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ASSET MANAGEMENT AND INVESTMENT VALUATION

2012-01-19T14:27:00.000-08:00

ASSET MANAGEMENT

DEFINITION
Asset in financial world is divided into two,current and fixed asset. Current assets are easily convertible to cash, andwhich economic life or value is not more than one financial year; like stocks,debtors and cash. While fixed assets are assets, which economic life or valuecovers more than one financial year; like cars, furniture and fittings, andbuildings.
But to the average man, asset is any item of value; such as cars, electronics,gold, jewelleries, shares, and houses. Some of these items are actually assetfor investment purposes, but some are not.
In the investment world, an asset is an item which brings in money, and haspositive cash flow (Robert T Kiyosaki). Positive cash flow means that, cashin-flow from an item like, dividend, rent, and income, is more than cashout-flow from it, like cost of maintenance, interest, and rent, and thisimplies that an item with negative cash flow is a liability, even if it’s yourhouse.

VALUATION

Generally people value their asset by its market price, but in the financialworld, they are valued based on the historical cost. There is a need for us tounderstand the basis of these valuations.
Ordinarily Mr Peter would value his house by the market price as advised by aprofessional, based on some factors and the forces of demand and supply. Theforces of demand and supply are the most important factor in any market price,and it is based on emotion and sentiment of people, which is not consistent andreliable. This means that any market price used by Mr Peter as value for hisproperty is not reliable.
If this type of asset was owned by Peter & Co Ltd, it would be valued atits Net Book Value (NBV), which is historical cost less accumulateddepreciation. Historical cost is the price at which the property was acquired,"let say about twenty years ago", and then less depreciation chargedover the years, to give us the NBV.
But for investment purpose, the value of an asset is its net cash flow. MrPeter and Peter & Co Ltd, should value their asset, based on its net cashflow, which is the excess of cash in-flow over cash out-flow.

MANAGEMENT

As defined earlier, asset is anything that brings cash into your pocket. Themain principle of asset management is to increase your net cash flow, and thusincreasing its value.
For most people their job is the first asset, “since it brings in money intotheir pocket” that they really have, and it is the income from this, that theywill use to start building up other asset. The best way to manage this type ofasset is by acquiring more skills, not necessarily certificate, to be able tosolve more problems. And the more or bigger the problems you can solve, thebigger your income. But you need to be very careful here, and learn how to savefor wealth, because not every time that people have increase in salaries thatthey save, and not all savings leads to wealth, some could leads to poverty,please click here to read an article on savings to wealth.
For the purpose of easy understanding, we shall divide investment asset intotwo groups, controllable and uncontrollable asset.

Uncontrollable Asset: These are assets which you cannot influence its cash flowlike, shares, mutual funds, and debentures. The best way to manage this type ofasset is to consider the expected returns before buying it. Some has fixed rateof returns like debentures and treasury bills, but shares and mutual fund donot have a fixed rate of return. Before investing in shares you need toconsider the quality of management, three to five years financial statement,and its plan for the future. In considering the financial statement, ensurethat they have a strong earning Per share, and tradition of giving regulardividend and bonus shares.

Controllable Asset: These are assets in which you can influence it cashin-flow. Asset management as stated earlier, is all about maximizing your cashin-flow and minimizing your cash out-flow. The best asset anybody can have is agood business that brings in constant cash flow, focusing on things that bringsin cash and not necessarily sales. This is because, not all sales result intocash, likewise not all profit usually results into cash, and this is why somany businesses looks good from their financial record but are still having bigproblems. Great sales/profit is important, without increase in sales/profit abusiness is like an insane man, and business with increase in sales/profit islike a healthy and sane man, but if a business has great increase insales/profit without adequate cash flow is like a man without blood, a deadman. Cash makes sales/profit real; it is the reality on ground. So try toincrease sales and avoid some expenses you can differ, and review your creditpolicy, to ensure that you have enough cash on ground.

Savings to Wealth Or Poverty

2012-01-18T11:07:00.000-08:00

INTRODUCTION
Savings is the actof putting aside, for some time certain portion or percentage of your income toeither buy an item, prepare for some unexpected expenses, or for investmentpurposes. For the purpose of this write-up, we would be considering savings forinvestment purposes. Most people would advise you to save up to 10% of yourincome, but taking a look at the biblical story of Joseph in Egypt, where hesaved one fifth or 20% in the year of abundant, which was their saving grace inthe year of famine. I believe there is a divine wisdom in paying yourself 20%of your income, if you can afford it.

WHY SHOULD YOU SAVESome people believethat their income is too small, and not sufficient to meet all their basicneeds, so they use this as a reason not to save. This shows that they do notunderstand the commandment, you shall love your neighbour as yourself, and notyou shall love your neighbour more than yourself. Whenever you spend money, youare paying someone else, rent your landlord, transport fair the owner of themeans of transport, school fees the proprietor and buying food or cloths theretailer. As you continue to do this, you are helping all those you paidfinancially, but when you spend all your income, you are not helping yourself.It is the little that you pay yourself by saving, that would empower you(enable) to take advantage of opportunities, when it they come.
It is the firststep out of poverty and rat race. Many people believe that the first step towealth is getting a good job or starting a good business. But what has beendiscovered overtime is that your expenses and taste will increase as yourincome increases, so the only way out is for you to put a certain portion ofyour income aside for investment purpose. Do you know that a seed in your handstoday can become a tree tomorrow, and a tree a forest? Likewise that smallamount of money with you today has the potential of becoming millions andbillions if, it is allowed to grow and multiply with time.

