Quora Answer: Which Commonly-Given Financial Advice is Misleading?

The following is my answer to a Quora question: “Which commonly-given financial advice is misleading?” 

One of the themes I find on my such answers is this idea that people can do without financial consultants.  Whilst I agree that there are a lot of less than competent financial consultants, that does not mean we can do without them.  Rather, it is important to find the right sort of financial consultant, and a good financial consultant. 

The rest of this answer is specific to Singapore, and how the market functions.  I understand that financial services consultancy does not work the same everywhere, and I am in no position to speak about other places.  In Singapore, the licensing requirements to be a registered financial consultant, and be on MAS’ Registrar of Certified Financial Advisors is very stringent.  Maintaining that license involves fulfilling certain hours in product knowledge, ethics, and changes to the law.  The passing mark for all these papers is at least 80%.  Additionally, there is a Balanced Scorecard Framework to ensure there is no lapse in these standards.  The highest penalty is the loss of license and jail, in addition to fines and penalties. 

That aside, we must understand that financial consultants, whether representing banks, insurers or other financial institutions, specialise.  This is also reflected in their license.  It is, thus, important to find the right sort of financial consultant.  A financial consultant who knows hospitalisation plans intimately, may not be as knowledgeable in investment products, for example. 

Finding the right sort of financial consultant to build a good portfolio is the most important part of the process of liability protection.  You cannot do it by yourself, no matter how some people imagine they can do it, unless you are qualified in that field.  In the same way, an investment banker or forensic accountant cannot possibly be an expert on insurance.  Whilst this is all finance, they are different fields of finance. 

What sets a good financial consultant apart from the crowd is found in the level of service after the purchase of the financial product.  There is no use, for example, in buying an investment product if you do not know how to take advantage of the market, or buying an insurance policy without understanding what you can or cannot claim. 

Another consideration is to buy the right sort of product from the right type of financial institution.  For example, you can buy insurance from a bank, but MAS rules preclude banks from selling insurance, so banks tie up with an insurer.  This means you are paying two levels of distribution cost: the bank and the insurer.  You save from buying from the insurer direct.  In the same vein, if your need is purely investment, it makes no sense to buy an investment-linked product, and pay the unit deducting mortality charges from the insurer. 

If you are buying an investment-linked product, it is important to consider the management fee structure of the underlying fund.  Some insurers are large enough to manage their own fund, so that is one level of management fee.  Some insurers outsource everything, but still charge a substantial management fee so there are two levels of management fees, eating into your gains: the insurer that sold the bundled product, and the fund manager itself.

Quora Answer: How Should Governments Deal with ISIS Brides?

The following is my answer to a Quora question: “How do you think that governments should deal with ISIS brides and terrorists that want to return to their home countries?  Do you think that is right to strip them from their citizenship?”

Governments are prevented, by international law, from stripping citizens of their citizenship unless they already have another citizenship.  If this were allowed, we would have a lot more stateless people, and they would become a humanitarian crisis, and a larger international problem.  However, I am not a sympathetic man.  They should be tried for sedition and war crimes, not treated as innocents, and they should serve the severest penalties, up to, and including death.  Those who actively participated in the conflict should be executed.  Even if they are legally below age, they should be tried as adults.  For those found to be truly victims, and there were those brought there against their will, they need to undergo a deradicalisation programme, and eased back into society.

Second Half 2020 Market Outlook: Preparing for a Recovery That Will Not Behave

According to World Meter tracking of coronavirus, the world has passed five million confirmed cases and more than 350,000 deaths.  Treat both figures as a floor, not a ceiling.  Many countries lack the testing infrastructure to capture the true scale of infection, and when expected deaths in several countries are measured against actual excess mortality, the anecdotal evidence points to a death rate running six to seven times above the historical average.  Entire nations are under lockdown, with travel, gathering, and commerce restricted by decree.  The consequences are visible everywhere that matters: balance sheets, share prices, unemployment reports, GDP, and debt-to-GDP ratios.  We are firmly inside a global recession, and most economies are projected to contract for the year. 

The Energy Sector Deserves Its Own Paragraph of Ridicule

Saudi Arabia and Russia chose the middle of a demand collapse to fight a price war, flooding the market with oil nobody wanted at a moment nobody could store it.  Every scrap of available storage filled up, including floating production storage and offloading vessels and supertankers anchored outside major ports with nowhere to go.  The result, on 20^th April 2020, was that West Texas Intermediate futures traded below zero, meaning producers paid buyers to take the oil off their hands.  That is not a market correction.  That is an industry discovering, in real time, that physical commodities do not obey the same rules as a spreadsheet.  Expect further bankruptcy filings across the travel industry, shale oil producers, and the airlines, with debt restructuring becoming the default posture rather than the exception. 

The sovereign risk sitting underneath all this is worse than the corporate headlines suggest.  Nigeria, Colombia, and Venezuela built budgets on oil trading above US$60 a barrel.  Oil is trading in the low-to-mid US$20s.  That gap does not close through optimism.  Even nations with stronger credit ratings, including Malaysia, Brazil, and Saudi Arabia itself, made the same assumption and now face the same arithmetic.  A cascading wave of sovereign debt distress is a realistic scenario, not a tail risk cooked up to sound dramatic.

