There is a Science to Financial Security

9 Dec

Financial Security Puzzle

What is it like to be financially secure? Many people ask this question, but the majority have a great difficulty at finding the exact answer. One of the best definitions of financial security is “to be able to wake up each morning not worrying about money, for you already have enough investment and financial instruments in place working for you such that even if you decide to stop actively working anytime, you will still be able to support yourself and your family for the rest of your life.” Becoming financially secure is by following the pathway of becoming “rich.” Wallace Wattles once said there is “a science to getting rich.” And definitely we can say there is a science to becoming financially secure! And this is by doing things in a certain way. God has mandated us to become financially rich and secure so we can develop our maximum and fullest human potential through our mind, body and soul. It cannot be argued – we all need money to blossom and become the best persons we are capable of becoming in this world.

All persons should identify their individual financial goals and seek out the best solutions possible to address these goals. Knowing what these goals are and understanding that there are workable solutions to address them is such an empowering thought. Financial security is indeed within everybody’s reach as long as things are done in a certain way! The better we become at doing these certain ways, the nearer to financial security we get.

One of the most important ways to becoming rich is by living out the virtue of financial discipline. Frugality is a great habit in the lives of many rich people – they think twice or even thrice before spending their money. Each and every person should understand that becoming financially disciplined is an individual responsibility, and this should be taught as a very important value to each and every member of the family. For without discipline, we cannot achieve our goals. Everybody should realize that their goals in life have different levels of priorities. Among those with the highest levels of priority should be saving and investing for the future while integrating a financial risk protection strategy along the way. This should be placed immediately after the basic needs of food, clothing and shelter. Every individual should also learn the virtue of delaying gratification. “Sacrifice” is a very important word. Having the discipline to sacrifice short-term and unnecessary wants as a trade-off for aiming at long-term gains is the key to financial security. If we spend our money foolishly, it shouldn’t come as a great surprise to find ourselves facing great financial burdens. But if we are prudent enough to spend money wisely on the right things with the highest priority, then the chances of finding ourselves in deep financial trouble becomes very slim. This is simply an application of the Law of Cause and Effect – “we reap what we sow.” If we sow good things now by preparing the tools for a financially secure future through carefully selected investments and risk protection mechanisms, then it naturally follows that we shall become financially secure. But if we fail to carry out these tools properly in our lives, then we should be expecting our financial downfall someday and we have nothing but ourselves to blame.

A knowledgeable and credible financial professional can do great things to help you follow the right path to financial security. If you get sick, you go to a reputable doctor so that you will have greater chances of having your illness treated successfully. The same holds true with the financial professional you go to for consultation. The more capable the financial professional you seek consult with, the better the advise you will be getting. So make it a point to seek out the best financial professionals in the industry and start now on your own pathway to success. [APA]

http://www.aficmeridian.com

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The Dying Petrodollar Bubble: Brace for the Fall (The Financial Doctor #29)

30 Nov

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The Financial Doctor #29
By Dr. Adonis Agcopra, MD, MBA, CIS, RFC®

*BusinessWeek Mindanao, 18-23 November 2016

The Dying Petrodollar Bubble: Brace for the Fall

A Primer on Global Currency and Energy Geopolitics

The air is rife with issues about Philippine foreign policy – and whether it pays to plot an independent track or not. There is also talk about “geopolitics” and “building relationships” with the East, specially China, Japan and Russia. It seems America feels some kind of threat, even sending an envoy – the Assistant Secretary of State for East Asian and Pacific Affairs, Daniel R. Russel. But what really seriously threatens the United States of America on such a global scale today?

It seldom gets mentioned in mainstream press, but have you ever heard of the “petrodollar” system? What’s in it for you? What’s in it for our country? I bet these questions would put you in limbo. In fact, it’s been said that even in the US, less than 5% of its population know the real score.

Our planet’s financial system consists of multiple interdependent national economies existing under the umbrella of one big world economy – every buy-sell economic transaction occurs within this one global village. A number of countries may create economic alliances and manage to exist as trading partners to one another. However, due to differences in perceived “national interests” – in whatever way that may be defined, whether for the collective good of the world or not – these alliances often exist leaning on varying geopolitical and economic backgrounds.

So what in the world is a petrodollar? To define it simply, it is the US dollar currency that an oil-producing country has agreed to receive in exchange for selling its oil. A big part of it is then “recycled” back into Western banks and used to buy US treasury “investments.” But how did it all start?

To understand the petrodollar issue in the light of significant political events in the world today, especially that which concerns the perennial crisis in the Middle East, the controversial “separation” of foreign policy of Philippine president Rodrigo Duterte from the United States and the most recent US presidential elections, let us go through some brief lessons in global financial history.

1944: The Bretton Woods System

Towards the final days of World War 2 in July 1944, a gathering of delegates from 44 Allied nations (one of which was the Philippines with a delegation led by Andres Soriano) was made at Mount Washington Hotel in Bretton Woods, New Hampshire. Formally referred to as the United Nations Monetary and Financial Conference, it became more popularly known as the Bretton Woods Conference.

