Hi, I’m Ian.
I’m a Malaysian. And my mom is a Singaporean.
Last week, we took a trip down to Singapore for Cheng Beng. It’s a Chinese Memorial Day where families get together to pay their respects to the deceased.
To my knowledge, there is a ritual to ‘somewhat’ comfort the soul of the deceased. It includes joystick lightings, food offerings, burnings of countless of artificials such as notes, Rolex Watches, iPhones, Houses, BMWs, aeroplanes, and of course, Gold and Silver.
It’s usually performed by Buddhists and Taoists practitioners.
Personally, I’m not involved as I’m a Christian. Cheng Beng, to me, is more like an opportunity to mingle with my relatives who are still present. Thus, while the ritual is ongoing, together with an auntie who’s also a Christian, we decided to chill in a nice cafe located closeby.
After an exchange of pleasantries, our conversation quickly shifted into financial matters. Here’s an excerpt of our conservation that day:
‘So, what’s the Fixed Deposit (FD) rates in Singapore?’, I asked.
With a sigh, my auntie replied, ‘I think it’s 0.3% only. Isn’t it depressing? How much are you getting in Malaysia?’
I answered, ‘Well, it’s around 3% a year in Malaysia.’
My auntie exclaimed, ‘Wow! That’s pretty attractive.’
Cheekily, I continued, ‘Well auntie, do you want to open a FD account in Malaysia?’
My auntie shook her head and replied, ‘Nope. What for? Your Ringgit has been dropping like crazy. I’m keeping my Dollars in Singapore.’
So, what’s the moral of the story?
What could I possibly learn from this?
After all, it’s just a casual chat.
As I reflect, I begin to realize that my auntie is a classic example of one who prioritizes ‘Value’ over ‘Yield’. In other words, she prefers to hold onto something that holds ‘Value’ than something that brings ‘Yields’ if asked to make a choice between the two.
Here’s a simple illustration:
|Currency||Malaysian Ringgit||Singapore Dollar|
|US$ 1 (April 10, 2016)||3.917||1.348|
|US$ 1 (April 10, 2017)||4.437||1.406|
|FD Rates (Yield)||3.0%||0.3%|
The US Dollar has appreciated by 13.3% and 4.3% against the Malaysian Ringgit and Singapore Dollar respectively over the last 12 months.
Obviously, the Singapore Dollar has held its value better than the Ringgit during the period. Thus, it makes sense to hold onto Singapore Dollar (Value) despite making 3.0% from putting money in a FD account in Malaysia (Yield).
I believe, you get the picture.
Believe it or not, this simple logic of ‘Value Over Yield’ is the basis of why I buy gold bullions and believe that it’s a must-have in everyone’s portfolio especially if you’re a Malaysian.
But, you may wonder, ‘Properties bring rent. Stocks pay dividends. Bonds yield coupons. Even cash brings interests. How can gold be an investment if it doesn’t generate income?’
My answer is simple.
Gold is not an investment.
Personally, I didn’t buy gold to make more money or ‘Ringgit’ specifically.
Rather, I bought gold as a hedge against inflation. It’s an insurance policy against the continuous fall of the value of our Ringgit.
Think about it.
Do you expect to make money from your insurance policy? Obviously not. But, why do we buy? Isn’t it a preemptive move to prepare for sudden expenses such as hospital bills?
I sincerely believe nobody wants to die prematurely, met with an accident or diagnosed with a critical disease. But, if we are to encounter a misfortune, at least, we will receive some form of compensation to alleviate our losses.
It’s the same for gold. As a Malaysian, I really hope that Ringgit is a stable currency. No citizen, I believe, wants the Ringgit to be like the Zimbabwean Dollars. However, due to rising national debt and prolonged budget deficits, I believe it’s a good idea to have some gold to preserve the purchasing power of our money.
And boy, what a good insurance policy it is.
Let me illustrate.
|Gold Price in||April 8, 2016||April 8, 2017||Difference|
|RM / Oz||4,824||5,560||+15.3%|
|SGD / Oz||1,673||1,760||+5.2%|
|USD / Oz||1,243||1,254||+0.0%|
1 Ounce = 31.1 grams
Over the last 12 months,
- Gold has increased by 15.3% against the Ringgit. It’s more than the 13.3% appreciation of the US Dollar against the Ringgit.
- Gold has increased by 5.2% against the Singapore Dollar. Thus, gold has served better as an insurance policy against the Singapore Dollar. In fact, Singaporeans who held onto gold would have done well as 5.2% definitely beats FD rates of 0.3% a year.
Yes, I’m disappointed with the drastic fall in the value of our Ringgit. However, at least, a portion of my wealth has been preserved as a result of having gold in my portfolio.
Perhaps, you may wonder, ‘Is it too late for me to get into gold? After all, it has risen so much over the last 1 – 2 years.’ If you are new to gold, here are 3 simple considerations you may ponder before getting into the metal:
First, we must realise that gold has been flat against the US Dollar over the last 2 years. Gold has become more expensive to Malaysians, not because gold has appreciated, but because Ringgit has fallen against the US Dollar.
Second, we must evaluate the future of our Ringgit. What’s the future of our Ringgit? Will we continue to be plagued by budget deficits, rising debt, inflation, corruption related issues and other issues relating to financial mismanagement? How we tackle these issues would determine the future value of our Ringgit.
Third, we must realise that value is determined by demand and supply. It’s basic economics.
To put it simply, Ringgit is local. Gold is global. Gold is recognised as a financial asset by central bankers, financial institutions, and billions around the world. Unfortunately, the Ringgit is not as it’s mostly circulated within Malaysia.
What about supply? That’s easy. Gold supply is finite. Ringgit supply can be infinite. In this case, gold definitely has an upper hand over the Ringgit when it comes to the law of supply and demand.
Co-Founder of Goldsilvermethod.com