2nd EPF!

The move to allow EPF members to buy only funds with a track record of at least three years has drawn mixed reactions.

Effective August, funds with a less than a three-year performance track record as well as newly launched ones will not be sold to EPF contributors. The new rulings also reinstated a previous move to allow EPF members to invest in funds with foreign exposure, but now with a limit of up to 30%.

The Federation of Investment Managers Malaysia (FIMM) recently said the reason to allow EPF members to invest in performing funds — those that have higher consistent returns for at least three years, was to strengthen trust and confidence in unit trust investment.

That was a fear that with the three-year track performance ruling, members might lose out as good investment “windows” did not last that long especially true for “thematic” investments. Thematic investing is an approach that seeks to identify and capitalise on economic, political, and social trends that are likely to have significant implications on important sectors of the economy and financial markets.

However the move is considered a good one as the three-year performance time frame would help investors choose funds that perform consistently and eliminate those that underperform. Just be warned that the selection criteria may lead members to focus too much on the past performance of a fund which may not necessarily be indicative of future performance.

There are other factors to consider in choosing the right investments, such as risks profiling, time horizon, qualitative factor and others

What Is Life?

Life is suffering, impermanence. Acknowledge it.

We work hard, piling long hours in our workplace for a more comfortable life and to fulfill our responsibilities and commitments. Along the way, we sacrifice and neglect many things notably our health. We start to take things for granted. The pace of changes in the dog eats dog society could make us worse off, as we try to keep pace with the Joneses.

We should start being pro-active in softening the uncertainty. Try to manage and ride through the obstacles and turmoil as part and parcel of life. Set the direction and noting that death is certain. We could prevent more headaches and suffering by practicing our religion diligently. Keep the good moral conduct, be moderate and train the mind.

As we could not totally eradicate the suffering, try out these prescriptions : save a portion of our hard earned money, take up a life insurance scheme, draw up a wills and practice harder.

If we are diagnosed with a serious ailment, we could not command a demanding job. Think about the existing financial commitments and medical expenses. If our properties are damaged, we might need to replace urgently. If we are gone from the present life, who is going to feed our loved ones, who are not getting any younger.

By going along with the nature of life, we would not be easily shaken and disturbed emotionally and spiritually. By having financial planning, we would protect ourselves physically and materially.

Prevention is better than cure. We need loads of commitment and total involvement to lessen the suffering. Undeniable, the ultimate solution is to be free from this vicious cycle!

Right Time To Invest?

The outlook of the investment industry remains uncertain amid continued risk aversion, volatility and flickering signs of hope in capital markets, industry players said.

Sales may improve this year as equity markets locally and abroad were starting to look attractive due to cheap valuations. Although sales had started to slowly pick up since early this year, it may be impacted severely if the market continues to fall to lower levels.

According to Federation of Malaysian Unit Trust Managers, the number of unit trust agents exiting the industry last year is less than 10%. The decline was much lower compared with other agency-related industries. Most consultants are in for the long haul and understand that the recent market volatility is temporary. Despite the poor investor sentiment, there had not been any panic selling of unit trusts.

Now is the right time to invest. In the current market where uncertainty prevailed, it was best to accumulate assets using the method of dollar-cost averaging, whereby a fixed amount of investment is regularly made regardless of how the market is performing.

As for investors who prefer to invest in one lump sum, they can invest based on the principle of asset allocation. Their money is divided into three portions, namely aggressive or equity-based funds, moderate-risk funds or lower-risk segments such as bonds or money market funds.

Last week, Amanah Saham Nasional Bhd (ASN) announced an income distribution of 6.25 sen per unit for Amanah Saham Malaysia unit holders. The dividend announcement was for the financial year ending March 31, 2009 (FY09). The dividend was the lowest ever declared by ASN. However it is more attractive than Fixed Deposit rate of 2%.

Don't You Cry!

“Acceptance does not mean being weak and allowing people to push us around. It means being strong enough to accept that we cannot alter everything to suit us and it does make our life easier by getting rid of those futile feelings of wanting to change everyone and everything” - Anonymous

When factory supervisor Anusia heard that all employees had to abide by drastic cost-cutting measures, she knew that her employer of 12 years had not been spared from the dreadful global financial crunch. Since December last year, the Japanese company manufacturing hard disk drives had sent 600 foreign workers back and cut the salaries of the local workers by 20%. This month, they work only 11 days. That has shrunk Anusia’s income by at least half.

