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Phuket Finance: Bonding with your portfolio

Legacy Phuket Gazette

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Phuket Finance: Bonding with your portfolio | The Thaiger
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PHUKET: People usually think of bonds as safe investments, although I have written before about the dangers that are not so obvious to investors.

The reason they can be dangerous in a low interest rate environment, such as we are in now, is because as interest rates rise, the market value of a bond or portfolio of bonds drops, and you can lose principal if you need to sell them. One way to avoid this risk is to buy shorter maturity bonds and hold them until they mature.

When looking at bond quotes you will notice that there are several yields quoted. In an environment such as this, you need to make sure you use the ‘yield to maturity’. If you use ‘coupon yield’ or ‘current yield’ you may be in for a big shock when you get less than your principal back at maturity.

Coupon yield is simply the percentage return based on the face value of the bond. So a 10% coupon on a US$1,000 bond would be $100 per year. However, when you buy the bond it is often trading at a premium in an environment such as we are in now, let’s say $1,100 to use easy numbers.

Thus, you lose $100 at maturity because you only get $1,000 back, so your total return, or annual yield to maturity, will be less than the 10% quoted coupon rate. The $100 annual payment you receive is also actually less than 10% for you, because you paid $1,100. The current yield also faces a similar problem caused by the fact that you are getting back less principle than you put in.

Of course, if interest rates are higher than normal, bonds will often sell at a discount. If you purchased the same bond in the previous example for $900 you would not only receive more than 10% per annum from the annual $100 payment, but upon maturity you would receive an extra $100 back in principle.

Yield to maturity is the calculation that takes all of these considerations into account and tells you what you will receive per annum in percentage terms, assuming you hold the bond until maturity based on the price you would actually pay for it today. You don’t need to know how to calculate it, as it should be included in the quotation for any bond offered to you. If it isn’t, make sure you ask for it before making a decision.

The important thing to understand is, if you need to see the bond prior to maturity, you are not likely to receive the same yield, as you may make a loss on the principle if interest rates in the market have gone up. If you are five years away from maturity and inflation becomes an issue, you are also at risk of losing purchasing power as you cannot take advantage of rising interest rates.

One more risk to be aware of is, if you buy bonds denominated in a foreign currency, you could potentially lose more on the exchange rate than you gain from the higher yield (of course this could theoretically go in your favor too).

David Mayes MBA, lives in Phuket and provides wealth management services to expats around the globe, focusing on UK pension transfers. He can be reached at 085-335-8573 or david.m@faramond.com.

— David Mayes

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Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

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Governments & old media versus social media – who will win? | VIDEO

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Governments & old media versus social media – who will win? | VIDEO | The Thaiger

We look at the recent changes made by the Australian and Indian governments to except control over the world’s biggest social media platforms. India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social. There is now an open battle between the rise of social media platforms and the governments and ‘old’ media that have been able to maintain a certain level of control over the ‘message’ for the last century. Who will win?

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told. The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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The social media giants in battle with ‘old’ media and world governments | VIDEO

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The social media giants in battle with ‘old’ media and world governments | VIDEO | The Thaiger

“The rules signal greater willingness by countries around the world to rein in big tech firms such as Google, Facebook and Twitter that the governments fear have become too powerful with little accountability.”

India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social.

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The companies are also being made to publish a compliance report each month with details about how many complaints they’ve received and the action they took.

They’ll also be required to remove ‘some’ types of content including “full or partial nudity,” any “sexual act” or “impersonations including morphed images”

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told.

The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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Never miss out on future posts by following The Thaiger.

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Business

Turbulence ahead for Thailand’s aviation industry | VIDEO

The Thaiger

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Turbulence ahead for Thailand’s aviation industry | VIDEO | The Thaiger

When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

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