Things to ponder before taking off for a holiday

Planning well for a holiday means that you get to enjoy the holiday

• By Frederic de Melker, Special to Gulf News
• Published: 00:00 May 5, 2012
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With temperatures rising, most UAE residents are getting into a holiday mood, or at least, have begun preparing for a summer escape. Planning well for a holiday means that you get to enjoy the holiday, take advantage of the best deals and also avoid getting a holiday hangover. It is also worthwhile to give yourself a five-step financial health check before you leave.

Playing your cards right

Your credit card is not only a flexible instrument for overseas travel spending; most cards also contain attractive features to make your ‘holiday' more comfortable and sometimes even cheaper. Do take time to check the package that goes with your card, as it could offer attractive benefits.

Some cards contain insurance packages that cover loss of luggage, flight delays or even offer full travel insurance. While it is wise to get travel insurance ahead of your trip, be sure you are not paying for something you already have on your plastic. Some cards provide you with a concierge package including airport drop-off in the UAE, while others offer a range of promotions and benefits including discounts on car rentals or an extra free night in your hotel. In fact, the more you save on such costs, the higher your budget to enjoy a good time. Most importantly, don't forget to check your credit card balance and limit before you leave.

Handle your cash flow

It is important to ensure that bills get paid and standing orders are met, even when you are on vacation. You don't want to return to a home with no electricity or running water! Although most people can easily access their bank accounts online, sometimes technical problems can prevent connection. Put some extra money into your current account, to meet upcoming payments, so that you are sure there is enough reserve to keep your cash flows going.

Review investments

‘Sell in May and go away till St. Leger Day,' is an often quoted stock market saying. As we approach mid-year, it is time to rebalance your portfolio based on your long-term investment strategy, and review your tactical shorter term positions before you go off on holiday. Your relationship manager is the best person to provide a market outlook for the rest of the year, and guide you in streamlining your holdings.

Protect yourself

The UAE is a very safe place in comparison to the rest of the world. Take precautions and prevent financial damage as a result of loss or theft. It is advisable to write down telephone numbers to block your accounts or credit card as well as the process to apply for an emergency card. In the event of a credit card loss or theft, time is against you and the quicker you act the lesser the impact. It is also a good idea to make copies of your passport and record the details of your embassy in the country you are visiting.

While cards are easy and safe to use, it is important to carry some cash as well for emergencies. And do be careful not to keep this money in one place, or you could lose all you have in one go.

Track your spending

Holidays are expensive. When you put a fixed budget on what you can spend during your travel and you keep track of what you pay, there will be no unpleasant surprises awaiting you upon return. Putting some money aside every month can help you stay relaxed even after your trip.

Making loans an effective financial tool

Everybody dreams about retirement without sorrows, solid degrees for the kids or simply the security of having money set aside

• By Frederic de Melker, Special to Gulf News
• Published: 00:00 April 7, 2012
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Everybody dreams about retirement without sorrows, solid degrees for the kids or simply the security of having money set aside. With significant focus in the mass affluent space on managing savings and wealth, insurance policies are underwritten, investment plans are initiated and monthly savings are kept in a wide variety of accounts.

But we are not living in the future, and would like to make our lives more comfortable today. Owning a roof above our heads, driving that fancy car or starting a personal project are some of the many things we want to go for right now and not tomorrow. Unfortunately, not all of us are millionaires who can afford paying directly out of the pocket. A loan helps to discount future revenues and provides the advantage of enjoying life right away.

If you are considering a loan for the first time, it may be a good idea to establish a relationship with a bank. Opening a chequing or savings account is helpful. Having an active bank account in good standing clearly indicates that you can manage money, and lenders often use this information to determine whether you are a credit risk. Banks also often look at your employment history, and records of your steady job history will improve your chances of qualifying for a loan.

Do your homework

Before you pay your bank a visit, there are two things you should review. First, you should ensure that your plans are realistic and achievable. Sometimes, it is better to stay at home for a year instead of borrowing money for that dream holiday. Not meeting the obligation of repaying a loan can put you in a difficult position, and those ten days in paradise are simply not worth it.

Secondly, you should review the amount of money you are already paying off every month, and consider if you can meet additional repayment demands. Making your budget helps you to stay out of trouble. Be sure that you can survive for at least six months, if for some unavoidable reason you lose your monthly income. It is not advisable to count on future bonuses. When you badly need them, they are never there!

Borrowing costs money

Everything has its price. A loan is not a free gift. The most obvious cost is the interest you have to pay. The rate can be fixed, variable or a combination of both. Often, there are fees involved to process the loan. It is very important to take your time and inform yourself about the best price in the market. A product might be very interesting at first sight, but after some in-depth research, it is possible that there is a better alternative.