“The situation is really bad. Orders have dropped by 50% and are still dipping. We are constantly reminded to be prepared as we have to leave if things get worse. If the company shuts down, more than 1,000 will lose their jobs”.
Anusia has indeed prepared well. She is ready to face the possible perilous days ahead.

“After paying off the monthly commitments like car and house instalments and insurance, I have only RM100 left. How can I ever survive with that?”
Instead of being a cry baby and feeling sorry, she took a bold step into an unchartered territory. She joined a direct-selling company. What started as just a source of extra revenue during her free time has become a financial cushion in trying times. She uses the extra days off to do more sales. She sees the impending retrenchment as a turning point in her life that would propel her into a more exciting and lucrative career in marketing.

“I am glad that I am mentally and physically prepared for the worst. You have to work something out. Everybody can do it. You just need the determination and enthusiasm. Your relatives may help when you are jobless for the first few weeks, but you can’t keep on asking help from them. You have to stand up to help yourself.”

Well done Anusia. Take a leaf from her. Those who are in the same predicament, just do it – Everybody can do it. Explore the alternative jobs like direct selling, selling unit trust, insurance etc (that are legal!). It could indeed be a lucrative career!

Don't Leave Home Without It

According to The Association of Banks in a letter to the editor published last Saturday, credit cards in circulation have grown 278% in eight years from 2.8 million in 2000 to 10.6 million in 2008.

This showed that credit cards are accepted as a convenient electronic payment tool. As the economic condition remains unclear, stronger financial discipline has to be instilled to avoid a critical problem in the future. The most important step in responsible credit card use is to completely pay off the bill every month. Think of the credit card as using cash that is reserved each month for the items charged. With this method, no interest accrues and credit cards become legitimate and helpful financial tools.

Banks in Malaysia monitor the credit cardholders’ payment record for the 12 consecutive months to determine their repayment track record. Based on such record, one of three tier rates will apply under a unique tiered interest rate system.
With the tier rates, credit cardholders are encouraged to continuously make at least the minimum payment of 5% of the amount outstanding within the due date to stay at tier I at all times or, as the case may be, move from a lower tier to a higher to enjoy better interest rates with a steadily improving repayment track record.

About 30% of credit cardholders pay the amount outstanding in full. A large number, however, typically only pay the interest and a bare minimum amount of the principal outstanding and thus never fully repay the entire sum. (This is a very worrying statistics, meaning many are spending like the Americans!)

If a credit cardholder pays only the minimum 5% of the amount outstanding on a RM10,000 balance, with an interest rate of 18% per annum, it would take seven years and three months to pay off the amount owed, assuming no more charges are added to the card. (Wow! No wonder many are broke. Now you know why banks love this product and keep sending you pre-approved cards at your doorstep!)

Thus, educating credit cardholders as to the importance of good spending habits cannot therefore be overlooked. The following are tips to be shared for handling credit cards wisely:

> KEEP one or two cards only and use as a means of payment and not as a source of long term credit.
> CHARGE only what you can afford to pay back; avoid living beyond your means.
> SHOP around for the best interest rates, annual fees and service fees. There are a few banks offering “no frills cards” at lower interest rates. These cards do not attract the annual and joining fees nor enjoy insurance coverage and/or reward schemes.
> PAY off the debt each month, or at least pay more than the minimum if one elects to pay in installments.
> AVOID withdrawing cash advances as there are charges involved. Remember that a credit card is not the same as free money.
> IN the event of inability to settle credit card amount outstanding, do not delay approaching the bank concerned for an amicable resolution which may include restructuring of the credit card debt.

Investment Poser for Retirees

Case 1: Choong Mun Fook, 58, a retiree, intends to invest in unit trusts and investment-linked insurance using his savings. These investments now offer attractive opportunities as considerable value has emerged from the downward spiral in asset values.

He also plans to pick up some blue chips in the stock market which have been battered in terms of valuation. Although it is considered risky for his age, it is a good alternative over the medium term compared with FDs, which offer such low yields. The current market situation was a rare opportunity for investors to obtain better returns since the KL Composite Index had fallen by more than 40% since the beginning of last year.