It was a meeting that was primarily meant to define and develop ideas for the postwar world financial order. Its conclusion eventually established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), now known as the World Bank.

In this same post-war agreement, with most of the global economy decimated by the war and with the US being the world’s largest and most influential economy of the time having control over two thirds of the world’s gold, the US dollar was decided upon as the global reserve currency. It was pegged to gold at a price fixed to US$ 35 an ounce. All other currencies were convertible to the US dollar. The US was posed to become the new hegemon – a refreshing replacement to a war-torn Great Britain (which was deep in debt due to its war-funding efforts) and its British pound sterling, the previous global reserve currency.

1971: Abandoning Gold and the “Nixon Shock”

This monetary system initially worked well for quite some time. By the 1960s however, cracks in the system began to emerge. With increasing US debt (and “money printing” by the Federal Reserve countered by treasury bonds) to fund the Korean and Vietnam wars as well as the race for space and various domestic social programs, more of the “gold-backed” US dollars flooded the world’s banks and the US eventually started buckling up. With skepticism on the rise on whether the US could still back up its dollars with gold, President Richard Nixon shocked the world when he temporarily stopped the convertibility of the US dollar to gold on August 15, 1971, devaluing it to a price of US$38 per ounce.

The burden to the US economy became more and more unbearable and with countries remaining wary of another devaluation, they began demanding the exchange of their US dollar holdings to real gold (notably France and Germany). This significantly shrunk the US gold reserves from a peak of more than 20,000 metric tons in the early 1950s to just a little more than 8,000 metric tons by 1971. With further devaluations of USD to gold, the US finally made good on the default of its promise to back its currency with gold, officially bringing to an end the already unsustainable Bretton Woods agreement. Thereafter, global demand for the now fiat US dollar currency began to decline.

When the value of the US dollar was left to “float” – rising and falling with market demand – other currencies followed suit. Following Keynesian economic principles, other nations started expanding their money supply in anticipation of facing uncertain fluctuation in currency values, the result of which was a depreciation of the US dollar and other currencies of industrialized nations. In effect, the stock market crashed in 1973-1974.

The “printing” of the fiat US dollar currency by the US Treasury results out of the control of the US dollar money supply by the US Federal Reserve. Even though established by the US Congress as operating arms of the US central banking system, the component twelve regional Federal Reserve banks are organized more like a private corporation with the capacity to issue shares of stock to its member banks. In terms of issues on “ownership” then, it comes out weird and muddled. In fact, it is in reality controlled by private banks owning stocks that pay a fixed 6% annual dividend from profits! You might venture a guess as to who were the original owners of these private banking institutions – the names of the few elite plutocratic collaborators invited to attend the clandestine Jekyll Island conference in 1910 would come to mind. Interestingly enough, Jekyll Island was a private resort owned by the powerful banker J. P. Morgan.

So who really runs the US Federal Reserve today? Is it a public entity or one that is owned by private individuals? This is a closely guarded secret, arising to questions that have been debated upon frequently over and over again. Officially though, in its website, it states that “the Federal Reserve System is not ‘owned’ by anyone.” Furthermore, it claims that “although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest.” It is this particular issue of ownership of the Federal Reserve where “conspiracy theories” are ripe, especially that which concerns the supposed control of the Federal Reserve by influential families in the history of world finance such as the Rothschilds, and the so-called “New World Order.”

1973: The Yom Kippur War & the Oil Embargo

From the early 1900s and thereafter, and further bolstered by the development of oil-dependent land, sea and air transport, oil as an important energy source has practically become a vital commodity demanded in increasingly great quantities by many countries of the world. He who has the oil, has economic power and leverage.

After Nixon ended the Bretton Woods currency accord and the US dollar value devaluated, since oil was priced in dollars, the real income of oil-producing countries also decreased. This lent to the “Oil Shock,” to which the Organization of Petroleum Exporting Countries (OPEC) was slow to respond in terms of price readjustments. Hence by September 1971, OPEC decided to revise the pricing of oil to a fixed amount of gold.

The Yom Kippur War occurred in October 1973, a war that started when Egypt and Syria, with the support of other Arab nations, attacked Israel and occupied the Sinai Peninsula and Golan Heights. Threatened by the move of the former Soviet Union in sending arms to Egypt and Syria, US President Richard Nixon responded by launching Operation Nickel Grass, supplying arms and weapons to Israel. The war ended with Israel’s victory.

In retaliation to American aid to Israel, OPEC implemented a 70% rise in oil price to $5.11 a barrel. All OPEC ministers agreed to this embargo to negatively influence the support of the West to Israel, consistently cutting oil production in 5% monthly increments, until their political and economic objectives were addressed. Oil became a powerful economic weapon.

The effects of the OPEC oil embargo to the US were immediate, and the price of US oil quadrupled by 1974 to nearly US$12 per barrel. It was also coincidentally unfortunate that in the 1970s, oil production in the US started to decline. By November 27, 1973, Nixon signed the Emergency Petroleum Allocation Act which authorized the price, production, allocation and marketing controls of oil. Long queues of motorists lining up at gas stations became a more and more common sight. Coinciding with the 1973 stock market crash, the oil embargo definitely had a lasting negative effect in further aggravating the condition of the US economy.

