be empty. Just after getting the salary we would feel that we have a lot of money and hence would splurge on capital items like washing machine and AC.

Sure, we could have planned better but I think this is a problem that everyone of my friends faced. It seems that planning requires experience and at this stage everybody lacks it so it simpler to just have some cash at hand (or in the back).

Commitments

One of my friends was very happy after getting a job. Just before filing his first tax return, he got an expensive insurance policy to save tax. Unfortunately, the policy would give him no money for the first 10 years while devouring a significant chunk of his savings. Unfortunately he had a lot of responsibilities - getting three of his sisters married over the next five years. In this scenario, the insurance policy made no sense. The main problem was that the policy was not liquid - it could not be converted to cash when required. My friend would have been better off paying the tax - he was in the 10% bracket.

Liquidity is higher when it takes less time to convert to cash AND when the penalty for coversion to cash is less.

Basic rules of thumb about liquidity

1. Cash and money in savings account are the most liquid
2. Fixed deposits and funds in money market funds are very highly liquid - these can be converted to cash in less than a day and have a low penalty.
3. ETFs, stocks and other instruments in demat account are next - these can be converted to cash in 2-3 days but because of market fluctuation, there may be loss
4. Mutual funds, ULIPs and some insurance policies - These often take one to two weeks to convert to cash as there is paperwork involved. Further, there may be substantial loss depending on the terms and conditions.
5. Property - this can often take months to convert to cash and may involve significant loss in case of distress sale
6. Retirement funds, PPF, EPF, most LIC policies, NSC - These are often nearly completely illiquid - they can not be disposed of before a predefined period which ranges from 5-30 years.

Conclusion

Given the above, my sense is that people should get a netbanking, demat and trading account and invest in FDs and ETFs till their early responsibilities are over.

Am I Saving Enough?

I had published this post a couple of days ago, based on a concept borrowed from the book "The Millionaire Next Door" about your expected networth or corpus at any given age.  The post describes how to calculate your expected networth assuming you save at a certain rate, and your investments and salary grows at a certain rate.  Since that post, I have got several queries from readers for their specific situations that I am doing my best to respond to.  One recurring question is around the annual salary assumption I have made.  Since different people have different salaries when they started, either higher or lower than my assumption in the table calculation, the common question is, how do I calculate my expected corpus for my salary situation.  

Actually this is very simple to do.  Let me summarize my assumptions and reproduce the table from my earlier post.  I had assumed a starting salary (after taxes) of Rs 3 Lakhs per year, with a 8% annual growth in salary, 20% annual savings rate, and 12% annual growth in corpus.  The starting salary assumption is quite arbitrary, but you can easily apply the same principle to any starting salary. Here is the table reproduced below but with one additional column this time:

The final new column in this table is the ratio of total corpus to salary in the given year. Taking the same example point from the previous post, at the age of 45 years, your total corpus should be 6.9 times your annual take home pay.  Note that this applies for any starting income you choose!  So if your starting take home pay at age 25 was Rs 2 Lakhs per year, then at age 45 you should have amassed 6.9 x Rs 2 Lakhs =  Rs 13.8 Lakhs.  Similarly if your take home annual income at age 30 years was Rs 10 Lakhs per year, then at age 45 your total corpus should be 10 / 4.4 x 96.2 = Rs 2.18 Cr (I simply scaled the corpus at 45 years viz Rs 96.2 Lakhs from the table above, by 10/4.4, since I wanted the answer for Rs 10 Lakhs take home at 30 years, while in the table above the take home at 30 years is Rs 4.4 Lakhs)

So as you can see, it is quite simple to scale up or down your numbers for your particular situation, using the table above, depending on the take home post-tax salary you are earning.  Let me know if there are other cases you want me to consider and I will be happy to post those scenarios as well.

Introduction

I vividly remember talking to a friend some six years ago. He had just filed his first income tax return and in order to save on tax, he had purchased a LIC policy. The talk drifted to other topics and he began telling me about his responsibilities to his parents and sisters and how he hoped his job would help him fulfill those. Something seemed odd. I asked him more details about the LIC policy. As it turned out, the policy provided neither risk cover nor liquidity. It was probably good for retirement but with an element of surprises - LIC is known to give good bonus. In his case, he needed money in 3-5 years; the sensible thing was to forget the LIC policy and not pay any more premiums. I know not what he did later.

A few years later, I studied finance in my MBA and learnt the basics of discounted cash flow and financial planning. Strangely, there were no courses on personal finance. My summer internship was in an insurance firm and I remember a big debate with the product manager wherein I said that they needed to separate insurance from investment. He agreed partially. Later I read more about the subject and came to the conclusion that Insurance is best avoided. However, one of relatives is an insurance agent and he convinced me to buy a couple of policies.

A few years later, I got married and realizing the increase in responsibilities, decided to get my personal finances in order. I spent a day every month reading about personal finance and implementing stuff. Since then, I have realized that good advise for managing one's finances is difficult to get - especially for the young, salaried Indian. Thus started this blog.

I will present here much of the "accepted theory" in terms that are simple. More importantly, I hope to bring out issues specific to Indian culture and economics so that people can easily relate to these. Lastly, I will also provide ways to use simple online tools - calculators, demat accounts, SIP etc. so that people do not have to go to advisors.

If you have suggestions or queries, feel free to write to me at nirmeshs@gmail.com

Credit Cards

Credit Card – A form of Borrowing

Credit card is one form of borrowing which involves some charges and its terms and condition could affect the overall cost. It is advisable to do some research on the terms and the fees before any agreement to open a credit or a charge card account.

