Making ends meet in a challenging economic situation


Staying rational and making informed economic decisions is the way to go forward in these difficult times.

By Gavin Teoh

In case you haven’t noticed, we have passed through three of the most economically challenging years – 2014 to 2016. This is the first time in history that we have more than two consecutive years of losses in the local equity market.

Global oil prices collapsed in the second half of 2014 causing economic turbulence, followed by the inflation impact from the implementation of GST in 2015.

As if the topsy-turvy is not enough, we had political uncertainties, and then the Ringgit dropped. All these spell trouble to the market and economy, resulting in the general public being anxious in spending and investing their money.

Many are emotionally impacted by all these negative news, and their attitude towards personal finance and investment management has changed ever since.

Thus, 2017 began with dizzy expectations. Many don’t have high confidence in economic recovery, especially after the unexpected victory for Trump.

Locally, the sentiment is further amplified with anticipation of political challenges from the impending general election. Many are still wondering if this situation will carry on for another year or more.

The Need for a Balancing Act

In any situation which requires contemplation, it is always good to refer to profound advice from the great gurus. Here, I find Sun Tzu’s “The Art of War” especially insightful on financial success amidst the ebb and flow of economy and market that we are encountering.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

This message is undeniably applicable to our personal finance and investment management. The enemy symbolises macroeconomic matters, while “you” represents microeconomic matters of the individual.

Any shortcomings in understanding the strategy of balancing these two factors would invite personal disaster, especially in weathering through this tough situation.

Personal Finance

In our modern society, the war field is equivalent to the space of capitalism. The promoters of products and services, which seem to give end-solutions to our daily living needs, may come under a mountain of pressure to sustain and grow their businesses in the open market battlefield.

The pressure to grow their business and tense competition provokes highly aggressive and tactical marketing with more easy-to-access solutions than before, especially with the availability of infrastructure of credit line, instant borrowing and online spending at our fingertips.

Debt-fuelled consumption in chasing for a better lifestyle, coupled with the escalating cost of living, over-commitment in property assets since 2010 and scarcity of employment have endangered the financial well-being of many.

In fact, our household debt is alarmingly over 89.1% of GDP, amongst the highest in this region. This makes many incapable of weathering through the economic challenges and having very little room to take on more borrowings.

The situation can become gloom and doom, if we still choose to ignore the above circumstances. When we do not know our own personal finance outfit, and acquire new commitment that exceeds our personal capacity, or have an excessive lifestyle above our means, then we possess dangerous financial management behaviour and attitude.

Hence, Sun Tzu’s message clearly points out our own susceptibility if we have yet to understand our own financial well-being and behaviour. What’s worse is if we continue to ignore the dangers of looking outside and accepting marketing ploys from the “enemy”.

A very simple remedy lies in the awakening of our own psychological behaviour of mental accounting when using credit line for consumption. Many tend to be more willing to pay for goods when using credit card than cash.

We compartmentalise credit and cash into two different accounts, and decouple the acquisition and transaction utilities. Any temptation to acquire without considering the repayment ability for the transaction is a sign of irrational behaviour and poor money management.

It is only through the change of personality and ability to control temptation – for example, through exercising delayed gratification – that we would be able to alleviate our cash flow; unless, of course, we can find additional income to stay buoyant in turbulent times.

Investment Management

With negative news pouring in from the media in this unfavourable economic situation, we are inclined towards negative sentiment.

Of course, there is some positive outlook in the country, such as International Monetary Fund’s expected economic growth of 4.5% in 2017 for Malaysia against a 3.4% growth globally, lower budget deficit at 3% of GDP, as well as a positive current account and catalysts from mega infrastructure projects. But all these are immediately neutralised by negative feelings.

Many have trust deficit – they don’t believe that this is the breakout year. Instead, they think that the crisis will deepen further.

Thus, they tend to become irrational in making decisions and may choose to abandon their savings commitment for retirement, simply because of their risk aversion due to the current condition.

Investors who do not remain invested for sufficiently long periods lose the benefits of a long-term investment strategy and value created by portfolio management.

Macro economy, the enemy that we face, is something that we cannot to control. However, we can learn from the situation, and position our investment strategies so that we don’t lose our pursuit of financial goals.

We should spare more time to understand our own investment philosophy by looking at our risk tolerance, objectives, limitations, investing behaviour and understanding of the investment market.

We need to have a crystal clear understanding of ourselves within the picture of the investment world, before riding on a risk management strategy to manage our tolerable risk indirectly. This helps us to have a better assurance in achieving our expected rate of return based on our individual situation.

We may adopt a strategy to have a behaviourally adjusted asset allocation to overcome psychological and emotional impacts, when the situation is prone to negative sentiments. Ultimately, we should always stay rational regardless of economic and market situations.

Thus, it is crucial to seek the advice of an experienced certified financial planner who is trained in behavioural diagnosis to manage your expectation and uncertainty.


About the author: Gavin Teoh is a Licensed Financial Planner with Standard Financial Adviser Sdn Bhd and a Certified Member of FPAM. Gavin is also the Winner of Planplus Global Financial Planning Award 2014 for Asia Region.

Today, he sits on the adjudication panel of the Malaysian Financial Planner of the Year Award (MFPYA). He can be contacted at


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