Launch article on PERSONAL FINANCE for the Jakarta Globe – May 3 issue
INVESTING FOR THE LONG TERM – PRINCIPLES AND PITFALLS
Some time ago I had a call from reception to say I had a visitor. I recognized
him to be a driver who had worked for an oil company I was with over 20 years
ago. After a few pleasantries he broke down and related how he was now
jobless and destitute and desperately needed help to survive.
I recalled that when he left the company the ‘pension’ for retiring employees
was just a ‘pesangon’ or lump sum which related to final salary and length ofservice. There was no regular income to follow, even after a lifetime of service.
Today things are changing. Larger companies are providing proper pensions for
local employees. As for expatriate employees, company pensions are rarely
provided outside one’s home country so pensions can be a very significant
issue.
A fact of life is that relatively few people – anywhere – are making adequate
provision for later years. So what should we be doing about it?
When not to invest for the long termLong term investing means making commitments. Before doing so it isessential to have a healthy cash position because running out of cash can spellruin. As we saw with even international banks and other institutions in 2008.
This also means you cannot think of saving for the long term if you are heavily
in debt. One of the commonest traps for consumers is credit card debt. It ishard to get by in the modern world without a credit card but if you do not pay
your bill on time and in full you can be subject to outrageous interest charges,
as high as 40% per annum. So clear all debts first! (An exception could be amortgage, provided it is manageable.)
Where should you invest for the long term?
While it is clear that a healthy cash reserve is essential, cash is not the answer
in building up long term savings. Interest on cash deposits in most currencies isinsufficient to keep pace with real inflation. If you place a large sum of cash on
deposit now the chances are that in 20 years time, even with interest, it will
buy half of what you could buy with it today.

So where should long term money go?
Let’s take a look at some of the options
 Land - undoubtedly a sound and profitable investment over the longterm. As Mark Twain said, ‘buy land, they are not making land any
more’. But be prepared for potential disputes, planning problems andthe time it might take to sell.
 Property – Everyone’s dream is to own a home, and rightly so. For mostpeople this is the biggest investment in their lives. Owning additional
property as an investment can also be highly profitable but it must be
seen as long term. And remember that you may own a stately home but
it is not possible to sell a bathroom if you cannot pay the bills.
 Own Business – If you are a potential Bill Gates or Steve Jobs look nofurther. But the sad fact is that most businesses fail within five years. It
takes a lot of skill – and luck – to run a successful business.
 Stocks – The fundamental building block of the capital markets. A criticalcomponent in wealth-building. But short-term speculation is risky; looklong term and ensure you have a broad range of both international andyour home country stocks.
 Gold and other commodities – The law of supply and demand will
ensure that these assets will hold their value over the long term.
 Structured Products – Generally a safe way to protect your cash for themedium term and share in gains if stock markets rise over the period.
But bear in mind that the guarantees are only as good as the bank that isunderwriting them.
 Collectibles and Alternative Investments – A whole host ofopportunities here, but mainly for the more experienced investor solook here only when you have all the basic investments in place.
Above all – DIVERSIFY!

Perhaps the greatest mistake people make is putting all or most of theireggs in one basket. You may be lucky and choose a basket that doesn’t fall,
but is it worth the risk?
And as for the retired driver who came by my office? Well, I gave him a bitof money and he called back two or three more times. Since then, not aword. He is just one among millions worldwide who did not or could notinvest for the long term. If you are in a position to do so, it is never too late
to start.
Colin Bloodworth

PPi Indonesia