joshuawbb Posted June 27, 2015 at 09:21 AM Report Posted June 27, 2015 at 09:21 AM Hey everyone. I'm approaching 25, and it's time I started making long-term savings, e.g. for retirement. I've been in China for about 6 years, and since I was 18 when I arrived I've spent more time in the financial "ecosystem" here in China than back home. Please bear with me if my grasp of banking and investment isn't that great. Was wondering if anyone could provide some insight - what sort of bank account would you recommend for long-term savings with interest? I'm looking for something to fill the lack of actual retirement or investment bank accounts here in China - at least, this is my understanding of banking services here in China. Back in the UK you'd be looking into ISA accounts or company-provided retirement solutions, etc. Here in China? I know there are bank services for set-term savings with interest, but I need some advice into how to choose one best for the long-term. Would really appreciate some guidance!
889 Posted June 27, 2015 at 09:41 AM Report Posted June 27, 2015 at 09:41 AM You can't just look at the interest rate; the currency is even more important. Safest is usually to stick to your home-country currency if you're saving for retirement. Interest rates on most major currencies are at low levels now, at least by historical standards. So anything that locks you in long-term to today's rates would probably not be a good idea. In any event, if you've got the cash, home-country real estate would probably be the best long-term investment. Hard to go wrong making sure you've got a place back home to return to. And pretty miserable if you spend 25 years in China and then find you can't afford to move back home because housing costs have become outrageous. The earlier you get on the property ladder the better. 2
Shelley Posted June 27, 2015 at 12:23 PM Report Posted June 27, 2015 at 12:23 PM Buying land/property has always been a solid investment, agree with 889, going to be better than fluctuating, uncertain money markets, stocks and shares etc. 1
joshuawbb Posted June 27, 2015 at 03:26 PM Author Report Posted June 27, 2015 at 03:26 PM Thanks for your replies. I'm not really at the stage where I can be thinking about buying property back home in the UK though; a mortgage alongside my living expenses and rent here in China probably wouldn't work out well, though I understand the idea. I'm thinking more about how I might emulate what a personal pension plan would be if I was working in the UK, or the equivalent of a 401k (?) savings account in the U.S would be. Put 10% or so of your monthly salary somewhere it'll grow at least somewhat and forget about it until retirement. I don't know how to do that here in China and it seems I can't contribute to a UK pension plan fund from here. I might also have less of an understanding of those concepts than you do, in which case I apologise, bear with me. For those of you here for the long term, how do you handle your financial planning?
Michael H Posted June 27, 2015 at 06:22 PM Report Posted June 27, 2015 at 06:22 PM Living in the US, I save for retirement by investing in stocks. In the long run this is far superior to a bank account with interest. If you don't know what you're doing, just invest a fixed amount of money each month in an index fund (like the S&P 500) and leave it alone. I have no idea how to invest in such things in China; you might want to open an account in your home country. 2
Silent Posted June 27, 2015 at 09:45 PM Report Posted June 27, 2015 at 09:45 PM Put 10% or so of your monthly salary somewhere it'll grow at least somewhat and forget about it until retirement. I don't know how to do that here in China and it seems I can't contribute to a UK pension plan fund from here. I don't know how to do it in China, but to my knowledge there are limitations to investing for foreigners. Don't know the particulars certainly something you should look into if you want to stick to China. It is not reliably to predict what will perform well the coming 40 years or so. Theory says spread your investments and you will do fine and for long term investments it pays to take a bit of risk. Though the theory is clear, reality is not that clear cut. There are quite a few examples where markets have seen very long periods of flat and negative returns, specially if not internationally spread. E.g. the above advise to buy real estate, may sound solid. Reality is that past performance is no guarantee for the future. Even in the past in many area's real estate has been a poor investment. E.g. this week there was even in the news that a village in Sicily was giving away homes for free in an attempt to stop the decline. Consider that the baby boom is going to die off and that the increase in single person households won't go on forever either. In many area's this will impact demand and thus price. With real estate location is everything and when you buy property it's hard to spread you investment. A single accident or (nuclear) terrorist attack can make your investment worthless. My advice would be, specially in the beginning when there is little capital, invest in low cost mutual funds or trackers. Depending on which one you choose your investment will be spread at least a little, but possibly worldwide. It may be smart to consider (global) trends, as long as you do it in moderation and don't fall for smooth talking but look at fundamentals. E.g. demographics may be a very good predictor of future trends. 1
kdavid Posted June 27, 2015 at 11:54 PM Report Posted June 27, 2015 at 11:54 PM You're in the same situation I was when I started investing. Two things you need to do: 1. Open an account on E*Trade 2. Buy a copy of Mutual Fund Mastery If you're living in China on an expat salary, there's no reason why you cant max out your IRA contribution each here. If you start doing that now, you'll have plenty in retirement. Good luck! 1
