Keeping Your Money Safe


With the world on the brink of a recession, many financial institutions are going to find it tough to maintain a lot of their over-leveraged products as liquidity dries up.

In many instances past, when the money flow slows, many of these products turn toxic.

The man in the street is now looking for safe places to park their monies in this time of doubt and fear. And many are turning to “safe” investments, often sold by these institutions.

How do you know what’s really safe and what can turn toxic?

1. Is the product/plan/investment regulated?

Always be sure that whatever you buy into is regulated by the central bank or a regulatory authority like an exchange commission. Government endorsed products are always safe but remember that anything can fail. Regulated products only provide assurance (not a guarantee) that the product is not likely to fail as a direct result of fraud, lack of capital or illegal activities.

However, regulated products can still fail as a result of market or economic failures, rouge trading and the complete failure of the businesses that underwrite the product. The risk of such an occurrence is rare but let’s not forget the demise of Barings, Lehman, Refco and MF Global. Still, they are your best bet for safety barring the extraordinary.

Regulated securities are mostly conservative in their returns. This means that you’re not going to get phenomenally rich with such investments. And that’s a good thing because anything that promises too much is often highly leveraged and will be at risk of becoming toxic.

2. Always ask yourself why the institution is selling you such a product.

Remember that institutions only offer such deals to line their own pockets. Therefore, the more attractive it is, the more likely it is that there is some other agenda above lining their pockets. The need to raise capital is a clear sign that the institution is over-leveraged. It is imperative to continue selling such products keep the cash-flow moving to support the business because some debt requires more debt to be sustainable especially when most of that debt is being reinvested into other collateralised obligations to keep up the leverage.

Lousy earnings and poor revenues are the broadest hint that the institution has a need to raise capital. The need to raise capital is a sure sign that the institution is in trouble.

FYI, a good number of local institutions are over-leveraged now … and they have been for some years now.

3. Do you really need a product that helps you leverage on existing capital or collateral?

All you want to do is park your money in safety in case we go into a long-term recession. Humble returns between 2% to 5% are always the safest bets as they are unlikely to be over-leveraged.

However, institutions will convince you to maximize your returns by using leverage plans or products. These things always play into people’s greed and blinds them from their original plan – Safety.

Some products even encourage you to leverage on collateral (insurance policies, properties, car and CPF) or existing capital (cash or deposits) to “create” more cash flow for other investments or to aid your slowing business and tide over the recession. On the surface, everything will seem fine and safe. But that is assuming everything stays liquid and the money flow stays constant. It only takes a drop in the economy and/or a major correction in the market to turn it toxic once liquidity dries up … and it will.

Worse, your collateral will be tied up and you may not be able to free up those assets for sale or transfer. The property that you put up as collateral is now technically not yours thus not an asset but a liability as you continue to pay the loan for it.

4. How will I know if an investment will make money?

There is no way to know if any investment will be profitable because that requires the power to see the future. However we can assume that most investments can lose so let’s focus on that instead of dreaming about what we can’t control.

You will, from time to time, come across investment opportunities especially at road shows, investment expos, conventions and through mass media. Most of these avenues are hyped up and over-rated as they need to sell their products quickly.

What you should be asking is how come you got so lucky to have a chance at this investment that yields so much more than what banks offer or more than the kind of returns Warren Buffet gets.

You have to know that the reason you have this opportunity is because the banks didn’t want it because high net-worth investors rejected it because venture capitalists weren’t attracted to it because seed funders did buy into it.

So because none of the above wanted it, that’s how you ended up with that opportunity. Let’s be realistic – if that investment was really that great and truly that profitable, don’t you think the banks would have bought it up first? They would have then broken it down to smaller pieces and re-sold it to you for a higher margin. If it was really that promising, the VCs would have had first bite along with the investment bankers and that would leave nothing for the street to buy.

The product has ended up in a road show or investment convention because they have to “lelong” the cursed thing to raise capital otherwise their business venture will fail with major losses to the owners.

Maybe now you know why so many of these things in the past have ended badly for the investor from the street – they bought a loser that was designed to recoup monies for the owners of a failed business.

5. Is my money safe in a bank?

Singapore’s big three are well capitalised but I can’t vouch for other institutions. The big three are, literally, too big to fail and it is highly likely that measures will be taken to protect the accounts in these banks in times of dire financial stress. But I won’t get into the politics of that here.

Having said that, your money is not safe in any bank. In the event of a failure, you will lose everything regardless of how much or how little you have in that bank. You will only be entitled to a S$50,000 compensation;


You can read up on your liabilities and rights about investment risks on MAS’s website:

Please be smart about your money and don’t fall victim to your greed. Don’t give up what you’ve worked to hard to gain and don’t throw away what you’ve struggled to build.

That home you’re living in is security and will one day be an asset. Never collateralise it even if it is to get you out of trouble. There are other ways to overcome financial difficulty. Giving up the roof over your head should never be an option. Neither is signing away your health and insurance coverage.

If ever you’re in doubt, seek advice from your financial expert. Leave nothing to chance, ignorance or naiveté.


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