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Where To Put Your Money Now

Where To Put Your Money Now

What would you say if someone, whom you have never seen, told you that they weighed 69 kilogrammes?

The answer is probably not a lot.

Without knowing more about the individual, such as the person's height, it would be impossible to say whether the person is overweight, underweight or just right. The point about weight is that on its own, it is meaningless.

The same goes for stock market indices, which are regularly reported in the press.

All-time high

The Nasdaq Composite, for example, is making the news, as it flirts with highs that have not been seen since 2000. Japan's Nikkei 225 index is also making the headlines, as it climbs to a 15-year high.

Meanwhile, the Dow Jones Industrial Average's rise seems almost unstoppable. It flits with ease from one summit to the next peak. Elsewhere, India's Sensex index, is riding on the crest of a Modi-wave, while London's FTSE 100 Index is closing in on 7,000 points.

But we shouldn't be too surprised that stocks markets are continually scaling new highs.

With the vast amounts of money magicked by central banks around the world, it is almost inevitable that the various asset classes would somehow benefit. After all, where else can the money go – under the mattress?

Insultingly high

The trillions of dollars created by central banks have, for example, found their way into global property markets. In some countries, bricks and mortar are now so expensive that it has made home ownership impossible for many.

Meanwhile, bond prices have ballooned to insultingly-high levels. Elsewhere, bank deposits have swollen so much that some institutions even charge savers should they dare to deposit money with them.

Cash has now become so plentiful that it has become almost meaningless.

That is precisely why we need to put to work any available money we might have. Doing nothing is no longer an option unless you enjoy watching your cash diminish in importance.

Some of you might be thinking that many stock markets have already gone up considerably. You are right – they have.

Up, up and away

Since the financial crisis of 2009, our Straits Times Index (SGX: ^STI) has more than doubled from around 1,500 points to over 3,400 points. But remember that an index on its own is meaningless.

At 3,400 points, the Singapore market is valued at 14 times earnings. Put another way, if you owned every STI company outright, you would pay $14 for every dollar of profit that those businesses collectively make.

Now imagine if you were paid $1 in annual interest for every $14 that you deposited at your local bank. That would be equivalent to a yield of 7.1%. If any bank in Singapore should offer me that today, you would not see me for dust.

But you and I both know that banks are doing nothing of the kind.

More and more

The earnings yield is just one of many measures that we can use to gauge how expensive the Singapore market is. Another is the dividend yield, which stands at around 3%.

But when I look closely at the Singapore market, I see around half of Singapore's biggest companies yielding more than 3%. Over a-third are yielding more than 4%, while one in five yield more than 5%.

These yields compare with an income of 2.2% that you would get by lending money to the government for 10 years, with, I should add, little prospect that the income will rise as dividends could.

I know which option I would choose, and I am doing so on a regular basis.

A version of this article first appeared in Take Stock Singapore. Click here if you would like yourFREE Take Stock – Singapore delivered directly to your in-box.

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