abcdefg Posted June 28, 2015 at 12:54 AM Report Posted June 28, 2015 at 12:54 AM Joshua -- You can open an account at HSBC. They offer personal, one-to-one advice on how to do what you are seeking. The advice often is geared to using one or more of their in-house tools, which include savings accounts, retirement accounts, share dealing, and real estate. That makes it easy for the novice, while those with more experience might find it restrictive. They cater to people like you, Brits who are working abroad. Take a look via the HSBC-Expat website: https://www.expat.hsbc.com/1/2/. Click the "Planning and Investment" tab, along the top of the page. Since you are British, they will offer you a wider range of services than they can offer foreigners, such as myself. The "Products and Services" tab outlines these. If your deposits are large enough to allow opening a Premier account, you get even more in the way of customized financial planning help. And you can manage your account from China, or elsewhere abroad. 1
Johnny20270 Posted June 28, 2015 at 04:42 AM Report Posted June 28, 2015 at 04:42 AM I use HSBC China as well as UK., Makes it easy to transfer money from UK (not other way round though) But I certainly wouldn't leave any money in China over the long term due to restrictions on bring money out of the country, Unless you are planning to retire here leaving your cash in RMB is very risky due to FX rates. Edit: Meant to add: well done on planning for your future at this stage! A good decision that many younger people ignore. 2
Silent Posted June 28, 2015 at 05:08 AM Report Posted June 28, 2015 at 05:08 AM You can open an account at HSBC. They offer personal, one-to-one advice on how to do what you are seeking. But their primary goal is to profit from you, so you might want to take that advice with a grain of salt. Keep thinking for yourself and keep an eye on the costs. Just as compounding interest can be very powerfull to build capital over the long run, compounding costs is a powerful way to take a big bite out of that capital. But I certainly wouldn't leave any money in China over the long term due to restrictions on bring money out of the country, It's hard to predict what will happen over a period of 40 years. I would not be surprised if these restrictions will be lifted well before retirement. And who knows what's going to happen with capital in other countries. If reasonably possible, also here spreading is the way to go. 1
abcdefg Posted June 28, 2015 at 05:14 AM Report Posted June 28, 2015 at 05:14 AM But their primary goal is to profit from you, so you might want to take that advice with a grain of salt. Keep thinking for yourself and keep an eye on the costs. Absolutely, Silent. There is no free lunch. Edit: Meant to add: well done on planning for your future at this stage! A good decision that many younger people ignore. Agree with you, Johnny. Nice going, Joshua! 1
Johnny20270 Posted June 28, 2015 at 05:46 AM Report Posted June 28, 2015 at 05:46 AM But their primary goal is to profit from you, so you might want to take that advice with a grain of salt. Keep thinking for yourself and keep an eye on the costs. Just as compounding interest can be very powerfull to build capital over the long run, compounding costs is a powerful way to take a big bite out of that capital. indeed but that's the way all business work. Just because they make profit, doesn't mean you don't. HSBC are not cheap and interest rates are low but offer a good service and ease of use. I use them for day to day use / mortgages but not for investing / FX investing For currencies exchanges I would use an FX broker instead It's hard to predict what will happen over a period of 40 years. I would not be surprised if these restrictions will be lifted well before retirement. And who knows what's going to happen with capital in other countries. If reasonably possible, also here spreading is the way to go. Because of the uncertainty that's why I'd advise against it. Planning for retirement is for reasonable certainty so your cash pot doesn't go wrong at the last minute. Diversification of course is a smart idea and you can track Chinese economy without having to actually invest physically in the country should you hold that view 1
Silent Posted June 28, 2015 at 01:29 PM Report Posted June 28, 2015 at 01:29 PM Just because they make profit, doesn't mean you don't. HSBC are not cheap and interest rates are low but offer a good service and ease of use. I don't know their offerings, but I suspected what you now confirm. If they're not cheap imho that's a big no no for long term investment. Every investment is a bit of a gamble, but the negative consequences of costs are a certainty. Compounding costs add up over time, a cheap brokerage account in which you buy 'random' trackers from different suppliers works fine. I would be wary of everything with a higher cost base. Because of the uncertainty that's why I'd advise against it. Planning for retirement is for reasonable certainty so your cash pot doesn't go wrong at the last minute. Diversification of course is a smart idea and you can track Chinese economy without having to actually invest physically in the country should you hold that view That reasonable certainty is certainly the idea, but for the long run an illusion. The greeks don't even know or they can get their money tomorrow leave alone in 40 years. The moment governments get in trouble they tend to turn to where-ever they can find money. Banks go bankrupt, (money) managers commit fraud, etc etc hence spread so the chances that something will remain are best. It's not just about the economy, as such there is nothing wrong with some investments in China. There is also the issue of what is reasonably possible. In the past opening an investment account abroad could be a pain, with internet things have become much easier and if one is rational should make use of the possibilities. For small amounts it makes little sense to open accounts in 10 countries. But for larger amounts it certainly makes sense to spread it around a little and open a couple of accounts in different countries. 1
Angelina Posted June 28, 2015 at 04:40 PM Report Posted June 28, 2015 at 04:40 PM Invest in digital currencies or at least in traditional ones that will not be affected by the transition! That's the future and that's what everybody is planning to introduce soon. Diversification is important too, don't put all your eggs into one basket. Nothing is 100% safe. You have to know the risks. The Chinese believe in having your children take care of you when you get old above all haha. And yes, no one knows what will happen with the Greek debt crisis. Politics.