A credit card is a loan

Credit cards are very handy and flexible, and therefore, seen as an attractive instrument to pay your daily expenses. Beware that the day your cash reserve is not in line with your budget, that flexibility can work to your disadvantage.

Be pro-active in managing your loan portfolio.

If you pursue a healthy financial situation, your loans and savings need to be in balance. Your relationship manager can guide you to finding the right set of solutions. A pro-active relationship will help you review your situation regularly and optimise the cost of borrowing versus the benefits the loan is bringing you. It is important that you, as a customer and holder of the portfolio, take the lead and sit with your advisor regularly to update yourself on the status and see what opportunities are there to improve your financial situation.

The pros and cons of mutual funds

• By Frederic de Melker, Special to Gulf News
• Published: 00:00 March 10, 2012
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The concept of mutual funds may have been introduced to the wider public just 20 years ago, but what most people don't know is that this investment vehicle was actually created centuries ago.

Inspired by an investment construction created by a Dutch merchant in 1774, King William I of the Netherlands launched the first mutual fund in 1822.

In the 190 years that followed, not only has the product witnessed considerable development, but legislation has been built around the product and regulatory bodies like the US SEC have been introduced.

Despite its long history, individual investors today often perceive mutual funds with mixed feelings. Presented as a golden key that can open any door, the result has not always been in line with what is expected. An oversupply of products has changed clear waters into a turbid pool.

Nevertheless, it doesn't make sense to believe that the concept of the automobile itself is wrong just because you have made a couple of wrong choices in the brands of car. It is the same for mutual funds. It is important to select wisely. Here are some points to look out for:

Chopsticks

The philosophy behind mutual funds is easy to understand. Look at an individual bond or stock as a chopstick. You put on some pressure and it breaks.

A solid mutual fund is like a bunch of chopsticks. If you try breaking it, the resistance is immense.

In the US market some years ago, investing all your money into Enron would have been disastrous.

Investing in a well-balanced US Energy fund, with Enron in portfolio, would have provoked only a three to four per cent loss.

Multi-level diversification

Since mutual funds include a portfolio of individual financial positions like stocks or bonds, they are diversified by nature. When you start combining these products to meet your overall return objectives, the allocation of products will have an extra positive impact on the risk level of your basket of investments.

Open architecture

Getting the right fund manager is important because most specialise in particular segments.

Be it on a geographical, industrial or thematic basis, a sophisticated professional is in tune with his market and sees the woods from the trees.

His approach is based on both qualitative and quantitative grounds. He knows the companies he is prospecting or investing in. He visits CEOs and CFOs regularly, and feels the pulse of his portfolio.

Solid mutual funds are usually actively managed by such fund managers.

As a third level of diversification, it is advisable that you spread your portfolio of mutual funds among different asset management firms. By doing this, you implement different investment styles and market approaches to spread your risk even more.

Profile

Before you start building a mutual fund portfolio you need to determine how it best fits your needs.

There are several ways to make a customised profile by taking into consideration your risk appetite, the tenor of investment and your investment goals.

It is important to take time to do this right. An inaccurate profile may result in wrong investment decisions, which could cost you dearly.

Conclusion

It is certainly difficult for an individual investor to get into mutual fund selection.

The quality differences and almost unlimited choices create a complex maze.

In addition, you need to determine the right mix of products to manage correlation and position overlap.

A wealth adviser can help you make the right choices because he is supported by a team of specialists who know how to compare products based on quantitative and qualitative measures.

The writer is head of priority banking at Emirates NBD. Opinions expressed here are his own and do not necessarily reflect those of Gulf News.

            Don't write off structured products

Published: 00:00 February 11, 2012

Around 10 years ago, structured products found their way into the portfolio of numerous affluent investors. In the aftermath of the Lehman Brothers bankruptcy, these products were often portrayed in a very negative light, even described as too complex and unpredictable. But are they really that damaging? Or do they offer opportunities for individual investors?


What is a structured note?

Typically, investment banks or their affiliates develop pre-packaged investments that provide possible returns in a pre-defined performance field. The field is determined by two elements — the level of capital protection so required by the investor, and a derivative which links the investment with an underlying index, a currency, a single security or a basket of securities.
For those new to the investment scene, a derivative is a contract between two or more parties, (like an option, futures contract, or swap), with the value of the contract determined by fluctuations in the underlying asset.

