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Increasing interest rates will bring prices down to earth (Don't think and grow rich!).

Sunday, June 2, 2013


"Interest rates are like gravity in valuations. If interest rates are nothing, values can be almost infinite. If interest rates are extremely high, that is a great gravitational pull on values and we had that in the early 1980s." Warren Buffett
I read the opening paragraphs of the following article and got rapid heart palpitations:

"Boomers lost a significant chunk of their retirement nest eggs in the recession, but it was members of Generation X who were really hit the hardest, according to a report released Thursday.

"If they don't start paying off debt and saving more, Gen Xers (those between the ages of 38 and 47) and younger Boomers (those in their late 40s to mid-50s) are on track to retire financially worse off than the generations before them..."


I am a Gen Xer!

Reading on, I realised the author was referring to Americans. 

Whew! That is a relief!

However, what was described in the article could happen to Singaporeans too. 

Don't be too complacent. 

Things look rosy here now but it wasn't too long ago when they weren't.

I know friends who think that Singapore's economy will continue to boom and investing in real estate here is a no brainer as prices will only continue to go up. 

Well, I am not saying that they are definitely wrong but it would be prudent for them to contemplate the possible downside.

Anyway, to grow rich, what can we learn from the American experience? 

Don't think!

Yes, don't think of 3 things. 

Constantly remind ourselves:

1. Don't think that cheap money is here to stay.

Gen Xers were also plagued by significantly higher debt levels, including mortgages, auto loans, credit card and student loan debt -- much of which was accumulated in the years leading up to the recession.

2. Don't think that the value of real estate will only go up.

And while only two-thirds of Gen Xers owned homes in 2010, those who did saw their median home equity plummet by 27% during the past three years.

3. Don't think of ever stopping to save and invest for our retirement.

By the end of the recession, Gen X held investments, retirement plans and savings with a median value of just $14,500, down from $19,382 in 2007.... Including Social Security benefits, Gen Xers are projected to have enough money in retirement to replace only half of their annual pre-retirement earnings.

In our personal finances, if we save more, invest wisely and have less debt, we cannot go very wrong.

Read full article: here.

Related posts:
1. From rich to broke?
2. Slaving to stay in a condominium.
3. To be a happy peasant.
4. Millionaire or not, plan for retirement.
5. Young working Singaporeans, you are OK! Really?


Anonymous said...

Hi AK 71,
i think the next generation or 2 will be like America GEN X. Not because they behave like them but because almost everything will be so expensive that are priced beyond the working class.
Be careful how you vote in 2015/2016.

AK71 said...

Hi temperament,

I am unable to get my mind around to the parallel you trying to make. After much effort and no success, I have to give up. ;p

seefei said...

Hahaha... I can't see the parallel also. Investing prudently and responsibly will provide the foundation for our wealth to grow. Voting is to discharge our citizenship responsibility and I will leave it out of my investment decision.

AK71 said...

Hi seefei,

Well, politics and economics are often intertwined. So, perhaps, temperament has a point he wants to make but it is just lost on me. :)

Anonymous said...

Hi AK 71,
How many people now are earning $1500 to $2000? Can they afford to buy a 3 room HDB flat? Do you know Katong Laksa minimum price is $4 now. And almost all HDB HAWKER CERTRE minmum per bowl of MEE POK TA or equivalent is $3 now? So another 1 or 2 generation down the road what's going to happen?

AK71 said...

Hi temperament,

You are saying that cost of living is higher than it was before and that workers' salaries are not keeping pace, I guess? So, if we vote carefully, this will change?

Anonymous said...

Hi AK 71,
For better or for worse we have to try. At least don't give PAPYS 2/3 majority. Though it seems no party can take over the GOV. But after one party of PAPYS for about 50 years steam-rolling over us on our lives, do we still want one party for GOV. Is there real democracy in one party for GOV. Might as well be like CHINA , RUSSIA or worse case N. Korea.
Joking only. We still can breathe not like N. Koreans.

AK71 said...

Hi temperament,

For better, I will try. For worse, I don't think so. ;p

Anyway, let us not get political here. I don't want my blog to get gazetted. LOL. ;)

Anonymous said...

HI AK 71,
Worry about new MDA ruling?

AK71 said...

Hi temperament,

Well, if a blog or website becomes very political, I remember it will be gazetted. Since I am somewhat apathetic when it comes to politics, why be a lightning rod? ;)

Anonymous said...

Hi AK 71,
O. K.
Point taken.

AK71 said...

In a move that reverberated across the financial markets, the Fed on Wednesday raised rates for the first time in a year and projected three more increases in 2017, up from the two projected in September.

"Emerging market countries have been hit the hardest by capital leaving in search of higher yields and return along with the growing cost of paying back dollar denominated debt," wrote Kathy Lien, managing director of FX strategy at BK Asset Management.


AK71 said...


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