1974: The Birth of the Petrodollar

To obviate the evident emergency and the potentially adverse reaction to the US economy, the Washington elites drastically needed a plan. The lost artificial global demand for the dollar in the wake of the collapse of the Bretton Woods accord had to be replaced with some other viable mechanism.

In July 1974, newly appointed US Secretary of Treasury William Simon (a former bond trader executive of the Wall Street investment bank Salomon Brothers), Secretary of State Henry Kissinger and his deputy Gerry Parsky, were sent by the US government to strike a deal with the Kingdom of Saudi Arabia. The mission: to neutralize the use of oil as an economic weapon, and to propose an avenue for investing the kingdom’s petrodollar wealth into financing the US economy. And Nixon made it clear – failure was out of the question. Not only will failure result to jeopardy in American finance, it might also further advance the Soviet Union’s interests within the Arab world in the light of the Cold War.

In a series of meetings, the US and the Saudi royal family (the House of Saud) did arrive at a mutually influential agreement – and it came with a strikingly simple framework. The US would offer military support to the kingdom, protect Saudi Arabian oil fields within a volatile region reeling from Arab-Israeli conflict, and buy its oil. In exchange, Saudi would exclusively price its oil exports in US dollars, use its influence as OPEC’s top oil producer for other OPEC countries to do the same, and plough back billions of its surplus petrodollar revenues into US government treasury bonds. From “dollars for gold,” it paved the way to “dollars for oil.”

By 1975, all of the OPEC nations have agreed to this scheme, eventually getting the same promise from the US government. Such a scheme did successfully create a new artificial demand for the US dollar currency worldwide. This would ultimately refinance America’s spending and would be a shot in the arm to restimulate an already ailing US economy that was in danger of slipping into lethargy. As long as there is a worldwide demand for oil, and as long as OPEC countries continue to sell their oil only in US dollars, the US dollar shall be able to keep its value and global currency supremacy.

The Downward-Spiraling US Sovereign Debt

The ever ballooning US sovereign debt has gone up so high in recent years. According to most recent data from the US Treasury, the latest US debt figure is now approximately US$ 19.82 trillion (as of end-October 2016), the bulk of which is owed to international investors holding US government securities (or US Treasury Bonds). Even before the 2008 Financial Crisis, the US debt grew rapidly by 50%, from ~US$ 6 trillion in 2002 to a little more than US$ 9 trillion by end of 2007.

But how did it get to be so horrendously high? This was mostly due to persistent and increasing annual deficit spending, the bulk of which recently included the roughly US$ 800 billion a year defense and military expenditures on its “proxy wars” and the “war on terror” of President Bush, apart from the usual social security and healthcare expenses as mandated by law. This was coupled with repeated increases of the aggregate limit or total amount of new government bonds issued (the “debt ceiling”) as approved by the US Congress. Most recently, this was further aggravated by the expenditure incurred by the Federal Reserve when it implemented its “bailouts” which expanded total debt to US$ 10.5 trillion by December 2008. Thereafter, the repetitive “quantitative easing” (QE) measures of the Federal Reserve bloated it further to what it is today.

The “debt ceiling” is a limit set by US Congress legislation since 1917 on the amount of debt that can be issued by the US Treasury. When this “ceiling” is reached, a crisis occurs where the US Treasury by law may use “extraordinary measures” to buy time until the “ceiling” is raised higher by Congress. Though the US government has not yet reached any point of default (when US Treasury is deemed incapable of paying back US debt), it has reached close call on several occasions, at times even leading to government shutdowns.

During the 2011 US debt ceiling crisis, Egan-Jones, a smaller credit rating agency (CRA), became the first to cut its US debt rating from AAA to AA+ on July 16 of that year. Shortly thereafter on August 5, the S&P followed by issuing its first ever downgrade of the US federal government’s sovereign credit rating from AAA (outstanding) to AA+ (excellent) with a negative outlook. This led to the Dow Jones Industrial Average (DJIA) falling nearly 2,000 points, with a worst single day drop of 635 points on August 8. A year after on April 5, 2012, Egan-Jones further cut its rating a second time from AA+ to AA due to “lack of any tangible progress on addressing the problems and the continued rise in debt to GDP.” And on September 14 of the same year, Egan-Jones cut its rating a third time to AA- (the lowest of what is still considered “high grade”) as a reaction to the third round of quantitative easing done by the Feds (QE3).

Remarkably, analysts deemed it to be an apparent retaliatory action from the US government when after such downgrades, the US SEC placed S&P under investigation and brought Egan-Jones under administrative action.

The most recent debt ceiling crisis occurred in early 2013, ending when President Obama signed the No Budget, No Pay Act of 2013. This temporarily suspended the debt ceiling until May 19 of that year, after which the debt ceiling was raised to US$ 16.699 trillion. On October 30, 2015, the US Senate passed a bill further suspending again the US debt ceiling for the last time under Obama’s watch, effective until March 2017. By then, it shall be an issue to be tackled anew by Mr. Donald Trump, the new US president.