Equities are Having a Different Conversation with Reality

Stimulus and quantitative easing are doing what they always do: propping up sentiment faster than the underlying economy can justify it.  The United States Government has launched a US$2 trillion stimulus package, the largest relief measure in its history, with the Federal Reserve buying higher-yield government debt to inject liquidity directly into the system.  The Federal Reserve has since slowed its bond purchases, and the Treasury is weighing further debt issuance into a market already close to saturated.  Set the United States aside for a moment, given it is contending with the highest unemployment rate since the 1933 peak of the Great Depression, and the picture across Asia and Europe looks considerably stronger, with a meaningful recovery plausible within six to twelve months.  South America will continue to struggle, held back less by the virus itself than by public policy too lax to contain it. 

Global GDP is expected to fall by roughly 6% in the first half of 2020 alone.  This is a long U-shaped recovery, not a V.  Pre-pandemic output is unlikely to return before mid-2021, and a full recovery may not arrive until 2022.  The glut in bonds keeps interest rates low and credit cheap, but there are not enough businesses positioned to use it productively yet.  This is precisely the moment to lean into selected bonds, since yields will improve as the market rebalances.  Equity markets, for their part, will keep trading on sentiment rather than fundamentals, which is exactly why the market and the economy will feel out of step with each other.  Expect sharp rebounds followed by corrections in step with the opening-and-closing cycle of lockdowns, a pattern that persists until a viable, widely distributed vaccine exists.  Positioning now in light manufacturing and online retail makes sense against that backdrop. 

A Contrarian Note on the United States, Since Consensus is Not Always Correct

Many analysts favour the American market on the strength of its policy response.  I regard that preference as sentiment dressed up as analysis.  The United States' pandemic response has been inadequate, its jobs report remains troubling, and it now has a contentious presidential election to navigate on top of everything else.  I am, in effect, betting against Donald John Trump's administration managing to avoid self-sabotage between now and November.  Asia, excluding Japan, should recover fastest.  It remains the most dynamic region economically, with light manufacturing capacity well placed to meet global demand for personal protective equipment, ventilators, and related medical hardware.  Having been struck first, it is reasonably positioned to recover first as well.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

Quora Answer: What are Your Favourite Forms of Passive Income?

The following is my answer to a Quora question: “What are your favourite forms of passive income?”

The best form of passive income is still a good stock portfolio.  Managed well, and with compounded growth, the return on investment over an extended horizon is very good.  The advantage of such an investment is that it is flexible, and you can adjust the weightage between equity and debt instruments according to the economic climate to mitigate against turbulence in the market.  Another advantage, in places such as Singapore, is that there is no tax on your returns because there is no capital gains tax.  A further advantage is that stock portfolios are liquid, meaning that you always have a secondary market to convert some of it to cash when needed.

Quora Answer: Why Should I Not Choose a Financial Consultant?

The following is my answer to a Quora question: “Why should I not choose a financial consultant?” 

If you are serious about managing your finances, you need a financial consultant.  The only time a person can say they do not need a financial consultant, is because he is a qualified financial consultant.  I am a qualified financial consultant.  I have financial consultants to advise me on my investment portfolio, because even with 14 years of experience and all the certification required, I still need a second opinion when it comes to my own money.  Investment decisions should be made based on an analysis of the market, not emotions.  It is impossible to not be emotional when it is your own money.

Quora Answer: How Old Should Your Children Be before You Name Them Executors of Your Estate?

The following is my answer to a Quora question: “How old should your children be before you name them executors of your estate?”

They may become executors of your estate once they have reached the age of legal majority, which varies from place to place, from as low as 16 years to as old as 23 years of age.  Biological age aside, you must also consider that they should be of sound mind, and be credible and reliable.  You should not have, as an executor of your estate, someone who has a conviction for fraud or any form of dishonesty, for example.  It would be prudent, also, that your executor not be a bankrupt.  Your executor should preferably, also not be in frail health since there is no point of an executor that dies before you.

Quora Answer: Would a Citizen Who Joined a Terrorist Group be Allowed Back if They Changed Their Mind?

The following is my answer to a Quora question: “If someone left your country to join a terrorist group, would you want your home country to allow them back when they decided they have changed their mind?”

Singapore is very straightforward about this.  If a citizen left to join a terrorist group, we would want them back.  But only to try them in court, and hang them for sedition, if it came to that.  Otherwise, there is a deradicalisation programme.

Whilst stripping them of citizenship seems satisfying, it would imply that we have abandoned our policy of ignoring dual citizenship.  This also means that such a person will not only escape justice by running off to another country, but is a source of radicalisation that threatens our security.  Even when it comes to Permanent Residents, we make them serve out their sentence first, if there is no capital punishment, before stripping them of their PR status and deporting them.