 Being unaware of the terms and their charges could leave the user disappointed when faced with the overall cost they may encounter. At times shopping with the credit card could save you money on interest and fees. Issuers of credit card tend to have wide scope in charging interest though they should brief the customers on the interest rate. It is also essential for the customer to read the fine print in the original credit card agreement as well as in any supplemental copy.

As per the federal law, interest rate tends to increase on existing balances under some conditions like when a promotional rate may end and there is a variable rate or when the cardholder tends to make a late payment. The interest rate on new transaction may also increase but after the first year. If the customer is faced with an issue regarding the credit card, they should first try resolving the same directly with store or the credit card company or the financial institution.

Consumer Financial Protection Bureau

If the matter is not resolved, they could file a complaint with the Consumer Financial Protection Bureau – CFPB which presently accepts complaints with regards to credit card issues and take them up either through phone or through their site at https://help.consumerfinance.gov/app/ask_cc_complaint. For any guidance regarding credit card debt, fees and high interest rates, customers could contact a credit counselling service or debt Management Company who can render the necessary guidance and support. They could also provide practical as well as legal financial advice with regards to the use of credit. Beside this, they could also make attempts on renegotiate the terms of the credit agreements and make arrangement to pay off the debts. One needs to check on the debt management company though all arenot the legitimate ones.

Credit Card Eligibility Calculator

Some of the following credit card eligibility calculator could be helpful to individuals such as:


• Bad Credit – For bad credit scorers- Those who apply for credit card and have been rejected need not go in for the same. They should check on cards that would fit their profile and try to rebuild credit rating by using the top `bad credit’ credit card and ensure to pay in a timely manner
• Interest free spending- 0% Spending – If the need to borrow for a purchase arises, the right choice needs to be taken, credit cards are far cheaper than loans though if misused it could add debts which may be difficult to pay off
• Balance transfers – Cut existing debt costs – Shifting the prevailing credit card or store card debts to new balance transfer card could save much wherein the balance transfers when a credit card could pay off debts on other credit or store cards. Thus one owes the new card though at a lower rate which means they can be debt free much quicker.
• Travel Money – Several cards add 3% cost than the banks to the exchange rates which can be avoided by a specialist card that does not add this percentage and you get a good exchange rate. This could be used for overseas spending though one should bear in mind to repay in full to avoid the additional burden of interest.
• Balance transfers and spending – All-rounders - Most of the banks offer introduction deals to attract new customers with cards that could be either good balance transfer deals or low rates on new spending. All-rounder cards offer cheap intro rates for balance transfers as well as purchases and if a person needs to move debts from an existing expensive card as well as need to use a card for purchase, they could be checked since they cannot damage the credit score with additional applications.
• Cash back – pays when spend – The cash-back credit card tends to pay you each time you make a purchase where top cards tend to pay around 5% introductory cash-back while other offer 3% on fuel and transport spending. Besides these, there is also other good fee free; cash reward cards which are like cash-back cards offered.
• 0% Cash in Bank account – Money Transfer – The money transfer credit card enables the customer to pay money from their new credit card in the current account with a small fee wherein they get a long interest free period in repaying the debt. Should the customer fail to repay the same within the given time period, they are charged with a high interest rate.
• Get Air miles while spending – Airline credit cards are an addition of regular flyer programs and one could earn points or miles on spending as well as earn bonus for signing up. The miles earned from spending could be added with those earned from flying or by other credit card reward schemes like converting Tesco Clubcard points.

How Much Money Should I have Saved by Now ?

Ever wonder how much money you should have saved by now?  Or more specifically, what should your networth or total corpus be at this time?  I am sure as you are saving and investing for retirement or any other goals, you must be thinking, am I saving enough, and is my corpus growing at the right pace?  How am I doing compared to others?  If you have these questions, don't worry, you are not alone!  We all think about this every once in a while, I am sure.  

You must have heard about this book called "The Millionaire Next Door" that talks about, among other things, the concept of networth and provides a simple formula for how to calculate your expected networth over time.  Like most books, this one also is based in the US, for American readers, and hence the thought process caters mostly to their situations.  

However, the concept is definitely interesting, and something that I figured can be explored in the Indian context as well.  So here is my attempt to calculate the expected networth or corpus for the Indian context.  

Before we start, lets be clear about my definition of networth for this analysis.  Your current networth is the sum of all your assets minus all your liabilities.  To put it simply, add up all the assets or investments that you own like bank balance, FDs, bonds, stocks, MFs, gold, jewelry, real estate etc, and subtract from that any liabilities like loans, credit card debt etc.  The answer you come up with is your networth

For the purpose of this discussion, lets assume that you started working at the age of 25, and your starting take home income (which is basically your income after paying all taxes) is Rs 3 Lakhs per annum.  Now you will be saving a certain percentage of this income, for your investments, right?  Assume you are able to steadily save 20% of your take home income for investments. So basically over the years you are saving a fifth of your take home pay, and investing it in various avenues to grow your corpus.  Also your income or salary is also hopefully growing year on year.  For this discussion, lets assume your salary grows at 8% per annum.  This is a reasonable average salary growth rate,  though in some years you will get a bigger increment, while in some years, your increment may not be as much.  Finally your total corpus or investments are also growing over the years, and we will assume they are growing at 12% per year.  I believe in todays Indian context, a 12% per year return rate on your investments is reasonable to expect, and a good start point for this analysis.  With this information, it should now be possible, with some simple maths to calculate your expected networth every year till you retire.  