Massive US Debt: Its Implications

Let’s go back to the cold facts. The total outstanding US sovereign debt as of this writing is US$ 19.82 trillion (http://www.treasurydirect.gov/NP/debt/current). It is currently the largest for any single country in the world. IMF data estimates US 2016 Gross Domestic Product (GDP) at ~US$ 18.56 trillion, placing its current external debt-to-GDP ratio at 106.8%. It means the US owes more than what it produces in a year! A World Bank study showed that if a nation’s debt-to-GDP ratio exceeds 77% for some extended time period, it will tend to drag down that country’s economic growth by 1.7% for every percentage point exceeding this debt-to-GDP ratio figure.

At current 2016 US population estimate of 324 million, US public debt per capita is at about US$ 61,185. That’s approximately PhP 2,936,889 debt equivalent for every US citizen at current exchange rate of PhP48/US$1!

To make a rough comparison, the Philippines’ total external debt as of June 2016 was US$ 77.72 billion with an external debt-to-GDP ratio of 26.2% (http://www.bsp.gov.ph/statistics/spei_new/ tab6_exr.htm). With Philippine population now hovering at around 102 million, public debt per capita in the Philippines is around US$ 762 (or about PhP 36,574 at current exchange rate).

How is this US debt broken down? To which entities in the world does the US owe it to?

About 72% (US$ 14.31 trillion) is categorized as Publicly-Held Debt, and the remaining 28% (US$ 5.515 trillion) as Intragovernmental Holdings. Of the publicly-held debt, nearly half (>US$ 6 trillion) is held by foreign governments and investors, the biggest of which is China followed closely by Japan, both of which hold more than US$ 1 trillion each.

Of the Intragovernmental Holdings owed to about 230 other Federal agencies within the US, most (a little less than US$ 3 trillion) are held by the Social Security through the Social Security Trust Fund and the Federal Disability Insurance Trust Fund. The Office of Personnel Management Retirement also owns almost US$ 900 billion, and more than US$ 600 billion is held by the Military Retirement Fund. The exposure of the Medicare Funds (Federal Hospital Insurance Trust Fund and Federal Supplementary Insurance Trust Fund) is also very sizable.

So what figures?

With a GDP economic output of US$ 19.5 trillion, China became the world’s largest economy for the first time in recent history last 2015, followed by the European Union with US$ 19.1 trillion, and with the United States falling back to a distant third, producing US$ 17.9 trillion. China owns about one third of all US Treasury bills, notes and bonds held by foreign countries. It previously reached a record high of US$ 1.317 trillion in November 2013, but it divested some of its holdings to allow the Chinese yuan (CNY) to rise in value relative to the US dollar. For the long term, however, it should be looking forward to preparing itself as a viable replacement of the US dollar as reserve currency for international trade, especially in the light of the seemingly insurmountable downward spiral of the US sovereign debt crisis in most recent years working adversely in tandem with the falling clout of the petrodollar.

On top of this, if you add up all debt held by Social Security and all other US retirement and pension funds, nearly half of US Treasury debt is held in trust for all US retirees. If the US government defaults, all current and future US retirees are expected to be hurt the most. And since a big chunk of this debt is also owed by the US to its Medicare, its citizens’ health funds are also at stake.

The Petrodollar Threats

On September 2000, Saddam Hussein, then president of Iraq, proclaimed his decision of switching Iraqi oil sales from US dollars to euros. It was a direct threat to the petrodollar. In 2003, the US invaded Iraq. Thereafter, no substantial proof was seen with respect to Iraq’s alleged plans of harming America. Neither was there any concrete evidence gathered on Iraq’s purported weapons of mass destruction. And was there sufficient evidence to link Saddam Hussein to the 9/11 plot? Or was this just a strategic means of protecting the petrodollar?

When Muammar Gaddafi was named Chairman of the African Union in February 2009, he proposed the formation of the gold-backed African dinar – a unified single currency for the whole of Africa. In March 2009, a document was released by the African Union discussing the benefits of running the gold standard with the African Central Bank. It was seen to compete with the Western central banking system – and was a direct threat to the global reserve status of the US dollar. Was this the main reason behind the NATO-led military initiative in Libya which led to the death of Muammar Gaddafi in 2011?

Several countries are arranging bilateral trade agreements aimed at directly circumventing the US dollar, with most coming from the BRICS bloc. As of early this year, Russia and China have agreed to increase to $200 billion its bilateral trade by 2020. Economic cooperation between China and the Eurasian Economic Union is also on the drawing board. Japan and China are also on talks to promote direct trading of yen and yuan and bypassing the US dollar, which is expected to reduce currency-related risks and costs of trading.

Because of its complicated relations with the US, Iran has long been attempting to adopt the euro or other local currencies for its exports, including oil. In February 2008, it opened the Iranian Oil Bourse at Kish intended to trade petrochemicals in various currencies other than the US dollar – primarily the Iranian rial and the euro. In early 2014, Iran and Russia were on talks for an oil-for-goods deal worth up to $20 billion. Iran and India have also worked towards an agreement to allow oil payment in rupees. Most recently in February 2016, after sanctions have been lifted and its SWIFT bank transactions have been reconnected, Iran has again declared intent to sell its oil in euros, not US dollars.

