Think beyond cash and property for your assets

April 13, 2018 - 09:00

Many Vietnamese prefer to keep the bulk of their wealth in physical cash or property, but there are numerous reasons why investing in a more diversified portfolio of investments is a safer – and more lucrative – course.

Brian Spence
Viet Nam News

By Brian Spence*

Many Vietnamese prefer to keep the bulk of their wealth in physical cash or property, but there are numerous reasons why investing in a more diversified portfolio of investments is a safer and more lucrative option.

Việt Nam has a solid savings culture, which as a financial adviser is always gratifying to see. But I cannot help but be alarmed by the large proportion of individuals who seem to be keeping much of their wealth in physical cash.

Not only does having bundles of bank notes stashed away leave you vulnerable to theft, fire or other disasters, it also means you risk your wealth being eroded over time. Furthermore, significant cash holdings mean you are probably missing out on much more attractive returns.

Those holding large amounts of cash often have to spend money to keep it safe. At the upper end of wealth, this might mean guards and vaults, and at the lower, other storage methods like safe deposit boxes. What you might not realise, however, is that merely banking that money could also incur a hefty cost.

First is the safety of the financial institution itself. As you will know, banks use the money deposited with them for lending and investing, and although reputable institutions will always ensure they are financially strong enough to give your savings back whenever you need them, this might not necessarily always be the case.

Even in the UK where deposits are protected, this is only up to a fairly modest level, meaning that savers often choose to spread their cash among a number of banks to keep each deposit within the protected limit. Although rare, the global financial crisis of 2008 reminds us that it is possible for big names to go bust even in the West. And we cannot forget that there have been incidents of depositors losing money at some banks in Việt Nam in recent times.

Beware wealth erosion and property perils

Second, even if you are confident that a bank is safe and will remain so under financial stress, a bigger and far less appreciated danger remains: inflation.

Bank interest rates in Việt Nam have averaged about 7 per cent since 2000 and the 12-month term deposit interest rate is hovering near 7.2 per cent (which is actually very attractive compared to Western levels which are 2 per cent at best).

However, Việt Nam’s targeted inflation rate for 2018 is 4 per cent, meaning that in real terms the returns on your savings will be a lot lower than they seem. Then, if in future inflation trends higher and interest rates subside, savers could find that all their gains are wiped out by inflation and that in reality their wealth is being eroded away.

Many people with surplus money to deploy have been investing in real estate, looking to profit from rising prices. Indeed, Vietnamese banks are said to be feeling the pressure of large outflows of money being withdrawn by depositors for this purpose. But while real estate does offer attractive returns and is always a popular form of investment, this can also leave people vulnerable.

Property demand is fickle and the market is exposed to various risks like changes in demand and regulation, as well as economic shocks. Property developers themselves also represent counter-party risks and if they go out of business you could find yourself at the back of a queue of creditors waiting to get their money back.

Stunning stock market performance

It is, however, the risk of missing out on better – and more diversified returns – that you should be thinking about most. Currently, investing in securities is looking very attractive. Last year, the VN-Index and HNX Index soared by 48 per cent and 46 per cent respectively and this momentum has continued, with the former rising above an 11-year high in the first months of 2018. Those picking the best-performing shares have reportedly enjoyed returns of an incredible 200-300 per cent.

Yet investing all your wealth in individual shares is not necessarily the wisest course either. Over time, research shows that equities beat any other asset class for returns. Even in a generally rising market, there are losers as well as winners and this is truer still in the short term due to the volatility equities typically display. If you need your cash suddenly, you might be forced to sell low when clearly you want to buy low and sell high.

Instead, diversify

What all this means is that you’d be far better off, and face fewer risks, by diversifying your capital into a range of investments – ideally a selection that are uncorrelated, meaning that they tend not to go up and down at the same time.

Looking at stock markets, this is easily achieved by buying units in a collective fund that in turn invests in a wide variety of shares in different sectors. Over time, you can build a diversified portfolio of fund investments able to withstand a variety of pressures while maximising growth.

Cash does have a special psychological status and its physicality can make it literally feel safer. Likewise, the fact that property is something you can see and easily understand explains its attractiveness. Yet savers have to realise that neither cash nor property are always as safe and secure as they may seem. Both might have a place in an intelligent investment portfolio, but only in sensible proportions if you really want to safeguard your wealth.

These are themes I will be developing further throughout the year. In the meantime, if you would like to discuss how a diversified investment portfolio could provide a real safe-haven for your capital, and generate far higher returns, please do get in touch.

* Brian Spence is Managing Partner of S&P Investments. He has over 35 years of experience in the UK financial services industry as an investment manager, financial planner, and M&A specialist. He is a regular contributor in the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address is