How to See the Future: All about Asset classes and the economic cycle!

Where do you park your money? Do you shift your investments during booms, recessions and slowdowns?

If you just own cash (and your CPF), that’s alright. Savings accounts may grow slowly, but they’re one of the safest investments to keep your earnings safe from market fluctuations.

However, inflation risks the erosion of your savings over time, if it grows faster than the interest rate of your bank account.

Whether you only keep savings or already deep-dive into risky stonks, you’re already making a decision about the best place to park your money!

But did you choose the best parking lot?

These parking spaces for your money are known as Asset Classes, and there are about 7 of them:

  • Cash (Savings accounts, hard cash)
  • Stocks / Equities / Shares (Includes ETFs and Index funds)
  • Commodities (Gold, Crude oil, Wheat, Live Cattle)
  • Real Estate (REITs, property, dat HDB)
  • Fixed Income (Bonds, Fixed Deposits, CPF)
  • Cryptocurrencies (Not a stock hor! Crypto is poorly correlated to other asset classes, and given the diverse sub-categories within crypto, I think it’s fair to give them a class of their own.)
  • Investing in yourself (kidding) (not really) (do it)

People shift their dough between asset classes all the time.

In economic recessions, safe slowmoving assets like cash and fixed deposits make more sense. In optimistic booms, you would wish that your money was in stonky stocks for higher growth.

Recognising where we are in the economic cycle can help you predict the future.

wooOOoOoo

Put less magically, you’ll be able to recognise the best times to shift your money from one family of assets to another.

Like a farmer waiting for ripe spring soils before planting, it helps to know the seasons!

The economic cycle has four stages: Expansion, Slowdown, Recession, Recovery.

Many things affect this cycle! Consumer optimism, changing interest rates and government policies influence how much money people are willing to fling out there, and how much they want to keep in their pockets.

Here is how most investors rotate assets in each part of the cycle:

Recovery -> Expansion

Right after a recession, optimism starts to rise and interest rates are decreasing. people are willing to borrow and invest. Industries like tourism, retail, automobiles and technology start to accumulate demand. ETFs are a very popular way to take advantage of the higher return rate of equities while spreading your risk exposure in these high times. When it becomes clear that governments will raise their interest rates, this is the best time to sell bonds and increase exposure to inflation-sensitive commodities and real estate.

Expansion -> Slowdown

While business continues to do well, fears of a pending crash and all-time-high interest rates (aka governments trying to encourage less spending and inflation) often result in a sector rotation within stocks to safer, blue-chip dividend growth stocks (think Pepsico, 3M, P&G). As the expansion slows, it’s a good time to collect your earnings from past optimism and growth by selling higher-risk stocks, equities and shares at their all-time-highs and accumulating cash and fixed deposits before the next recession.

It’s hard to predict when the economy is in a slowdown or still in expansion. In times of doubt and uncertainty, Gold is a popular hedge which may still be volatile but never go to zero.

Slowdown -> Recession

If you’ve allocated your assets well, this is you in a recession!

Source: KC Green

When the market crashes, business optimism takes a hit and investment sell-offs trigger massive drops across the economy.

Schoolkids remain blur, generally insulated, and quite happy.

In a recession, pretty much all asset classes decline. Whatever the cause, crashes are often sudden! Here, the art of moneyparking becomes more about losing less than seeking growth. Once it’s clear that an economy is in decline, goverments reduce interest rates to ease the drop, making bonds and fixed assets more attractive investments to buy.

Recession -> Recovery

At the very bottom of the recession, it is a great time to buy resilient stocks which you think will last through the recession and return again (just like SG Airlines in the heart of COVID last year…) As the mothers say, “This one is by the government … won’t fail.”

Well, your mileage may vary. Source: Google

This is the part of the market where you “Be fearful when others are greedy. Be greedy when others are fearful.” (quote by Britney Spears)

Sentiment around the very bottom of a recession is awful – people are pessimistic, companies are doing very badly, and it can often slip one’s mind to tackle the market with an aggressive, optimistic portfolio. But that is the best time. Stocks perform best over the long term, and depending on your risk tolerance and needs, having some cash around to invest more during recessions can help you emerge with a better outcome.

Using the Economic Cycle for decisions

Knowing how money flows cyclically can help you in other choices too!

For example, if you were deciding whether to buy or rent a home, and wanted to know if real estate would be a better investment than having spare cash for stocks from renting your house, you might want to look at how the real estate market has historically reacted around big crunches like COVID!

savills singapore - EDGEPROP SINGAPORE

In fact if you took the remaining, er, $2000-3000 of cash you had and grew it at a faster rate than the property market, you might end up with more value than if you bought a property!

With new eyes, you see your cash and property as two different types of investments, subject to the economic cycle in different ways.

I hope this helps you see the variety of assets out there, and how they respond to the market!

There is much more to uncover, like the different types of crypto, how to tell which part of the cycle we’re in, and more! For another time šŸ™‚

You can let me know your feedback in the comments, Iā€™d love to hear suggestions to make these posts more useful.

Happy planning, cheers.