Natural gas (methane), especially its easily transportable liquefied form LNG, is fast becoming a major player in global energy supply and demand. Though the International Energy Agency credits the US with the biggest production of natural gas in 2013 (at 689 billion m3), Russia has the largest proven natural gas reserves to date at 48.7 trillion m3. This is followed by Iran, Qatar and Turkmenistan – all in the Eurasian zone. US comes in at a distant fifth, with total stock of just around 9.86 trillion m3. This is where the Russian government-owned natural gas giant Gazprom exerts its significant role.

With present challenges in oil production and trade with the Saudi-led OPEC, the world’s natural gas consortiums are looking at more exciting times ahead. In worldwide LNG trade, Syria with its borders facing the Mediterranean, is a lucrative European trade exit route. With regional plans to build an LNG pipeline all the way to the Mediterranean shore through Syria, it’s no wonder why Syria found itself in the midst of its present mess, further enlivened by the drama of the ISIS.

A declining OPEC influence is a huge petrodollar blow indeed. And apparently, the recent dramatic oil price collapse as instigated by Saudi (still a major US “ally” at the moment), driving oil prices to historic lows, is a move to destabilize the oil and gas economics of Iran (Saudi’s major oil competitor with the second largest natural gas reserve) and Russia (another major oil producer with the world’s largest natural gas reserves).

Is the ongoing proxy war at Syria among the last of the petrodollar’s death throes?

Gold: Global Repatriation and Accumulation

Due to numerous reasons, including the German confiscation of the gold of the nations they have occupied in World War II and the threat of the Soviets potentially seizing sovereign gold reserves in the event of conflict escalation during the Cold War era, many countries have stored their gold reserves in offshore sites, most notably at the Federal Reserve Bank of New York (FRBNY).

After the global financial meltdown of 2008, realizing the importance of gold as a monetary system anchor, many central banks stopped disposing off their gold. Since 2010, there has been a net accumulation of gold in central banks of the world. South American and Asian central banks even increased their gold purchases. And thinking it unwise to be storing their gold in foreign depositories, many nations have begun repatriating back home the gold they have stored in the vaults of other countries.

More notable among these repatriations include that of Venezuela as ordered by President Hugo Chavez in August 2011, the German Bundesbank’s shipment of its gold back to Frankfurt in 2013-2014, and the Netherlands’ repatriation of 122.5 tonnes of gold in November 2014 from the FRBNY back to the Dutch central bank in Amsterdam.

Interestingly, China’s purchase of gold bullions show how it is attempting to diversify its reserves away from the US dollar. In April 2009, its official gold reserves was approximately 1,054 metric tonnes. By November 2016, this has grown to a total of 1,838 metric tonnes. China’s former president Hu Jintao has even dared to label the US dollar denominated currency system as a “product of the past,” thereafter highlighting moves of turning the Chinese yuan (CNY) into becoming a new global currency.

Synopsis

The petrodollar scheme is the only remaining life support system to an ailing US economy racked with the world’s biggest ever sovereign debt. And the end of the petrodollar era is looming on the horizon. Once other means of paying for oil and commodities imports have been strongly established and the foreign US dollar reserves begin their flight back to the US mainland, expect the bursting of the petrodollar bubble. All its adverse repercussions on the US and world economy will follow.

By then, the US Federal Reserve could increase its interest rates to attempt deflationary measures and decrease the US dollar supply, but hyperinflation would most likely ensue. Prices of goods, especially those related to oil, would go outrageously up. US will be at the epicenter of this great financial quake. But in this age of increasing digital interconnectivity among the world’s fiat currencies, expect to experience ripple effects worldwide as the planet transitions to a new monetary system.

The US government is facing bankruptcy head on. Would its newly elected POTUS, Mr. Donald Trump, be able to do something drastic and shrewd enough to change the course of this losing game and “make American great again”? How can its economic impact be softened for the rest of the world? The world is on a wait and see attitude. But let’s start preparing now, while hoping all for the best as well – not just for the Philippines but for the rest of the world.

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(Dr. Adonis Agcopra, MD, MBA, CIS, RFC® is a registered financial consultant with the IARFC and is the CEO & Portfolio Development Director of the AFIC Meridian Financial Consultancy Group. URL: http://www.aficmeridian.com. You may email comments to: don.agcopra@aficmeridian.com.)

How Do You Trade Your Time? (The Financial Doctor #27)

8 Jul

The Financial Doctor #27
By Dr. Adonis Agcopra, MBA, CIS, RFC®
*BusinessWeek Mindanao – 07-13 Jul 2013
*Mindanao Daily (North Min/Davao/Caraga) – 08 Jul 2013
*Business Daily – 09 Jul 2013

How Do You Trade Your Time?

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We are all time traders. Of all assets that we have at our disposal, time is our single most important resource.

The value of a resource is often defined by its supply and demand profile. The more something is needed and the more its supply is limited, the higher its value becomes. With the limitation of our time and the highest demand we ascribe to it, it easily becomes inarguably the most valuable commodity we have.

