Hedging? Do it now, for future. Property in Australia?

One MORNING session lady radio deejay who knows very little about investment was trying to talk about the topic of ringgit’s depreciation. Actually there are hundreds and thousands of topics that she could focus on. Well, one caller called in and say that everyone must start to hedge before ringgit falls further. Valid point. Then, the caller said, people should consider buying Australian property. It will help to get capital appreciation and currency fluctuation. After all, Australian Dollar is more stable. For this one, I am not sure if I should laugh or smile. Let me just show the AUD versus Ringgit exchange rate. STABLE? Take a look at the image for RM vs AUD for past 12 months. The lady deejay said she also think buying properties overseas may help hedging against Ringgit. Huh?

Let me share a bit about hedging. If you only hedge now and you believe Ringgit will fall further, property is definitely NOT the best hedge. No one knows what would happen by the time your transaction is completed. The property market might have even burst! Well, if you believe Ringgit will fall further, then open a foreign currency account and transfer some of your Ringgit holdings into that currency that you feel will sure go up or perhaps stay the same while Ringgit keep dropping. Since the caller mentioned AUD, by all means buy AUD now since it has not moved up as much versus Ringgit as US$.
Another caller called in and say if he had RM300,000 now, he would move RM100,000 into gold. This is because gold prices have fallen and gold is a precious commodity, for sure will go up. During times of war, the currency note in your hand means nothing but a gold bar would carry you far. If you believe Ringgit will drop further, this may be a way for you to hedge against the drop. What if the gold prices move upwards? Then, you would not just be hedging but will also have capital gains! Note: I have NO holdings in Gold and have no intention to buy gold. Just not my type whether or not it’s a good choice.
How am I hedging? I think I have been hedging for many years. My investments would have earned higher profits in % compared to the % of fall in Ringgit which has happened. I think I have also bought enough undervalued stocks to also enjoy some dividends every financial year. My unit trusts have also been moved to more stable funds and I think my loss from equity is minimized. As long as we have always been investing, we have hedged. Do not take drastic actions today and say that you are hedging due to current situation. Sorry, it does not work. Even for airlines, when they hedge against potential oil price increase, they do it well in advance. For companies with current exposure, they also hedge well in advance. To the lady radio deejay, please focus on things which you know more. Happy investing  or hedging if that’s the right word.
written on 2 Sept 2015
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