Complexity: As a candidate investor, it is important to keep in mind that a structured note is not always a simple debt security like a government or corporate bond.
Failing to fully understand a structured product causes disappointment or worse. While a structured note may appear complex, taking the time to explore and educate yourself will help you in embedding these instruments as part of your actively managed portfolio.
Structured notes do provide investors with a level of capital protection, against any significant loss on the invested amount in a derivative. Be advised, however, that capital protection, although it sounds attractive, should never be the primary driver to invest in a product. If you don't want to take any unnecessary risk, it is better to keep your wealth in cash.

Risks: As an investor you know that the ‘too good to be true' opportunity doesn't exist. While considering a structured note, you should review the following risks:
Exposure to credit risk or counter-party risk: This means that the issuer or the guarantor of the note may not able to meet the obligation to pay you back at maturity.
As an individual investor, it is not easy to assess the credibility of an issuer and, therefore, it is advisable to consult some rating bureaus online. For those who invest frequently in structured products, it is important not to put all your eggs into one basket. You should diversify your portfolio not only by asset class but also by issuers.

Liquidity: Structured products are not always liquid and rarely trade once issued. This means invest only with money you can keep aside till the product matures. Investors looking to sell a structured product before maturity should also be ready to sell it at a significant discount. In general it is clear that these products are not made for speculation on price fluctuations.

Regulations: An August 2009 circular issued by the UAE Central Bank requires all banks operating in the UAE to take explicit Central Bank approval for any structured product they wish to offer customers.
The Central Bank took this move to avoid future defaults, following liquidity issues at UAE and GCC banks after the global financial crisis. Although the liquidity issues have since been resolved, make sure your relationship manager provides you with the Central Bank approved term sheet, before you sign up.
Structured products can add value to your portfolio if they fit your overall strategy. They are a good value-add for a well-diversified portfolio if used with complete understanding and awareness about the underlying mechanism. Given these turbulent times, they can even act as a protection steer while enhancing returns for an educated investor.                               

Money issues to note when you arrive

Despite the slowing world economy, the expat population in the country grew by almost 90 per cent over the past three years to 8.3 million

• By Frederic de Melker, Special to Gulf News
• Published:  January 21, 2012
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Every year thousands of people around the world decide to accept a new assignment and move to the United Arab Emirates, making it one of the most popular multi-cultural destinations.

Despite the slowing world economy, the expat population in the country grew by almost 90 per cent over the past three years to 8.3 million. Relocating or moving to a new country creates various needs, most crucial of which could be ready access to financial services. Unfortunately, the services provided by relocation agents are not always affordable. So, from a banking perspective, what are the first steps you should take in the reorganisation of your financial life?

Getting started with a new banking relationship in a foreign country is not an easy task as you face different banking dynamics, new regulations and unfamiliar financial habits. You have to re-establish your cash and wealth management, review protection and loan facilities, and start a relationship with a new partner bank. Some people prefer an international brand although the accessibility and market knowledge of local banks is often a plus.

Is your visa stamped?

The current account is strictly regulated in the UAE. Only residents with a valid visa are allowed to receive a chequebook. This is why a lot of banks don't allow you to open a current account. This can cause a problem during the first weeks in the country while your papers are still under process, because you need to pay your rent or transfer deposits for certain utility services. Opening a savings account can be a solution. Money transfer using the branch or even online is allowed. A debit card also provides you with electronic payment facilities.

Cheques

While in some countries the use of cheques has, over the years, almost vanished, in the UAE they are still a widely used instrument. Don't get yourself into hot water with a bouncing cheque, because it is a criminal offence that can have severe consequences. A small overdraft facility on your current account protects you in case you do not have sufficient balance.

Going plastic

Credit cards are very popular, and the market offers a wide range of feature-packed plastic. It is worthwhile to take time and explore the benefits offered, to find a card that suits you best. Being eligible for a card depends on different aspects.

As in most countries, the credit card market is open. However banks sometimes ask for salary transfers or a minimum period of banking with them before issuing a credit card. This can vary from one financial institution to another.

Personal Loans

As in most markets, all standard loan products are available. The maximum amount that can be obtained goes up to 20 times your salary. It is important to mention that your employer plays a significant role in the bank's acceptance policy and needs to be on the approved list. Some banks may lend you the capital you need despite your employer not being listed, but charge you a higher rate.

Hit the road

Banks are more flexible on car loans, and in most cases the employer-approved list or salary transfer is not applicable. Since April 2011, however, the UAE Central Bank has tightened its regulations, resulting in a mandatory down payment of 20 per cent of the value of the car whether it is new or second hand.

Do you need some advice?

It is important to be well-informed in order to ensure that you land safely in your new banking environment. As a mass affluent customer, you are entitled to be supported by a relationship manager who is probably best placed to advice you on the steps to take.

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