As the cliché goes, “time is gold.” Short of inventing a machine that can turn back time or freeze it for a certain length, time spent and lost can never be recovered. Unlike precious gems that can be secured safely in a vault, time cannot be hoarded and spent at a later period. Time continuously moves and slips by, whether we want it to or not.

But like money with a corresponding value, time can however be saved and invested. When we manage our affairs excellently and give priority to the most important things first, we can save more time to spend for leisure and enjoyment. When we invest in something, we naturally expect some kind of return. How we use our time at each particular moment is an investment which determines the specific return we get out of it.

Each and every hour of our lives, we trade our time for something in exchange. So it might pay us rich returns if we learn to constantly ask ourselves: “How do I trade my valuable time right now?”

Time seems to work in mysterious ways but it generally follows the dictums of the law of cause and effect. The way you spent your time in the past was the immediate cause of what you are now. The way you are consciously or unconsciously spending your time right now is also a cause – in fact, it is precisely the exact cause of what happens to you in the next hour, in the next few days, months and years of your life.

In our younger and innocent years when the ways of the world are quite foreign, it’s easy to think that time seems to move very slow and there seems to be not that much things to do. But when we are shoved to face the real world and find ways to earn our keep and make ends meet by ourselves, time suddenly seems not to suffice, continuously moving fast. Running after time becomes a daily routine.

Spend most of your time with things that are fun and easy now, reap a lifetime of long-term pain. But invest your time wisely now, carefully planning and sacrificing short-term pains for long-term gains, expect to live a happier, richer and more fulfilling life. Do it now!
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(Dr. Adonis Agcopra, MBA, CIS, RFC® is with the IARFC and is portfolio director of AFIC Meridian Consultants. URL: http://www.aficfinancialconsultants.com. Email: aficfinancialconsultants@outlook.com.)

Break Parkinson’s Law! (The Financial Doctor #26)

8 Jul

The Financial Doctor #26
By Dr. Adonis Agcopra, MBA, CIS, RFC®
*Mindanao Star – 29 Jun-05 Jul 2013
*BusinessWeek Mindanao – 30 Jun-06 Jul 2013
*The Cagayan de Oro Times – 30 Jun-06 Jul 2013
*Business Daily – 02 Jul 2013

Break Parkinson’s Law!

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In 1955, British author and historian Cyril Northcote Parkinson first made the observation in The Economist that “work expands so as to fill the time available for its completion.” This became known as Parkinson’s Law.

An important economic corollary to this law goes: “The demand upon a resource tends to expand to match the supply of that resource.” Stated much simpler for the layperson, “expenses rise to meet income.” Such occurrence is so commonplace that not doing so may be tantamount to avoiding the bandwagon. However, if somebody would say that indeed, some laws are meant to be broken, then this law should be at the topmost!

If financial security is summarized by learning the appropriate cycle of earning, saving, investing and protecting your wealth and assets (the E-S-I-P paradigm), then ascribing to Parkinson’s law may be taken as one of the biggest culprits responsible for breaking this cycle.

Someone gets overjoyed getting a raise. And with that raise comes the hope of expecting a much bigger breathing space, with money not anymore limited just “to make ends meet.” Life seems to get a little better but a few months later, it’s all back to basic and budget gets tight as how it used to be. A very common story that befalls almost every Tom, Dick and Harry.

We might ask the big “why”? Why did it happen? Where did all the extra money go? But as science would say, “nature abhors a vacuum.” Psychology and human nature kicks in. When funds are lacking, needs are needs and wants are wants. But when some extra funds come in, new expenses are created and wants become sugar-coated “needs.” With the extra money, many people would get the immediate urge to say: “Let’s burn it!” So long as there’s money in their pockets, there is always a thousand and one ways to spending it.

Discipline is an often used word. But when it comes to money, the temptation to enjoy short term gain easily erodes the value of discipline. Attaining long term security and stability gets pushed aside when the icing on the cake seems more luscious than the cake itself.

But people often get a hazy vision of their future when long term gain is blurred by the sparkle of what’s fun and easy now. Delayed gratification can be a conscious choice of looking forward to a life of long-term gain with less worries while initially sacrificing with short-term pain. When rewards are genuine, they necessarily come later.

Be a lawbreaker for once. Doing so perhaps can even help you avoid spending a life of long-term agony and pain because of the short-term gains you’ve opted to prioritize early on. Break Parkinson’s Law. Do it now!
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(Dr. Adonis Agcopra, MBA, CIS, RFC® is with the IARFC and is portfolio director of AFIC Meridian Consultants. URL: http://www.aficfinancialconsultants.com. Email: aficfinancialconsultants@outlook.com.)

The Challenge of Balancing Life (The Financial Doctor #25)

19 Jun

The Financial Doctor #25
By Dr. Adonis Agcopra, MBA, CIS, RFC®
*Business Daily – 20 Jun 2013
*BusinessWeek Mindanao – 23-29 Jun 2013
*The Cagayan de Oro Times – 23-29 Jun 2013

The Challenge of Balancing Life

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Life is a balancing act. Lacking a sense of balance in life is like losing control while driving at high speed on a very slippery freeway. It makes your hands sweat and your heart palpitate. With a chronic sense of imbalance, you get a lot of anxiety, you frown a lot, you physically age faster and you easily get ill.

