Investor’s Nemesis: Inflation

Two months ago, I was discussing investments with my banker, and the options I had available in this age of low rates. He casually mentioned one of his new bank products: a bond in Singapore Dollars that would offer 2.5% yearly. I reminded him that Singapore’s inflation was over 3%… in other words, I would actually loose money by investing in the bond!

It is interesting that a lot of, if not most, people do not think of inflation when considering investments and savings. This is a big mistake as in my previous anecdote, it can turn a profitable investment into a loosing one. It is a mistake encouraged by the whole financial industry as most performance numbers (stock index, fund performance, etc.) are given in nominal currency rather than inflation adjusted, making the numbers look bigger than they really are. Regular people will do this too, claiming they have made “this much money” by buying a house 30 years ago for pennies and selling it today. Yes, but how much are those pennies worth in today dollars?

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A first look at Singapore’s real estate market

Let me start this article by diving right in and showing you the real estate prices in Singapore, quarter by quarter, as collected by the Urban Redevelopment Authority.

Pretty interesting right? Back in July 2009 I was actually thinking of buying a property there to take advantage of the prices finally going down. After a handful of visits I had to give up: things were becoming way too crazy for me. Prices would suddenly go up between the moment the ads were posted and the moment I would set a foot in the property for a visit. In one instance where I was trying to negotiate a condominium unit, the seller decided to raise his original asking price, rather than lower it to reach me halfway as you would expect in any negotiation. For the record, that property still hasn’t sold one year later, but the price has been raised again…

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