Case 2: Grace Matthews, 62, a former civil servant, purchased unit trusts using her gratuity upon retirement. The unit trust market proved to be a profitable venture initially but her investments were badly affected last year. She also put some savings into the New Zealand and Australian foreign currency deposits but has made losses as well recently.

Her savings were now mainly placed in Amanah Saham Nasional Bhd’s fixed-priced equity-based unit trust funds namely Amanah Saham Wawasan 2020 and Amanah Saham Malaysia, which offer consistent average returns of about 7% yearly.

Case 3: Cheah Kay Eng, 78, believes that FDs still present the least amount of risk compared with other financial instruments in the market. Although they are not substantial, returns from FDs still give him a bit of pocket money every month.
From the above scenario, there are many choices but it depends on individual’s risk appetite. Higher returns come with higher risks compared with safe but low-yielding FDs.

However, the financial expert said the level of risk associated with financial products was relative. FDs and savings accounts in banks are no longer a sure bet, as Citibank, Lehman Brothers and Merrill Lynch either go bankrupt or bailed out by the government.

Additionally, many people had the wrong perception that savings entailed investing in just one particular product. The right way for a retiree would be to take a diversified approach to risk so that he is not too exposed to a particular risk sector. Then, he has to determine what is the combined risk taken and monitor the risk exposure over his investment time horizon so that it is reasonable to the returns he wishes to get.

Ideally, early financial planning would help retirees avoid the stress of dealing with insufficient retirement funds or seeking additional means to ensure financial stability. Plan ahead to counter the effects of inflation – many retirement plans are built with flexibility in mind, allowing you to decide and control how much to set aside each month.

Delicious Buffett

Stock market guru, Warren Buffett, made headlines when he bought substantial stakes in technology and services giant General Electric Co (GE) and financial heavyweight Goldman Sachs Group.

Just when everyone else was pulling out their investments from Wall Street, Buffett stepped in to inject some US$8bil in these two companies via his investment company Berkshire Hathaway Inc.

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well,” he once said.

The five main criteria Buffett uses for stock selection are earnings versus growth, high return on equity, minimal debts, strength of management and simple business model.

Buffett is an astute long-term investor and has always investigated the underlying fundamentals of a company, rather than market sentiment. He has always determined the intrinsic value of a business and paid a good price for it. He believes price is what you pay, value is what you get.

Being prudent, Buffett is said to never invest in any business that he could not understand, a principle that paid off when he escaped the dotcom market crash. His investment principle is simple— always analyse a company’s annual reports to check its fundamentals and know what you are investing in.

Should we emulate Buffett? Many investors would say yes if we are buying for long-term. Investors should generally hold on to three principles — be long-term oriented, only buy what we can afford and be focused in what we buy.

Inflation Buster

Amanah Saham Nasional Bhd (ASNB) fixed-priced unit trust funds launched in the past few years have proven to be big winners due to their commendable returns.

These equity-based funds, namely Amanah Saham Wawasan 2020 (ASW 2020) and Amanah Saham Malaysia (ASM), have achieved compounded annual growth rates of 10.78% and 6.3% respectively since the time of its launch. ASW 2020 and ASM have been providing an annual average distribution income of 7.74 sen and 7.12 sen respectively.

Say if an investor had placed RM100,000 in ASW 2020 10 years ago, his investment value would amount to RM251,360 today. Similarly, by placing the same amount in the ASM fund 10 years ago, the investor would have RM173,340 today in his investment account.

ASM was launched on April 20, 2000, with an initial fund size of two billion units which were fully subscribed in 21 days. In June 2000, one billion units were fully subscribed in four months. In April 2006, one billion units were fully subscribed in 45 minutes. In the most recent offer in July 2007, all the 500 million units were taken up in 30 minutes.

All good things are well loved. Investors have confidence in these funds. Besides being managed and backed by a GLC, the returns are commendable. However the demand is more than supply. Additionally most of us will either have too much pride or too little time to join the crowd in queuing during the launch!

Do not be despair; there are options in the market. Investors could find similar funds that are well managed by private fund managers backed by the leading banks. The returns are equally impressive (if not better) in the long run and have now become relatively cheap.

Unit trust investments are good for those who think they do not have a lot and want to start saving money effectively. More so in current situation where the banks could only offer 2.5% returns for investment in fixed deposit!

Recommendation of funds are welcomed!