Psychologists say that happiness and success in life lies in maintaining a sense of balance. This balance is attained by paying significant attention to different aspects of wellness.

Several models of balanced wellness have been proposed. These include the relatively more known six-dimension interdependent wellness model developed in 1976 by Dr. Bill Hettler of the National Wellness Institute. However, I find the more comprehensive seven-spoked wellness wheel that includes financial wellness most interesting. Evaluating your own level of balanced wellness by asking yourself these questions for each specific aspect might be a great eye-opener.

Your Physical health: How healthy is your body? Do you eat the right foods? Are you exercising regularly? Is your weight ideal? Would having money but not being able to enjoy much of it due to poor health suit you?

Your Mental/Intellectual health: What is your mental diet? What information and entertainment do you feed your mind? Do you seek to aspire for continuous and lifetime learning? Do you always welcome and explore new ideas?

Your Spiritual health: How do you find meaning and significance in your life? Do you find ways to study, meditate and connect to a higher power? Do you enjoy peace of mind and heart?

Your Family health: Do you share common and morally upright values with your loved ones? Do you find time to share with your family? How closely connected are you with your spouse and your children?

Your Career health: Do you love your work? Are your interests, skills and temperament well-suited for your chosen career? Is your work and advocacy reflective of your innermost values?

Your Social health: Are you comfortable interacting with other people? Do you welcome new friends and new situations? Are you capable of maintaining valuable friendships?

Your Financial health: Are you financially disciplined? Do you live within your means? Do you know how to earn, save, invest and protect your assets and yourself?

Living a well-balanced life is a continuous journey that can spell a big difference towards your happiness and success. Aim to be successful and happy. Revolutionize and start balancing your life now!
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(Dr. Adonis Agcopra, MBA, CIS, RFC® is with the IARFC and is portfolio director of AFIC Meridian Consultants. URL: http://www.aficfinancialconsultants.com. Email: aficfinancialconsultants@outlook.com.)

Money and the Law of Cause and Effect (The Financial Doctor #24)

14 Jun

The Financial Doctor #24
By Dr. Adonis Agcopra, MBA, CIS, RFC®
*Mindanao Daily (North Min/Davao/Caraga) – 12 Jun 2013
*Business Daily – 13 Jun 2013
*BusinessWeek Mindanao – 16-22 Jun 2013
*The Cagayan de Oro Times – 16-22 Jun 2013

Money and the Law of Cause and Effect

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Life is the sum total of all the decisions we’ve made in our lifetimes. Whatever we are now is the effect of all the things we’ve been doing since our birth into this earthly sojourn. So goes the law of cause and effect in a nutshell.

There’s a logical and empowering corollary to this – the exact things that we are doing in our lives today can simultaneously be the reasons (or the causes) of what we can expect to happen in our lives tomorrow (the effects)!

Each day is simply the sum total of all the finite 24 hours we have at our disposal. Seven days become one week, four weeks become one month, and a dozen months become an entire year. And for all we know, years have piled up and our lifetimes have gone by.

We are finite beings and our time is limited. Being the most limited resource we have makes time no less than our most precious.

In life, being rich or poor is just relative. Comparing two different individuals will always make one richer than the other, for no two people are alike in everything. Describing someone as rich or poor is simply politics. Everyone is rich in his own right. It all depends on your basis of comparison – friends, love, happiness, family ties, and a lot of others – not just money.

A financially rich person has more accumulated assets of monetary value than others. A religious associate of mine once said, being materially “rich” is neither good nor bad. The morality lies in how your God-given assets are earned and used. Money indeed dictates power and control. But as the cliché goes, “With great power comes great responsibility.”

Some people are a lot more materially blessed than others. We might ask ourselves what could be the reasons of them being so? How did they do it? By the law of cause and effect, everything has an exact cause and having a good grasp of these causes will lead us to their exact effects!

If your means of earning now or the way you think about money seems to be leading you nowhere near having great financial well-being in the future, then it just might be time to reconsider your current game plan. Should you change tactics? Should you upgrade your skills to earn more? Should you seek to understand more investing strategies to help make your money work for you? Should you practice more discipline with handling money?

More importantly, you might further ask: “Do I have to do it? Shall I do it? Should I do it? What reasons do I have for doing it?” You alone will decide, nobody else! Do the right causes and you will have the effects you want to happen in your life. For you become what you think about most of the time. Choose to have a great financial destiny now!
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(Dr. Adonis Agcopra, MBA, CIS, RFC® is with the IARFC and is portfolio director of AFIC Meridian Consultants. URL: http://www.aficfinancialconsultants.com. Email: aficfinancialconsultants@outlook.com.)

Is Stock Market Investing For You? (The Financial Doctor #23)

4 Jun

The Financial Doctor #23
By Dr. Adonis Agcopra, MBA, CIS, RFC®
*Business Daily – 05 Jun 2013
*BusinessWeek Mindanao – 08-15 Jun 2013
*The Cagayan de Oro Times – 10-16 Jun 2013

Is Stock Market Investing For You?