I will assume a time period from 25 years of age when you start working to finally 60 years of age, when you retire; a period of 35 years, with the above assumptions.  Below is the table for your expected networth per year from 25 years to 60 years:

The first column is simply your age, and the second column is your annual take home salary that starts at Rs 3 Lakhs per year, and grows annually at 8% as per our assumption.  The third column is your savings which is 20% of your annual take home.  Finally the fourth column is your net worth that is growing at 12% per year, and is helped every year, by the annual savings that you add into your investment pool.  I have highlighted your corpus every 5 years so you can see how it grows. (I must mention here that all the figures in the table are in Lakhs)  

This table shows that by the time you are 45, you should have saved up approx Rs 1 Crore, in your networth!  Basically at age 45, your initial annual income of Rs 3 Lakhs, growing 8% per year, has now become Rs 14 lakhs per year.  Your saving in your 45th year at 20% will be Rs 2.8 lakhs.  This added into your corpus which has been growing at 12% per year for the last 20 years, will get you to Rs 96.2 lakhs, which is pretty close to Rs 1Crore!  If you are able to keep up this pace for another 15 years till age 60, you will retire comfortably with a final corpus of Rs 7.2 Crore, which should be sufficient to see you through your golden retirement years.  

How does your corpus compare to this example given above?  Do your own analysis using the method shown above to setup your roadmap for expected corpus.  I always find that if I have a target or goal in front of me, it is a lot easier to be focused and march towards that goal.  The expected corpus table above, is an example, for how you can go about setting up your own investment and networth goals.  Setup your networth goal as shown here for your own particular situation, use conservative estimates for salary growth, and investment growth, use an aggressive target for annual savings rate, and then see how your networth will grow in leaps and bounds.  

Happy saving, investing, and hopefully early retiring!

Bitcoin: Government to Regulate Crypto Currency to Avoid Money Laundering

Bitcoin – Issue of Money Laundering 

Bitcoin can be useful in purchasing thing electronically and its like conventional dollars, yen or euros which are traded digitally and its most important characteristic which makes it different to conventional money is that it is decentralized. There is no single institution that controls the bitcoin network and this puts some of them at ease since it means that a large bank in unable to control their money.

However, money laundering has become a major issue which the British government has been facing and most of the people in the government are of the belief that bitcoin and similar crypto-currencies are used by some to launder money and there is a need to regulate bitcoin exchanges. This kind of measures taken could stop their use as money laundering hubs. The Treasury is of the opinion that bitcoin has capabilities of being used for money laundering and in order to curb the issue, it wants to regulate digital currency exchanges for the very first time, though this would not mean that the government is not in favour of innovation in the nascent technology but the prevention of criminal use of the digital currency.

Anti-Money Laundering Regulation – Digital Currency Exchanges 

The UK government released a document with the combination with the announcement of UK’s 2015 budget stating its intention to apply anti-money laundering regulation to the digital currency exchanges in UK. As per the document it would be creating the right environment for legitimate players in the space to flourish though it would also ensure that a hostile environment for illicit users of digital currencies is developed to discourage the users. As per the Treasury it is reported that the Government will be regulating bitcoin exchange in order to stop its use as money laundering hubs. A report published with George Osborne’s annual budget, the Treasury has informed that the new regulation would be supporting innovation to prevent criminal acts of digital currencies and the proposals would be consulted in the next parliament session. It is said that the government would be working with the British Standards Association – BSI for the development of a set of standards which would be helpful in protecting the consumers.

New Research Initiative on Digital Currency Technology

It was also informed by the Treasury that a new research initiative on digital currency technology would be coming up, which would inject an additional 10 million pounds in the area. According to a board member of the UK Digital Currency Association, Tom Robinson, who has been involved in the Treasury’s consulation procedure that `the announcement is significant, which bring bitcoin and other block chain technologies closer to mainstream adoption’.

In the discussion published in February, Bank of England informed that the digital currencies like bitcoin portrayed considerable promise and it showed that it was possible to transfer value securely without the need of a trusted third party. Other queries were also raised by the bank on whether central banks should issue digital currencies themselves. In several developed countries, bitcoin has been regulated by existing money laundering or terrorist financing laws. Traditional financial sector regulation is not applicable to bitcoin according to European Central Bank since it does not involve traditional financial players while other the EU state that existing rules could be extended to include bitcoin as well as bitcoin companies.

Three Ways To Optimize Your Personal Finance In 2015

These days, more and more people are interested in getting their personal finances in order so that they can lead lives of economic freedom. If this is your agenda, you should note that there are numerous techniques you can implement to accomplish your objective of attaining financial freedom. Here are three simple ways to get started immediately:

1. Learn More About Trading. 

One of the great ways to optimize your personal finances in 2015 is to learn more about trading. As many financial experts know, trading is an incredibly effective way to build some substantive wealth. Unfortunately, many people are intimidated by the thought of trading because they don't have any substantive experience in this sector. If this is a challenge for you, you should note that organizations like the Online Trading Academy can help. This organization was specifically designed to provide education and assistance that will help traders obtain tangible results and improve their skill set within this sector.

