Many expatriates who choose to manage their own savings and investments have traditionally allocated their money into cash and property. However, the global financial events of last year mean that assumptions like "money in the bank" and "safe as houses" have been rigorously tested and found somewhat wanting.

SAFE AS HOUSES:Property has the advantage of being a real asset. Stocks and shares by contrast are financial assets that can and do "go to zero". General Motors has been given a price target of just that. In the UK, Woolworths has gone into liquidation.

Many who have invested directly in property are now faced with an illiquid market. This is due partly to the unavailability of credit as well as the fact that real estate prices may not yet have reached their clearing levels.

However, none of this should come as any real surprise.

In December 2005, The Economist published an extensive report on the global residential real estate market, which it said was already "the greatest financial bubble of all time". Three years ago it was already bigger than the bubble that precipitated the Wall Street crash and the dot.com crash that greeted the new millennium. But despite this, prices kept on rising.

Markets and fundamentals don't always move in tandem or even in the same direction, and it wasn't until the summer of 2007, with the collapse of the UK's Northern Rock bank, that there was any serious acknowledgement that house prices might not actually continue to go up forever.

MONEY IN THE BANK: Many expats hold large parts of their net worth in the form of cash, in bank accounts. During 2008 the security of this strategy was called into very serious question.

Banks have collapsed or have averted collapse only with government bailouts or guarantees and in some cases nationalisation. In the US, nationalisation goes by the somewhat softer name of "conservatorship", which has been the fate of both Freddie Mac and Fannie Mae.

Printing money out of thin air to bail out failed banks erodes the purchasing power of these currencies.

Exchange rate movements during 2008 mean that the real cost of living for some expats in Thailand has risen sharply.

During 2008, British and Australian expats saw the value of their home currencies fall by over 10% against the Thai baht and this is before factoring in actual price increases inside Thailand.

If this wasn't enough, interest rates have been slashed by central banks. The recent rate cut by the US Federal Reserve took the interbank rate almost to 0%.

Even those expats in Thailand who could have lived comfortably on interest from their savings accounts a year ago are now looking for alternatives.

A NEW PARADIGM: It is possible that we may now be at, or close to, the end of the credit- and consumption-driven, boom-and-bust era of the last 35 years or so.

In his inauguration address on Tuesday, President Obama seemed to suggest that while greed and dishonesty were responsible in part for the current global financial crisis, the main cause was failed (government) policies and the lack of oversight and supervision.

For the moment, battered economies are being kept on life support by printing money and with token interest rates. However these are not free market policies and until global financial markets are allowed to operate freely we will continue to see weekly, if not daily, spasmodic movements in global stock market indices and the crisis will continue.

CAUSE AND EFFECT: With property and cash no longer the sacred cows that they once were, people are now looking for answers to questions that few have asked since the 1930s.

But although it may appear that everything has changed, things may not be as different as they seem at first glance.

Those who are mostly or entirely invested directly in bricks and mortar run the same risk as those who invest almost exclusively in the equity markets, particularly when market prices bear little or no relation to fundamentals.

That said, at current market levels there are probably already some sectors whose fundamentals present very good long term if not medium term value.

The guarantee limits that apply to bank accounts are also common knowledge.

Furthermore, a contraction in the global economy is as inevitable as and often in direct proportion to, the expansion that precedes it.

FINANCIAL PLANNING: Whatever your personal financial circumstances, it would seem that for the moment at least, cash and property are no longer the default, go-it-alone and safe investments that they once were.

But financial planning is much more than just investment management. The asset protection, estate planning, succession planning and perhaps tax planning needs of investors also need to be considered, regardless of the economic climate.

Richard Colburn, Cert PFS, is a UK-qualified financial adviser and managing director of Sterling Assets. Questions to the author may be directed to 05-383-9463 or contact@sterling-assets.com.

source : www.bangkokpost.com