Money Money Money

Money is option. With money, you have many options. Without money, you have very few options. Without money, you are in the hope business. Hope the kids don’t get sick. Hope your friends don’t invite you to their wedding dinners! This negative hope is a miserable way to live!

Start the habit of savings and investing, especially in current gloomy environment. Avoid indiscriminate use of credit card. If you don’t have savings, you are going to be an economic slave to the boss. Additionally, the borrower is servant to the lender.

Credit Crunch To Topple Sports!

There is a lot of money in modern day sports. The stakes are so high that it is becoming common for sportsmen to cheat by way of taking performance enhancing stimulants. However sports don't exist in a bubble as the global credit crunch starts to burst them. Motorsports are still reeling from Honda's pullout from F1 and Subaru's timeout from World Rally.

In football scene, there was a comment by Wenger, the French gaffer of Arsenal FC. "..the current financial climate will change the attitude of many clubs. I come from a little village of farmers where I was educated that when you earn £100 you do not spend £100. For me when you earn £100 and you spend £110 it is like cheating. A club must live within their own resources, not artificially supported.

The economic crisis will force many clubs to rethink the way they are run. It seems too many believe football exists in a bubble, away from the financial crisis! Football depends heavily on the financial markets, sponsorship and television rights, all of which are suffering right now."

This musketeer is well educated by his folks. Perhaps he was a financial guru in his previous life before professional football era! Live within own means! So unlike his London neighbour, a certain Russian who could be suffering right now!

Saving Strategies

10 banks have reduced their fixed deposit rates following Bank Negara recent cut in the key interest rate. From Nov 25, the minimum rate set for 12 months FD is 3.5% per annum. The minimum rate set for one-month FD remains at 3% per annum.

We have seen outcry from the investors especially the pensioners who are not in the position to gamble on riskier investments. Chances are they would have to continue to place their hard earned savings into FD. It is a double whammy. In addition to battle higher inflation and paying more for the the necessity goods, now they are faced less income from their investments!

What about the younger investors? Generally the 40s and 50s are in the peak of their earning potentials. The suggested investment portfolio should be 60% equities and balance 40% fixed income. Start to reduce exposure on higher risk investments, as the age catches up.

As for the 20s and 30s, even though there might not be lot of money since you are just starting out but you have time on your side. The temptation to spend is great but do balance it by planning for the retirement age. At this age, you can afford to take more risks with the investments. Don't be too conservative. Let youth works to your advantage. Suggested portfolio allocation = 80% in equities and 20% in fixed income.

10 Financial Planning Mistakes

People do not plan to fail; they simply failed to plan – William Seagal

1)Procrastination - No concept of timeliness
Procrastination is the thief of time – Geoffrey Moss.
Don’t assume there is tomorrow or everything is rosy tomorrow!

2)No definite goals setting or no strategies to achieve them
If you do NOT know where you are going, you simply will NOT get there.

3)Financially-ignorant or financially-illiterate
Too bad some have choose to ignore this subject.

4)Failure to diversify
Not to place the eggs in one basket.

5)Fail to measure the time value of money
When you save, interest works for you; when you borrow, interest works against
you. In summary, compounding interest can work FOR or even AGAINST you!

6)Lack of discipline to save first & spend later
Most would rather spend first & pay later. Credit-cards & pay-by-installments are
some of the culprits.

7)Lack of adequate understanding on taxation laws
Equally important for tax planning and maximise disposable cash

8)Inadequate protection against unexpected losses
Nothing lasts forever. Explore the subject of insurance.

9)Unrealistic expectations
It is a basic tenet in financial planning that the short-term problems must be
solved before the long-term problems can be dealt with.

10)Unchecked self-pride & ego. Simply too individualistic
Thus, stubborn & being reluctant to seek professional advice & assistance.

Long Term Investment Goals

Regardless of the uncertain global economic conditions in the near term, investors should remain focused on their long term goals and make their money work harder and smarter. As the higher inflation is here to stay, investors will see the wisdom of moving some of their savings from low yielding investments to outperform the inflation rate.

Investors should keep their emotions from influencing their investment decisions. A disciplined and methodical approach to investing is the key to long term investment success. They will achieve better returns than those who engage in timing the market.
This approach entails buying and holding the investments for the medium to long term period of at least 3 years with portfolio rebalancing done on regular basis.