2. Develop (And Stick To) A Budget.

Another strategy you should definitely consider implementing in order to optimize your personal finance in 2015 is to develop and stick to a budget. Budgets are critically important because they give you the opportunity to see how much money you're earning as well as how much you're spending on things like bills, clothes, entertainment, food, etc. Unfortunately, many people overlook the importance of developing a budget and therefore have only a vague understanding of what they're making and spending. Don't make this mistake. Instead, sit down and devise a budget that will provide you with a clear understanding of your current financial state. You can then use this information as a springboard to cultivate the type of strong financial future you desire.

3. Eat Out Less. 

As many financial experts know, many people tend to spend a substantive amount of money on eating out. If you're interested in cutting back a bit to really strengthen your personal finances in 2015, it's a good idea to consider eating out less. Instead of going out to expensive restaurants, consider the value of learning how to prepare your favorite meals for yourself. If you enjoy eating out for the social experience, be sure to invite friends over to partake in your great meals!

Conclusion 

If you're looking forward to optimizing your personal finances in 2015, you can get started right now. By using some or all of the financial tips and tricks discussed here, you will likely find yourself attaining the level of economic stability and freedom you've always wanted. Good luck!

Locking in Losses

We are in the last week of the Financial Year, here in India, and it is time for me to lock in any short term losses that I have incurred in my direct equity investments this year.  This is something that I routinely do at the end of the tax year, due to the way taxes are structured in India.  My goal is to lock in STCG (Short Term Capital Gain) losses, to either offset any STCG gains from this year, or from future years (since you can carry over STCG losses into the next year) Remember you cannot write-off STCG losses against salary income.  Also note that LTCG (Long Term Capital Gain) losses cannot be written off against STCG gains (They can be written off against LTCG gains, but then LTCG taxation on equity is NIL, so there is no real benefit)

I reviewed my direct equity portfolio today, and have identified STCG loss candidates, that I will sell over the course of this week.  I might buy some of them back (or similar stocks) in the first week of April, once the STCG losses are locked in this week.  Remember that this transaction cannot be intra-day since it needs to be on actual delivery basis.  This financial year, we had the awesome bull run in 2014, so i don't have any losses to show from stock purchases made during/prior to the bull run. However, things have slowed considerably in 2015, and YTD the stock market has been far from spectacular in its returns.  Most of my 2015 purchases are in the red, and need to be culled both from a portfolio quality perspective, and also from a STCG standpoint.

I only do this financial jugglery with direct stocks that I own, and not with any MF SIPs.  For example, several of my MF SIPs from earlier this year, are showing a notional loss at this time, since the market has retreated from its all time highs seen earlier this year.  However, I intend to hold on to these for the long term, during which time, (hopefully) they will have recovered the notional loss.  In my mind MFs are for long term, so there is no concept of short term sales/losses etc.

One final note is that you can only carry forward losses, if you file your tax return on time before the deadline this year.  I am sure we all do that, so it is just an FYI for the smart investor!

Building Wealth One SIP at a time

The bulk of my financial investments are in equity markets, since I believe that is the best way to create and build wealth.  However, I suck at picking stocks, since I have little formal education in how to analyze companies, balance sheets, and business models.  Instead I rely on Mutual Funds to do all the hard work for me, and pick the right stocks.  

The cornerstone of my MF investment strategy has been HDFC PRUDENCE fund.  This is a hybrid or balanced fund, that invests upto 70% of its assets in equities and the remaining 30% in debt instruments.  You can look up websites like valueresearchonline.com to analyze fund performance, stock holdings, etc.  The bulk of the wealth creation for me over the last 10 years has been through HDFC PRUDENCE.

If you go by the SIP return calculator at valueresearch a 10 year SIP from March 2005, to Feb 2015, of Rs 1000 per month, would result in a current value of Rs 3,17,278.  In 10 years of monthly SIP you would have invested Rs 1,20,000, meaning in absolute terms your money would have multiplied 2.64 times.  The annual percentage return for this period would have to be calculated using the IRR method, and as per the website, the annual return has been 18.33%.  This is a phenomenal rate of return by any means and certainly well appreciated by investors like myself!

Over a 20 year SIP in HDFC PRUDENCE (wish I had the foresight to invest in the equity markets for 2 decades!) from March 1995, to Feb 2015 at Rs 1000 per month, you would have invested a total of Rs 2,40,000 and amassed a fortune worth Rs 35,16,307 today, which is an astonishing  14.6 times your invested amount, at a yearly return of 22.81%  

Now isnt that something to think about!  A simple SIP of Rs 1000, can result in massive wealth creation if invested in the right MF, and for the right period of time.  The moral of the story here is that for long term wealth creation, like for retirement, the only way to go is through MF investments for the layman investor.

Inflation : Cost Inflation Index

Inflation is a well known "Retirement Killer".  Long term goals like Retirement, Children's Education, Children's Marriage, etc are highly susceptible to the ravages of inflation, since the long term nature allows for massive compounding of the ill effects of high inflation.

Cost Inflation Index is the fancy term that the Indian Income Tax Service uses to quantitatively measure inflation.  This is a reasonably good measure of inflation, since the Indian government effectively chooses to waive any taxes if your investment is growing in line with the CII.  There are many websites you can read up to understand how CII works.  In effect it says that if your investment grew at the same pace as CII, you will not owe any taxes on the growth, since the Indian government acknowledges that your "growth" is only notional and not real.  

So I consider CII as a pretty darned good lower limit for inflation indexed returns.  Your investments have to grow faster than atleast the CII to be able to keep up with inflation.  If they grow slower than the CII, then even the Income Tax Dept believes that you have not made any real money, and you will owe no tax on that investment growth!