tysond Posted June 29, 2015 at 07:49 AM Report Posted June 29, 2015 at 07:49 AM Just buy index funds. Buy monthly. Increase your monthly investment as your salary increases. Put this money away before your other expenses (so you get used to never having it). Avoid management fees and anything else that nibbles away at your profits. I also spread my currency risks by having salary, savings, shares and property in different currencies. So if something tanks, the rest are still OK. I mostly do this because I am not sure where I will be living in future. Never carry debt unless someone else is servicing it (e.g. if someone else is renting your house, that's OK) or unless you are living in a house that has a mortgage lower than rent, or unless the interest rate is lower than you make elsewhere. Only buy appreciating assets (usually property), rent depreciating ones (e.g. cars, boats, motorbikes) whenever possible. Don't get carried away - a lot of people made loads of money on paper by buying a house at $200k that is now worth $400k. The problem is, if they sell the $400k house they can't buy 2 x $200k houses because every house now costs double what it did before. What did happen is that they saved themsevels $200k loan and probably another $200k in interest payments so that's the good part. Buy and read the book Rich Dad Poor Dad. 2
Johnny20270 Posted June 29, 2015 at 09:06 AM Report Posted June 29, 2015 at 09:06 AM Only buy appreciating assets (usually property), Not always the case tyson Look at the USA and Europe, Many became bankrupt. Don't get carried away - a lot of people made loads of money on paper by buying a house at $200k that is now worth $400k. The problem is, if they sell the $400k house they can't buy 2 x $200k houses because every house now costs double what it did before. But the point is you can leverage. You remortgage the 400k house, release funds, put down the deposit for 2 new houses and rent covers the interest payments That's the theory ..... until it all goes belly up ...
roddy Posted June 29, 2015 at 09:17 AM Report Posted June 29, 2015 at 09:17 AM "usually" "Not always the case" It's clever the way you've basically repeated what he said but made it look like a correction. 1
Silent Posted June 29, 2015 at 10:34 AM Report Posted June 29, 2015 at 10:34 AM I also spread my currency risks by having salary, savings, shares and property in different currencies. So if something tanks, the rest are still OK. I mostly do this because I am not sure where I will be living in future. It sounds to me like you're mixing up a couple of things. Spread currency is only relevant for cash savings (and bond investments). An internationally spread investment fund will have this risk covered automatically.
889 Posted June 29, 2015 at 12:01 PM Report Posted June 29, 2015 at 12:01 PM Of course no matter where your money is there's risk, and over time values will sometimes rise and sometimes fall. But I suggest you consider investing some of your savings in a home-country residence because no matter what happens to its value on paper, you'll know you always have a place to live.
tysond Posted June 29, 2015 at 01:23 PM Report Posted June 29, 2015 at 01:23 PM Thanks for the comments. On appreciating assets. I did say usually property for a reason - I'm trying to draw a distinction between an asset class that is usually, historically, most of the time, appreciating. As they say - land, they aren't making any more of it. And every single human on the planet does need a place to live. But of course not every property investment will work out. You need to find value, you need to invest within your means. Many many many people who are bankrupt took terms that they should not have taken. Many of them were never really eligible for a loan in the first place. If you have another asset class you would recommend above property feel free to bring it up (I already recommend index funds, but you can't live in an index fund), otherwise I am not sure what to say. However, assuming you are (in a reasonable world) eligible for a loan, as compared to investing in a Ferrari or a boat, property is a much better investment every single time. @Silent - yes I could just invest in a internationally spread investment fund. Actually I kind of do I have a bunch of regions in my investments. But my salary is paid in China and my stock benefits are paid in the USA. So I deliberately spread my investments in other places because if the RMB tanks I will lose money on my salary every single day. @889 - yes investing in your home country is a good idea because it's likely you will end up there and if the currency goes up down left right it doesn't really matter as much when you are living there. You still need to buy milk and bread in your home country if you plan to live there. It's generally very good advice.
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