Singapore Stock Clock V2

I thought the original one needed tweaking.

Plonked it on a big canvas for croppability as a phone wallpaper!

Is it better or worse? Tell me what you think!

You can download the png here:

The Lifetime Savings Calculator: Which kopi will save you $10,000 at 35?

I love iced black coffee! (sans the sugar.)

Living a short walk from the local shopping mall and hawker centre, my mornings could involve a kopi o kosong peng or an iced americano. Sometimes I grind & press coffee beans at home, so… aiyoh, daily trilemma. But alas, variety is the spice of life.

Being a me, I had to list the options.

  • Kopi O Kosong Peng: $1.40
  • Kopi O Kosong Peng (Marked up): $3.00
  • Iced Americano: $5.00
  • Cold Brew: $5.80
  • Homemade: $2.00

Note on the Homemade: This will depend on your beans; I use 35g of beans a cup, so a 250g bag at $14 = seven cups at $1.96 each.

Look at the difference between an americano ($5) and kopi o kosong peng – you could be saving $3.60 a day!

What would this mean in a year? Or 5 years?

The answer is complicated – interest rates, inflation and options to invest need consideration.

Luckily for you,

Excel kung fu strong.

So before we get into the sheet [free download at the end of this post] let me unpack these basics:

Interest Rates

For money saved in the bank, interest rates determine how much your saved money grows over time, or the amount that banks pay you to keep your money in their account. They would then use your money to lend borrowers and charge them that interest.

Moneysmart’s already compiled a nice, updated list of Singapore interest rates to refer to, but for the sake of this post I’ll assume a value of 1%. This means my saved money today would grow by 1% per annum over the years.

Inflation Rates

Eroder of savings. Eater of worlds. Inflation is probably the number 1 reason to invest your money, and also why my iced kopi costs $1.40 instead of $0.90 like it used to back in school.

Inflation is the rate of increase of prices of stuff (goods and services la) over time. Inflation has many causes – higher costs of stuff-production, higher wages of stuff-makers (shame on your payraise), higher demand for stuff (e.g. when people in developing citiers can afford higher standards of living) and government policies are the usual suspects.

What’s Singapore’s inflation rate? Most sources use the Consumer Price Index (CPI), which tracks the change in price of commonly purchased goods and services, including housing and transportation.

For this post, however, I’ll be using the MAS Core Inflation, which excludes fluctuations in housing and transport. More info here!

Source: mti.gov.sg

To be a little conservative, let’s go with a fixed inflation rate of 2% per annum.

Investment

A popular topic – this could bloat up a post real quick. However, it’ll be good to illustrate just what can happen without investment, so I’m going to assume an investment growth rate of 0%. Keke.

Here we go.

Savings between Iced Americano ($5.00) to Kopi O Kosong peng ($1.40) = $3.60

Saving $3.60 a day means $1,310 a year! That may not look like much, and indeed $1,310 saved in the bank (earning interest) will only have the spending power of $1,221 in 7 years.

Summing up the accumulated years of savings, 7 years of disciplined cheap coffee drinking would result in an extra $10,124 in my bank account.

If I invested those savings, say, in CPF top-ups with a guaranteed rate of 4%…

$1,310 saved this year would no longer be worth less next year, but more. Specifically, the growth percentage would look like this:

Growth of Savings = Interest Rate – Inflation + Investment Growth

= 1% – 2% + 4%

= 2%

Measly. But much better than the -1% you would be “earning” if you let your money lose to inflation in the bank.

I hope you enjoyed this breakdown of savings – let me know if there’s any

-Improvements I can make

-Clear explanations you’d like for certain pointers

-Other stuff you think I missed out

I’d love to hear them! You can post in the comments if you like.

Download of the sheet used above:

Have fun!

P.S. If you want updates on these posts, let me know by subscribing below. Cheersies.

Singapore Stock Clock: A Quick Way to Track International Stock Market Timings

I invest in stocks from time to time. (I started off with the SAXO Trader platform, which has been convenient so far.) (Chill, they’re not a sponsor.) (Yet.) (Plz.)

In the wake of this downturn, I habitually check out the US stocks every night at 9.30pm when the NASDAQ/NYSE opens. I do this to keep a more watchful eye on opportunities and potential losses.

As I trade in many countries’ exchanges, keeping track of each timezone’s stock exchanges gets tiring. The list on tradinghours.com was a helpful reference, but I thought a single, unifying graphic would be easier to grasp the different timezones intuitively.

Check it out:

Note: Pre-Open/Pre-Closing Hours are excluded. If you want those details, the following table is for you.

Just to condense things even further, I thought it would be helpful to make a 24-hour clock to summarise the trading hours in a single graphic:

Next Steps:

  • The clock is currently purely for the SG time zone (GMT+8). It should be pretty simple to make it easy for my source files to display relevant clock/clocks and tables for other time zones.
  • A brief explanation of Daylight Savings time!

I hope you like these graphics. Please lemme know if there’s

-Anything I missed out

-Any parts you want clear explanations on

-Any other ways to improve

You can post your feedback in the comments! I look forward to it šŸ™‚