Here is how the CII has progressed over the last ~35 years.  The solid blue line in the graph below represents the CII which is referenced to 100 in 1981-1982 (The CII is reported for each Financial Year, which corresponds to 2 consecutive calendar years: from Apr1 of the current year to Mar31 of the next year)

I have next done a curve fit to the CII, using a CAGR of 7.3% represented by the dotted red line in the graph.  The curve fit is pretty decent, which shows that on average, your money can grow at 7.3% per year, and still be considered tax free (as long the tax code allows for inflation indexation)

7.3% might sound like a small number, but when compounded over multiple years, it can make a serious dent in the value of your investment.  Consider a period of 20 years from 1996 to 2015.  In 20 years the CII went up from 281 to 1024 which is about 3.65 times.  So if you had invested say 20 Lakhs in a flat in 1996, the flat better be worth atleast 20 x 3.65 = 73 Lakhs today to stay abreast of inflation as defined by the taxman!  

With the rapid growth in real estate values over the last couple of decades, hopefully your real estate investments have grown manifold in value, and not just by 3.65 times.  This same principle can be applied to any other investment that you are trying to benchmark.  If you had put money into debt instruments, hopefully the value of the debt instruments has grown faster than 3.65X in 2 decades, else in reality you have lost money!

Like I mentioned in the article before, I believe CII is more like the lower bound to inflation indexed returns.  In reality inflation runs hotter than represented by CII, and hence you actually have to beat CII by quite a margin (upto 2% points) to really create wealth.

Role Models : Financial Samurai

Here is a kindred spirit who blogs about his successful Early Retirement Journey.  The blog is called Financial Samurai and it covers Sam's journey from the financial industry into financial independence, and eventually early retirement.  

The blog again is focused on a US based retirement model, since the author is US based.  However, I still find several of the thoughts and strategy (if not actual tactics) to be relevant in the Indian context.  

It does sound like Sam derives some post-retirement income through work on his website, and royalties from a book that he has written.  However, for all practical purposes he is retired.

Read on, and derive encouragement from his story.  You are not alone!

Emerging Market Infrastructure

Infrastructure in Emerging Market

On-going rebalancing in global economic power has given rise to unprecedented involvement in investment plans in infrastructure in the emerging markets. Though there are common drivers on infrastructure increase in emerging markets like the requirement of added infrastructure together with goals of sustaining the economic growth and managing the fast growing urbanisation, there is a vast difference in the environment and the challenges faced. While engaging in these opportunities, engineering and construction operations, infrastructure management companies, private materials and financial firms need to consider on –

• Who could be the right local and global infrastructure partners?

• What would be the differences in infrastructure in funding structures?

• How would the bid occur for mega projects?

• Are there any demands for green infrastructure?


For instance, as per PwC and Oxford Economics’ Capital Project and Infrastructure spending outlook to 2025 report, the Asian Pacific market, due to China’s growth is expected to represent around sixty percent by 2025 of the global infrastructure spending while Western Europe’s share is expected to decrease to less than 10% twice as from the last few years back. Infrastructure is defined in various emerging markets with provision to insights on goals, risks and opportunities, challenges that are connected with infrastructure developments in those markets, in PwC’s Emerging Markets Infrastructure Series.

Urbanization – Trend in Emerging Market 

Urbanization is the only trend in the emerging market which means that infrastructure needs to keep up with the pace. As the income tends to rise in several countries, there is a need to indulge in the purchase of cars and roads would tend to be used with the need to have new ones built.

 According to Magee, `in developing markets, private sectors tend to play an important role financially in roads, telecom and power plants and water as well as waste water investment would be critical. Water related companies tend to have a small part of infrastructure universe though are expected to become much more significant going ahead while in Europe, they are in the early stage of transforming power generation from coal. Germany on the other hand needs to make some headway since their nuclear power plant are closing, while China will have to gradually move away from coal incorporating cleaner energy sources from power generation’.

Country Risk/Infrastructure Risk

Emerging markets are about country risk while infrastructure risk is about not taking risk though in the case of infrastructure asset sector, there are provisions of investment and growth and the emerging markets are avenues where there is a great demand for infrastructure capital. Emerging market infrastructure investment does not have to carry the full country risk of the host nation. Sovereign risk is often under the coverage of sovereign risk insurance which is purchased in the commercial market or provided by International Financial Institute – IFI, like the World Bank or any other related global institution.

The net return on sovereign risk after the insurance premiums will exhaust the yield on the credit of the surety provider and when combined with structured project risk, on properly evaded investment, the net return would not probably reach 30% though it could almost reach 20% which according to an asset-based uncorrelated investment could be quite good. Those on the lookout for yield, emerging market infrastructure investment could be part of the solution and for those with global diversification; real assets could be another option to the various listed securities.

How to Automate Savings with BPI Online

Savings and investments should be the priority as soon as paycheck/income is received. Remember to "pay yourself first." The payoff that you get from hard work should be reinvested else it will just be gone. But the main struggle is how to make savings spontaneous and less painful. Good thing it can be automated with BPI's scheduled funds transfer.