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Word goes around among the finance boys in the stock market: “The bulls run, the bears retreat, but the greedy pigs get slaughtered!”

In mass investor psychology, being bullish or bearish reflects the prevailing market sentiment. It arises from the totality of a variety of factors that are either fundamental or technical, including local and international events of economic and political importance, temporary and seasonal factors, as well as historical data of market prices.

A bullish sentiment is seen with an upward trend in stock prices in the background of good economic prospects, while a bearish sentiment is reflected in negative market downturns.

Exposure to stock market investing may come in two forms. Direct stock market investors buy stocks straight in the stock exchange. Managed stock or equity fund investors secure units or shares of a fund which buys into a diversified portfolio of stocks. But whether bullish or bearish, whichever way a market goes, both kinds of investors are still exposed to the inherent volatility of stock market trading.

If you directly buy stocks through your stockbroker, chances are to a great extent you are managing your own portfolio of stocks by yourself. Are you a savvy investor with decent know-how and experience in stock trading? Then if so, perhaps the extent of your exposure to volatility risk may be significantly minimized. However, to become savvy you need to go through a learning curve and this doesn’t happen overnight.

So if you’ve got the mettle to go into direct stock market trading yet your own know-how and experience is dubious, then you’d better have somebody reliable in the fundamental and technical aspects of the market to back you up. Otherwise, should you be willing to engage in the stock market without proper backup, be sure you are playing with money that you can afford to burn without so much tears to lose. As the finance people would say, if at times you win big, at other times be also prepared to lose big.

If you still highly desire to play in the stock market battlefield yet you do not have the luxury of time and are not currently prepared with the fundamental and technical tools and experience, investing through professionally managed funds may be a risk-mitigated stock market strategy that is more suitable for you.

Assuming the proper time horizon for your investment, a managed stock or equity fund strategy may allow you to harness greater diversification for the same amount of investible funds with the added benefit of direct supervision by professionally-trained and seasoned fund managers with several decades of cumulative experience in finance.

Continue seeking to learn and find ways to make your money work for you. Investigate before you invest. Do it now!
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(Dr. Adonis Agcopra, MBA, CIS, RFC® is with the IARFC and is portfolio director of AFIC Meridian Consultants. URL: http://www.aficfinancialconsultants.com. Email: aficfinancialconsultants@outlook.com.)

How Liquid Are You? (The Financial Doctor #22)

28 May

The Financial Doctor #22
By Dr. Adonis Agcopra, MBA, CIS, RFC®
*Mindanao Daily News – 29 May 2013
*Business Daily – 30 May 2013
*BusinessWeek Mindanao – 01-07 Jun 2013
*The Cagayan de Oro Times – 03-09 Jun 2013

How Liquid Are You?

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How balanced are your investments? Is being liquid a matter of great significance to you?

​Balanced investment strategies give you a discernible edge over the medium- and long-term. Among the most important concerns to consider when balancing your investment strategies is the factor of liquidity.

Liquidity determines the ease of converting your investment assets back to cash or its corresponding cash equivalents in any market condition. Aside from cash in your personal vaults, the amounts placed in your savings and current accounts are among the more favored liquid assets to boot. With your ATM card or the assistance of your neighborhood bank’s teller, cash may be available at your disposal anytime. However, some higher-growth oriented investment instruments called paper assets are generally considered liquid as well.

Certificates of stock ownership, government and private company bonds, medium-term and long-term commercial papers as well as managed investment funds may be traded in the primary or secondary markets by financial intermediaries. Hence, within a few working days, you could easily recover the cash value of your investments in these instruments.

Granting a similar profile of 15% average compounded return rate per annum for the next 10 years, would it matter to you if your PhP 1 million is locked in a non-liquid investment vehicle such as real estate or would having the same amount in an instrument that is easily cash-recoverable be a better-sounding investment exit alternative?

Issues regarding liquidity balancing is at best left to the inclinations and whims of each individual. However, with due consideration to the equally important investment attributes of risk, return and diversification, a 50-50 liquidity balancing strategy may be considered ideal perhaps by many. This means that out of your entire net worth, half of your assets may be readily converted back to cash or their cash equivalents.

Imagine yourself growing your non-liquid real estate assets at a rate of 30-50% per year, and with your life’s net worth locked in almost all its entirety in this vehicle alone. What if some turbulent economic event significantly affects performance of the real estate sector in your domain? Good if you also have a diversification tactic within the real estate sector itself. But what if you need a sizable amount of cash that badly and you’d have to dispose of a couple of real estate assets in a down market? You’d have no other option but to take that beating.

Well-crafted strategies to attain a practical and viable level of balance between your liquid and non-liquid assets could be a good start towards your diversification goals. Invest intelligently. Do it now!
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(Dr. Adonis Agcopra, MBA, CIS, RFC® is with the IARFC and is portfolio director of AFIC Meridian Consultants. URL: http://www.aficfinancialconsultants.com. Email: aficfinancialconsultants@outlook.com.)

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