Financial blogger Terry Chiu explains how can you make your money work as hard as you do
Making an investment in real estate – still also known to most people as buying somewhere to live – is a cherished aspiration of many Hongkongers. However, for someone in their early 30s, whose career is going well and who has managed to build up a decent nest egg, even the bottom rung of the property ladder can still seem frustratingly out of reach.
What goes up, though, must eventually come down, if only a little, mustn’t it?
With that hope in mind, we asked financial blogger Terry Chui for some investment advice for an early to mid-career professional with decent savings, but not currently sufficient to use as a deposit on a flat.
Chui thinks that bonds, rather than shares, could be a safer bet when it comes to growing savings and taking advantage of a downturn in property prices. Rather than make any recommendations, he’d prefer to point out the sort of options an investor has.
“One option is bonds – but not a straight ten-year bond. In Hong Kong there are shorter-term bonds available, such as those issued by [clothing retailer] IT. This company has a bond that matures in two years and gives a 9.3 per cent return.
“There are some disadvantages to this, though, such as the fact it is a renminbi bond. But if you put aside the issue of currency fluctuations between the renminbi and the US dollar, it is quite an attractive return for a two-year investment. I’m not recommending this product, but I just want to show that our investor still has some choice – a two- to three-year term bond giving a five to ten per cent return.”
A second option, he says, would be to invest in a bond mutual fund. “The disadvantage is the management fee – but on the positive side you would be investing in the aggregate of 30 to 50 straight bonds. This diversifies the risk and provides liquidity for the investor. This can give our investor an eight to ten per cent annual return with a dividend that is paid monthly.”
Chui says that the stock market, in general, is a riskier option for the non-professional investor who doesn’t have the necessary knowledge and experience.
“I’ve noticed that many young people in Hong Kong like to put all their savings in shares. In Hong Kong, though, the share market has fluctuated a lot in recent years. I’ve also seen some of them invest in derivatives, such as warrants – this is definitely not a good idea.”
How likely, though, is a drop in property prices that will allow our investor to enter the market? And will real estate still prove to be a secure home for their accumulated wealth?
“The atmosphere in the Hong Kong property market hasn’t been good recently and members of the government have said they are trying to push the market down. So, in the medium term – say, the coming few quarters – property prices may drop. But if you intend to hold on to [a property] for five to ten years, I still think buying a house is a good idea.”
Terry Chui has partnered with CP Learning, Classified Post’s training arm, to provide courses aimed at increasing financial education and knowledge of financial tools.
Course Name: Interest Rate 101
Dates: Nov 28 and Dec 5, 2015