How to Schedule Your Savings or Funds Transfer

1. Login to BPI with your UserID and Password.

2. Hover to Funds Transfer then Scheduled Funds Transfer

3. Click Schedule Funds Transfer

4. Fill up the form completely.

a. Indicate the amount to transfer.

b. Select the source account where funds will be taken.

c. Select the account to transfer. When using a PC, you will need to register the BPI account first.

          c.1 If it is your own account, there is no need.

        c.2. If it is another person's BPI account, you need to register by going to any BPI branch.

d. You have the option to select either a one-time transfer or a recurring transfer.

         d.1 Tick One-time Transfer if it is only for 1 month or

     d.2 Tick  Recurring Transfers for several months (obviously, we want this)

e. Select the Mode of transfer

         e.1 Tick Monthly and input how many months you want (min=2, max=12)

      e.2 Tick Quarterly if you want to save every 3 months (min=2, max=4)

f. Select the Start Date (recommended: on the next 15th or 30th so that you can save immediately as soon as you have your salary)

g. On the Alert Options, tick "Alert me by email..." if you want to receive a notification before the scheduled transfer. Else, tick Do Not Alert Me if you don't want any (I suggest you select Do not Alert because notifications are messy and you want this to be automatic so notifications are nonsense)

h. Click Submit and you are done! 

How to View, Edit and Delete Your Scheduled Funds Transfer

1. Hover to Funds Transfer then Scheduled Funds Transfer

2. Click View Scheduled Transfers

3. Select the source account of the scheduled transfer

4. Now you can see the scheduled funds transfer(s)

5. Tick the scheduled transfer and click Cancel (to stop this transfer), Edit (change amount, schedule, etc) or Reset  (to untick)

Conclusion

With the help of technology, we can save money effortlessly, spontaneously and passively without lifting a finger. Computers and gadgets can do more than we think and we should put it to work for our advantage. I will be posting more on automation on my next blog posts. Happy saving!

Retire Early : Why?

I occasionally get asked by my readers, Why I want to Retire Early? What is the hurry?  Why the rush?  Why would anyone want to retire early at all?  In my mind it is rather clear and actually obvious why I want to quit the rat race as soon as possible.  It makes perfect sense to me, why I would want to stop working on a regular basis, and spend my time as I deem fit.  However, I have never written a blog entry clearly articulating my reasons for wanting to quit the corporate rat race once and for all.  Recently a reader chimed in with the following: Why should some one retire early if you like the job earn enough, spend wisely and work without any pressure for 35-40 years? I was about to start typing up a furious reply to what I thought was a rather silly question, when I came upon this recent announcement from the Google CFO Patrick Pichette.  On March 11, 2015, Patrick decided to quit his high flying, lucrative CFO job at Google, arguably the best company in the world to work for, and retire for good.  I read through his retirement memo, and realized that he had written from his heart while explaining his difficult decision.  Read on to understand more about why Patrick took this drastic step.

Here I have reproduced Patrick's public retirement memo, explaining the thought process that led to his rather surprising decision.  The open letter is reproduced below from this link:

After nearly 7 years as CFO, I will be retiring from Google to spend more time with my family.  Yeah, I know you've heard that line before.  We give a lot to our jobs.  I certainly did.  And while I am not looking for sympathy, I want to share my thought process because so many people struggle to strike the right balance between work and personal life.

This story starts last fall. A very early morning last September, after a whole night of climbing, looking at the sunrise on top of Africa - Mt Kilimanjaro. Tamar (my wife) and I were not only enjoying the summit, but on such a clear day, we could see in the distance, the vast plain of the Serengeti at our feet, and with it the calling of all the potential adventures Africa has to offer. (see exhibit #1 - Tamar and I on Kili).

And Tamar out of the blue said "Hey, why don't we just keep on going". Let's explore Africa, and then turn east to make our way to India, it's just next door, and we're here already. Then, we keep going; the Himalayas, Everest, go to Bali, the Great Barrier Reef... Antarctica, let's go see Antarctica!?" Little did she know, she was tempting fate.

I remember telling Tamar a typical prudent CFO type response- I would love to keep going, but we have to go back. It's not time yet, There is still so much to do at Google, with my career, so many people counting on me/us - Boards, Non Profits, etc

But then she asked the killer question: So when is it going to be time? Our time? My time? The questions just hung there in the cold morning African air. 

A few weeks later, I was happy back at work, but could not shake away THE question: When is it time for us to just keep going? And so began a reflection on my/our life. Through numerous hours of cycling last fall (my introvert happy place) I concluded on a few simple and self-evident truths:

First, The kids are gone.  Two are in college, one graduated and in a start-up in Africa. Beautiful young adults we are very proud of. Tamar honestly deserves most of the credit here. She has done a marvelous job. Simply marvelous. But the reality is that for Tamar and I, there will be no more Cheerios encrusted minivan, night watch because of ear infections, ice hockey rinks at 6:00am. Nobody is waiting for us/needing us. 

Second, I am completing this summer 25-30 years of nearly non-stop work (depending on how you wish to cut the data). And being member of FWIO, the noble Fraternity of Worldwide Insecure Over-achievers, it has been a whirlwind of truly amazing experiences. But as I count it now, it has also been a frenetic pace for about 1500 weeks now. Always on - even when I was not supposed to be. Especially when I was not supposed to be. And am guilty as charged - I love my job (still do), my colleagues, my friends, the opportunities to lead and change the world.

Third, this summer, Tamar and I will be celebrating our 25th anniversary. When our kids are asked by their friends about the success of the longevity of our marriage, they simply joke that Tamar and I have spent so little time together that "it's really too early to tell" if our marriage will in fact succeed. 
If they could only know how many great memories we already have together. How many will you say? How long do you have? But one thing is for sure, I want more. And she deserves more. Lots more.

