The Year 2008 has started. For every start of the year marks new beginnings. Those who had done well in Year 2007 (i.e. achieving whatever what they wanted to achieve) ought to congratulate themselves but it is also important to set out to new goals. On the other hand, those who did not do well in Year 2007 should not be discouraged. The Year 2008 has been given to you to try again. The New Year means new hope, a second chance (or your Nth chance?) and so go. These are some food for thought in Year 2008 that is related to financial matters:

1. The Singapore economy grew by 7.5 per cent in year 2007. Congratulation Singapore! However, a closer look at the figure revealed that the economy actually slowed down in the final quarter of the year. Economists calculated that the final quarter growth was around 6.4% y-o-y compared with the 8% growth in the first 9 months (Source: “Fourth-quarter growth slower than expected”, ST 1 Jan 2008). Since latest quarter growth is more important then quarters further away and that the forecast growth for 2008 is between 4.5% to 6.5% (i.e. lower), it will do well for everybody not to be too complacent with their jobs. Suggested goals for this year: (A) Focus on doing well in your job, looking for opportunities to learn key skills that will help you in employability. Have a niche skill set that is difficult to replicate so that employers will employ you rather then the other person. (B) Grow your depth by staying in that same job rather then job-hop. 
2. Government will focus on healthcare cost to ensure it remains affordable for all. “This calls for means testing. We already have means testing in nursing homes, and should now implement it for hospitals too” said PM Lee (Source: “PM sets 2008 agenda in 3 areas” ST 1 Jan 2008). Suggested goal: Many people are not “poor” per se. The writings are all on the walls that subsidies at government hospitals will be or already has been reduced for certain groups. Ensure a comprehensive medical insurance is in placed for your family as that is the only way to cope with the reduced subsidies.
3. Inflation is rising. Currently it is 4.2 % in Nov 2007. Apparently this is a 25-year high. Will this trend continue? Or is it just temporary? What have not really moved much are the interest rates at our saving account that seem to be at artificially low levels. After netting off inflation, the money in the saving accounts and fixed deposits are being depleted in purchasing power. So who says saving accounts and fixed deposits are safe? A return that is showing losses cannot be “safe”! Suggested goal: Consider setting up an investment plan to get a potentially higher return.
4. Tax planning for the job-hoppers. After getting that year end bonus, many people would start looking for greener pastures. Normally, greener pastures come with greater remuneration. Congratulations if you are moving on! Now it is time to do some tax planning because that higher salary means greater tax to pay. It is good to pay lots of income tax since it implies larger salaries. However, it is absolutely easy to enjoy tax relief via SRS. Currently SRS cap is at $11,475. Yet most people are reluctant to contribute because of the hesitation to part with a lump sum.  Suggestion: Don’t wait till end of the year to contribute – you’ll never do it. Instead, split the amount in 4 installments contributing it quarterly. In this way there is less of a hesitation to part with a smaller amount. Let the first quarter installment be today. Invest that SRS since it is meant for long-term. Do not let it be eroded by inflation.
5. Take a greater look at your investment portfolios. Last year, a globally diversified portfolio would not have delivered much return. The MSCI World Free Net delivered 2.47% in SGD (after cost it will be worst). Some says that this world index has more then 50% in North America which is not the usual global portfolio people invest. Fine, if we look at MSCI EAFE Net, the growth was 4.47% in SGD. Not fantastic either. In fact, considering the risk, I say the return was lousy! (The EAFE is an index tracking developed economies outside North America.) Nevertheless there are many who had double digit growths in their portfolio if they had employed “gambling-style” portfolio. In year 2007, the best equities to be in was in Hong Kong, India, Brazil, China, Philippians, Indonesia – you got the picture. The returns were found in places which has high concentration in risk. In the 31 Dec 2007 of “The Edge,” 4 IFAs were interviewed. Common suggested funds to be in for year 2008 are: MENA (Middle East, North Africa) and Commodities. Others include India, Eastern Europe, etc. This looks consistent with the interviews with 7 “investment gurus” whose favorites include MENA, Commodities and emerging markets. Thus, it looks to me that the consensus for Year 2008 will be a repeat of Year 2007 (if all goes well) that returns are found in extremely high risk places. So what should investor do? I prefer to step back to take a look at higher level picture. It appears that stable and developed nations are no longer attractive (according to the interviewed experts). Examples: USA, Europe (which consists of many individual economies) and Japan (which has always not so attractive anyway). Seem to me that investors need to move up the risk ladder to obtain returns. I say that this is not a wise move. This is what I call a risk chasing mentality. This is so similar to the dot.com days which saw people chasing after the risk ladder after which it becomes a common knowledge that most people suffered 90% losses in their funds (nevermind they might have gain 200% beforehand: (1+200%) x (1-90%)-1 = -70%. This means they still lose 70% despite the initial windfall). The implication of chasing up the risk ladder has a significant impact to a person. The risk of losing almost the entire person’s capital may mean that such a person may never ever invest again. This can mean good bye to that retirement funding or that children’s education. It could mean the necessity to postpone retirement indefinitely since all money will end up in that saving account having guaranteed losses net of inflation because such a person who had such bad experience in investing becomes extremely risk adverse. In fact, I know of such a person who because had lost more then $200K in shares that he had remained bearish for more then half the past decade (ironically, the past half a decade was a bull run!) due to having that bad experience.