Ringgit and your wealth

 

THE ringgit performance against the US dollar and some other major currencies is weakening and its effects are felt across the different groups and sectors of the economy, including our purchasing power if we continuously buy in the foreign currency.

Last Friday, the ringgit was hovering around RM4.70 to US$1. On the same day, the local currency set a new record low against the Singapore dollar at RM3.30 to S$1.

Hence, the looming fear over the weakening of the ringgit out there is real, particularly in terms of protecting our wealth.

This is despite many assurances on the country’s economic fundamentals still being relatively strong and the foreign currency borrowings accounted for less than 3% of the total federal government’s debt.

It is also a well-known fact that a weak ringgit could benefit our export-driven economy.

But a weak ringgit will cost parents to fork out more money for their children’s education overseas. It will also cost more if you are planning for a holiday overseas, especially in the countries that predominantly accept US dollars.

It will also affect those with investments abroad if they are still paying for their investments with ringgit.

Local investors

As for local investors, it really depends on where you have invested your money. If it is locally, then there is really no impact apart from the rising inflation and the implications that come with it.

“Yes, we should worry but not to the point of paralysis,’’ said Manulife Investment Management (M) Sdn Bhd licensed financial planner Rajen Devadason.

Another licensed financial planner, Kimberly Law, added that the weak ringgit is only a cause of concern for those who have investments in other countries such as Singapore and the United States.

“If a person is worried about a particular currency falling further, then hedge it against that country in their currency,’’ she said.

Devadason, meanwhile, said parents who try to provide their children with a world-class education often look to destinations like Singapore, Australia, New Zealand, the United Kingdom, Canada and the United States.

“Sadly, the ringgit has generally weakened against the currencies of those destinations, the meltdown of the British pound notwithstanding,’’ he pointed out.

It is becoming more and more difficult for parents to send their children abroad to study at the best universities in the world, he added.

It may also take some time for the ringgit to strengthen against the US dollar and that is why most investment gurus would normally talk about diversification of portfolios to protect your wealth.

“Currency markets can whipsaw quickly and leave amateur traders in the lurch. It is better to never put all our eggs in a single national or asset basket,’’ Devadason said.

Investment dimensions

He opined that people should diversify their investments, ideally across three different dimensions.

It could be via varied asset classes; spread-out geographic regions that use different currencies; and a long timeline through powerful investment strategies such as dollar-cost averaging to strip out emotions when investing for the long haul.

To preserve your wealth, he said it is about investing consistently and emotionlessly over the long haul across the three different dimensions.

“It is the best way I know to raise the probability of succeeding financially – growing our wealth faster than taxes and inflation erode its buying power – over periods exceeding 20 years,’’ he said.

No quick gain

Law added that people can invest in or buy foreign stocks or other instruments in foreign currency at anytime. However, it is not recommended if it is meant for quick and short-term gains.

“If people are concerned about the ringgit dropping further, then they should have investments in various foreign markets in their currency.

“But if the ringgit is not the issue for them, then they should have a portfolio in ringgit.

“Make sure to grow capital before seeking passive income in your portfolio. Know your financial goals to determine the time horizon, as this is useful in choosing which asset class will suit you as an investor,’’ Law noted.

She also believes that entering the market is not as important as determining when to exit the market.

“Whatever your views may be on the weakening of the ringgit, it is vital to do your own research when accumulating wealth, so you know what the opportunities are even in trying times.”

As Devadason put it, those who truly wish to succeed economically need to focus on generating consistent cashflow surpluses by taking on extra work.

This unspent money should then be proactively saved and invested in a portfolio crammed with optimally mixed domestic and international assets. - Star