Allow me to spare you the rest of the truths. But the short answer is simply that I could not find a good argument to tell Tamar we should wait any longer for us to grab our backpacks and hit the road - celebrate our last 25 years together by turning the page and enjoy a perfectly fine mid life crisis full of bliss and beauty, and leave the door open to serendipity for our next leadership opportunities, once our long list of travels and adventures is exhausted.

Working at Google is a privilege, nothing less. I have worked with the best of the best, and know that I am leaving Google in great hands. I have made so many friends at Google it's not funny. Larry, Sergey, Eric, thank you for friendship. I am forever grateful for letting me be me, for your trust, your warmth, your support, and for so much laughter through good and not so good times.

To be clear, I am still here. I wish to transition over the coming months but only after we have found a new Google CFO and help him/her through an orderly transition, which will take some time. 

In the end, life is wonderful, but nonetheless a series of trade offs, especially between business/professional endeavours and family/community. And thankfully, I feel I’m at a point in my life where I no longer have to have to make such tough choices anymore. And for that I am truly grateful. Carpe Diem.

Well if you made it so far through the letter, you will clearly see that Patrick means every word of what he has written.  Though he clearly loves his job and the responsibility that comes with it, the grind of being "Always On" is something that he is no longer willing to put either himself or his wife through.  

I will rest my case here for this post.  While Patrick had his "aa-ha" moment at the peak of Mount Kilimanjaro admiring the beautiful sunrise, I had mine much earlier in a more mundane setting, in front of my computer screen in the small cube in my office 8 years ago.  The circumstances are clearly different, but the conclusion is the same.  Retire Early! and (in the words of Patrick and Horace before him) Carpe Diem! 

The Rise Of The Robo-Advisor

Come with me if you want to be financially well-off says Robo Advisor

When I was young, I had an affinity with zodiacs. It faded as I grew up, but upon entering college, I found psychology very interesting. I think zodiacs and psychology have something in common because both act as a gateway to understanding myself as a person. Early in life, I needed zodiacs to tell me I was a certain kind of person. Later in life, I still didn't know who I was and was looking to comfort myself and I thought maybe psychology would give me the ability to understand myself.

For many aspects of life, we might need to understand ourselves and hence gain a sense of control.With technological advancements though, some may be eliminated such as the case for driving with the advancements in the self-driving cars. Giving up control is hard, but under certain circumstances, everyone can learn to let go and it helps when a computer does the driving for you.

With money, there are certain things that can be automated because we have too many weaknesses that makes us go against our very own interest. We are our own enemy. That's where robo-advisors come in. The robo-advisors will advise (and some act) in our own best interest. Take it a step further by also acting like a robot through automating actions to stay on track toward goals.

And Allah wants to lighten for you [your difficulties]; and mankind was created weak.

4. Surat An-Nisā' (The Women; 28)

 
Some of the awesome technological advance in money management are Simple Bank, Personal Capital, and Riskalyze. There are plenty and things will be much more easier for future generations. The future is bright...

Dedicated Card and Payment Crime Unit

DCPCU – Protect Security of Card Payment

The function of UK Cards Association is to protect the security of card payments system with focus on tackling organised criminal activity. In order to accomplish this, the UK Cards Association, funds a specialist policing team known as the Dedicated Card and Payment Crime Unit – DCPCU to identify organised payments fraud. The Dedicated Card and Payment Crime Unit, a special police unit comprises of police officers who have been appointed from the City of London Police as well as the Metropolitan Police Services who operate together with industry fraud investigators.

Their focus lies in identifying and targeting the organised criminal gangs which are responsible in attacking the payment industry. The Unit was established in April 2002 and is fully sponsored by the card and retail banking industries which was created due to the rising growth in payment card crime during 1999 and 2001. From the time of its establishment, the banking industry has been put in an investment of around £4 million per year for the operation of the Unit.

Experts have attributed to the growing incidents of organised crime in the area and the lack of dedicated police investigatory. The main purpose of the DCPCU is to identify, check and seek appropriate prosecution of offenders who have been responsible for organised cheque and payment card crimes.

Organised Criminal Gangs - Targeted

It is headed by a Detective Chief Inspector who brings together the officers as well as civilian staff from the City of London Police and Metropolitan Police forces. Moreover, expertise and payments industry knowledge is also given by industry secondees. Though it is a London based unit, investigations are nationwidewhere the organised criminal gangs responsible for payment related fraud are targeted. Some of its achievement since its formation is –

• Achievement of £450 million in the form of saving from reduce fraud activity equating to £800,000 weekly
• Recovery of around 700,000 counterfeit card
• Recovery of 346,000 compromised card numbers
• Secured 346 convictions on matters related to fraud, which is an average of more than one successful prosecution per fortnight over the past decade.

Areas of Priority 

The impact on a wider perspective is the link to organised and serious crimes. The Unit’s investigation has established that a significant proportion of fraud has been committed by these criminal gangs, having strong links to other kinds of serious crimes, which also includes people, drugs, and trafficking as well as violent crimes. The Unit has also been responsible in providing key fraud prevention messages to the people such as with the help of television and radio work as well as through direct meeting with groups that represent consumers who could be at high risk. The Unit’s priority areas are:

• Project Sandpiper – The Unit secured European Commission funding in 2013 which was funded by UK Cards Association and PFF in order to finance the project focused in tackling Romanian criminality that affected the UK payment industry. This involved connecting with the UK payments industry as well as law enforcement individuals in Romania in tackling its organised criminal groups.
• Staff Insider – Work with banks that sponsored to reduce harm caused by dishonest staff and targeting organised criminal groups.
• Social Engineering – Telephone – To locate criminal groups responsible in fast rising fraud cases who are aiming vulnerable individuals as well as businesses causing great harm to the UK payment industry.