SAVINGS TO POVERTYIn as much that itis good to save, make sure that it does not exceed six month before you put itto productive use, if not, the effect of inflation would reduce the economicvalue of your savings. No matter how small your savings is, find something toinvest in. All savings that are not made for investment purpose cannot empoweryou to create wealth.

SAVINGS TO WEALTH
SAVINDS + GOOD ANDTIMELY INFORMATION + ACTION= WEALTHSavings itself hasa spirit, the spirit of being sensitive to investment opportunities. As youbegin to save, you should become more interested in what in the stock market,real estate and so many other opportunities offline and on the Internet. Seekfor information, subscribe to some financial journals or site on stock, to getupdated information on investment opportunities, and when necessary please beprepared paid for such information, proverb 4:7 Wisdom is supreme, thereforeget wisdom, though it cost all you have, get understanding. As you begin togather and analyses information on difference investment opportunities, you willdiscover that there are some, in which you could start small, like buying intopenny stock. Please do not wait until you have about half of your monthlyincome, before you invest, start small. Continue to do this and watch yourinvestment grow and grow, until it turns into a well, where you can always drawfrom.

CONCLUSIONYour real net-worthis the excess of what the economy gives you ( Cash inflow, income) over whatyou gave back to the economy (Cash outflow, expenses), within a particularperiod. This is your real value, what you have been able to save.

How to protect your savings from inflation

2012-01-18T10:28:00.000-08:00

www.telegraph.co.uk
Inflation can reduce the spending power of your money but there are ways to reduce its most corrosive effects.

Inflation: How to protect your savings Photo: .Keith Leighton / Alamy

By Rosie Murray-West

3:34PM BST 15 Aug 2011

34 Comments

With inflation running far ahead of the Bank of England target, most savers are finding that their money is worth less by the day. But there are steps that savers can take to avoid what has been described as a "slow motion bank robbery" - with a number of new products launched that promise to "inflation proof" your savings and deliver a real return. Below we look at the most popular options

1. Inflation-linked bonds and accounts

With inflation a concern for many savers, some banks and building societies have launched inflation-linked products for those concerned about their cash losing value. However, it can be difficult to work out which ones are best for you, and some tie your money up for a long time.

The current bonds from National Savings & Investments have the advantage of not requiring you to pay tax on your interest, and offer 0.5pc above the RPI when held for five years. However, you can take your money out earlier and still get a return as long as you hold them for at least a year. You can put in £15,000 per issue. The bonds are available from www.nsandi.com.

Rival products include the Post Office's bond which pays 1.5pc over RPI over five years or 0.5pc over three years, but is subject to tax, and a new bond launched by the Cambridge Building Society which pays 1pc over RPI fixed for five years.

2. ISAs

For those who pay tax on their interest it is almost impossible to outrun inflation. Based on June's inflation figures, a basic rate taxpayer would require an account paying 5.63pc to beat the lower level of inflation (CPI), while a 40pc taxpayer would require an account paying 7.5pc to beat the same measure.

This makes it more important than ever to use your tax-free cash ISA allowance of £5,340 a year. The best rates are available to those who are willing to put their money away for five years, and include Northern Rock's fixed-rate Isa paying 4.26pc over five years, just below June's CPI figure. With inflation predicted to fall back from here in the coming months, this product should help your cash to maintain its value.

3. Mortgage overpayments

Once you have exhausted your tax-free savings options, there is one more option that can help you to outrun inflation, if you have a home loan. This is to make overpayments on your mortgage. By offsetting your savings against your debt, you effectively end up with an interest-free savings rate at whatever rate you are paying on your mortgage.
For many people this will be better than a top-paying savings account. However, you need to make sure that you do not fall foul of your lender's rules on overpayments. Some mortgages are fully flexible, allowing you to make overpayments and get them back freely, while others do not allow you to take overpayments back, or will charge you if you make too many.
If you are thinking about remortgaging and like this option you could consider an offset mortgage with a bank like First Direct. The bank is currently offering a two year fixed rate of 2.99pc for those looking for a 65pc mortgage, which has flexible features.

4. Top paying savings account

If you want total security for your savings and have exhausted all other options and used your tax-free allowance, the best you can do is to find the best paying home for your money. You will get more interest if you tie up your money for longer, but the tax, if you have to pay it, is likely to take the total return way below inflation. Top accounts include a five year bond at 5pc from KRBS, and a similar product from Melton Mowbray building society paying 4.75pc.

5. Low-risk investments

£If you are happy to take on more risk, a portfolio of dividend-paying shares can help you to outrun inflation. This is only an option for those with a diversified portfolio and who can withstand (both emotionally and financially) the ups and downs of stock markets. The good news is that after a dreadful couple of years, the number of companies increasing or reinstating dividends this year outnumbers those that cut or cancelled payouts in 2009.
But investors might prefer to buy funds than invest in a spread of dividend–paying companies, which tend to be equity-income funds. These funds have had a tougher time than many over the past three years, but are starting to come into their own as dividends make a comeback. Equity income funds include Threadneedle UK equity Income, Rathbone Income and Newton Global Higher Income.