"Don't ask barbers if we need a haircut."
There was a time when I enjoyed visits to the banks. As a boy, I was very interested in getting the highest interest rate possible for my savings. I enjoyed visiting the banks to update my savings passbooks when interest crediting became monthly instead of yearly. There were no auto update machines in those days but I didn't mind waiting in line for a teller.
I no longer enjoy visits to the banks. If I go to the bank, I run the risk of being accosted by bankers eager to sell me some products. Actually, these days, we don't even have to enter the banks to get accosted. Walking past a bank could be a frightful experience. Detour? I would if I could.
Recently, I had to visit the bank. It is my once a year compulsory visit, if you know what I mean.
The expected happened.
B: "This pays you 4% per year. Better than leaving your money in a fixed deposit."
AK: "How does it generate 4% per year for me?"
I was given a fact sheet and I was not surprised to see that it was a unit trust which had a big exposure to bonds.
B: "The unit price dropped. You are getting a better price now. Really good."
AK: "(OMG...) And do you know why the unit price has dropped?"
AK: "Would you be surprised if I tell you the unit price will drop further?"
B: "How do you know?"
I was not amazed nor amused.
AK: "Did you buy this yourself since you think it is a good deal?"
Awkward silence again.
AK: "Bonds pay their holders an agreed coupon. We know interest rates are going up and if we expect interest rates to go up by 1% this year, the market would demand a proportionally higher yield. Demanding an increase in yield from the current 4% to 5% would mean a 20% drop in unit price for this fund."
Awkward silence yet again.
Then, I knew how my maths teacher felt when I gave her a blank look after she explained to me some maths thing a long, long time ago.
You also blur? I also blur.
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