Right of Rescission/Right to Cancel

Image credit:Homeowner today.com

Right to Rescission – A Known Power/Law

A person has the privilege by law, with the right to cancel a mortgage refinance or home equity loan if they tend to act quickly and adhere to the rules. A known power or the law known as the `right to rescission provides the borrower with the ability in some situations, the right to cancel their loan deals within a period of three days with no questions asked and be free.

 In other words it could mean as another way of saying `right to rescind’ or `cancel’a given contract without losing any money. Within a period of 20 days, the lender then has to give up its claim to the property as collateral and should refund the fees which may have been paid by the borrower. According to Margot Saunders, counsel or the National Consumer Law Centre, states that it has been designed with a view to provide lenders with accurate disclosures and that consumers do not sign up for loans which are different than what could have been described to them.

This right is intended to safeguard the consumer from the risk of using family home or the equity in order to secure a loan and is not applicable in situations where the mortgage is made to buy the house itself. Nessa Feddis, Vice President and Senior Counsel to American Bankers Association, states that it is not to protect the (home) purchaser but to protect the person having equity in the home.

Covers Mortgages – Companies/Banks Etc.

Categories where the right of rescission are applicable are – home equity loan which is often known as second mortgage, mortgage refinance – if the new loan does not come from the same lender which had financed the original home purchase loan, home equity line of credit, cash-out refinance – irrespective of whether it is a new loan that comes from the same lender who had made the original home purchase loan though only the new money is covered by the right of rescission. According to Saunders, it does not matter what kind of lenders the money is borrowed from and the right of rescission covers loans from mortgage companies, banks as well as other lenders.

No exclamation is essential in the case of cancellation of the transaction within a three days’ time, as per Carole Reynolds, Senior Attorney with the Federal Trade Commission and the fact that the said loan is not needed is sufficient enough for an exclamation.

The Truth in Lending Act

The law - `The Truth in Lending Act’ was for the purpose of shielding borrowers from unscrupulous lenders with the right of rescission and was intended to oppose smooth talking lenders intending to fleece borrowers out of their money and their homes. Some of the borrowers may be under the wrong impression that there is a right of rescission with all types of mortgages which is not so.

Since state and local statutes differ, the federal right of rescission is specific which is mentioned in the Truth in Lending Act. Saunders state that there is no right of rescission for the purchase money mortgages and some of these categories with regards to the right of rescission which is not applicable are –loans made to purchase a house, any loans either 1st or 2nd mortgages, refinancing mortgages, etc., which involve properties which are not the primary residence and business loans.

Common mistakes of employees during payday



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I am an employee for the last 6 yrs in my life and I notice that these are the bad habits that makes an employee have a weak savings account. Seeing the pattern is like getting out from the rat race.

1.Not paying yourself  first regardless of the SALARY amount.

- Every cut off I made sure that I put money to my savings and mutual funds. Why, because I want to afford the future. Paying myself first will give me a satisfaction. It is hard to build that in the first place specially if you don't have discipline. But knowing that I can help the needy with my extra cash, use the excess funds to support my friends Mission trips abroad in spreading the gospel and lastly afford the future of my daughter will give me a lovely future. The question is can you afford the future?

2.Thinking about what to spend immediately.

- In our culture as Filipino we are so hyped up with the idea of consumerism. All super malls and well known boutiques or brands are here in the Philippines. They know how to feed our eyes! Marketing strategist were able to identify the behavior of every consumers that's why massive sale also happens during the 15th and 30th of every month. You know why? Because they are aware when your money is available. Sad to say we keep on getting to their bait and most of the time we are experiencing the pecha de peligro.

3.Giving TOO MUCH to your parents/relative.

- There's nothing wrong in giving but in reality most of us are in a sandwich generation. The reason behind it were very simple. You have an aging parents but since they don't have sufficient amount of money at their age right now you need to support almost all the things they need now so that they can live while you are starting a family. Leaving you CASHLESS and savings less. Fast forward during your retirement age your kids will also suffer since you weren't able to work on your finances while you are still working. Simple but it makes a lot of sense.

4.Not having a clear goal or visions.

- You are a restless  wanderer if you don't have directions in life. You got goals in your health and your career but you don't have any clear visions what to do with your money? I find that very odd. You need to go back to basics such as asking yourself. When do I want to be a millionaire? Where to invest in stocks?Where to retire at the age of 45? Can I afford the tuition fee of my son/daughter with my current salary now? Developing that kind of system will surely answer your current problem. I recommend you to take time to know where you at now.

5.Don't have a good budget structure.

We normally do mental accounting upon receiving our salary and it is really fascinating  we just spend as much as possible. After 2-3 days some of us already feel that they need to file bankruptcy due to poor spending habits. Once you feel that pain in spending, have you ever tell yourself that
you won't do it again then after the next cut off you see yourself doing the same bad habits? Once you study yourself start making small changes. Soon you will see the difference.

David Isaiah Angway is a Financial Evangelist