The buy and hold principle is based on the notion that a good investment will generate reasonably attractive returns. The advantage of this strategy is that it is easy to manage your investments once you have made them. You don’t have to time the market. Over time, the upward bias of the market will overcome and outweigh any temporary pull-backs in the value of your portfolio.

Investors who want to reduce market volatility are advised to practice dollar cost averaging (DCA) as this strategy enables investors to focus on the long term investment goals and not worry about prevailing level of the market. DCA is simply investing a fixed amount of money in a financial asset on a regular basis regardless of what direction the market is moving. By investing a fixed amount on a regular basis, investors will buy more units when the market is lower and fewer units when the market is higher. This strategy will produce a lower average cost of investment than the average price over any given period.

Conclusion – investors should have a disciplined perspective that focuses on achieving medium to long term investment goals. Focus on the long term horizon and refrain from over-reacting to the short term movements of the stock market.

"Failure is no reason to quit. Every failure gives us valuable information for future improvement" - Happy Malaysia Day!

Dive into Diversification

Most of us keep our hard earned money in fixed deposit or saving accounts (Trust the bankers - still don't know why?). When we have the little extra we might be tempted to indulge in property market. Many still do not consider alternative investment instruments like equity, bond, unit trust, gold and foreign currency. Are we simply just being ignorance or being risk averse?

EPF had stated that the forced saving will not be sufficient for our retirement. If we are solely dependent on it, we will surely be financial dependent! Start asking ourselves - Have we saved enough for the rainy days, children education and retirement? Has inflation escalated too fast that made our investment in the red? Yes, agreed that investment risk is high but the risk of not investing could be higher! The good news is that there are ways to manage the risk!

Many of us are risk averse. So it is not surprising that we prefer to invest in guarantee or capital protected products. However, by doing this, we have passed on the opportunity to earn better returns to the banks! The banks get the difference between what they pays out e.g. FD rate and what we could earn e.g. dividend and capital gain.

Start exploring the investment world. Adopt a diversification strategy. Start moderately with established providers. Happy Investing. Sikit-sikit lama-lama jadi bukit!

Credit Card Debt

Consumer Association of Penang (CAP) said the spending habits of Malaysians have changed and there are now many extravagant shoppers who are credit-card holders. This is a disturbing trend. It said about 2.7 million people have credit cards and a majority of them are youngsters. CAP opposes this system of spending first and paying later as it encourages people to spend more and accumulate debts.

The results of not paying this debt on time are you will be charged a late payment penalty and interest (at the very high rate of at least 18% p.a.) In no time debt accumulates. It’s a very similar situation with the loan shark arrangement except the bankers do not repaint your house and harass your spouse! Not now anyway! The other intangible liability is that your bad credit standing will be reported to credit rating agencies!

As at February 2008, Finance Minister reported that total loans via credit cards accounted for 3.5% of the total financing by banking institutions. Statistics showed that an average 30% of card holders settled their unpaid balances in full every month and almost 60% of the amount spent every month was settled by the following month.
(Me and wife are proud to belong to the 30% category. Hope that you are on my team!)

He added in 2007, only 2,764,085 applications or 49.7% of the 5,566,871 applications received by credit card issuers were approved. This low rate put to rest the misconception that the issuance of credit cards was casually done. (We thought so as we always get ‘harassed’ by the sales agents in the shopping malls)

The number of people declared bankrupt due to credit card debts for 2007 was 1,873 people compared with 1,656 in 2006 and 1,479 in 2005 and 1,397 people in 2004.

If you are in credit card debt, start paying the full amount. Negotiate with the banks to pay on installments and to waive some of the penalties. Then stop spending using the credit cards. Finally, cut the cards in half!

Education Planning

My daughter is 7 years old and son is a toddler. Que sera, sera! However at the very least, for bringing them to this crazy crazy world, I vow to save enough for their education.

Education will not get any cheaper. With the ever rising cost of living, parents are facing tougher challenges to look for ways to fund their children’s education. If there is a will, there is definitely a way.

Some start planning the moment the children are born, others when their children complete secondary school. Some like it hot. If you are left out, don’t be despair. Just do it now. There are many tools to achieve this objective. Read on, some hot tips.

Jolie bought an apartment, rented out for many years before selling it off to finance her eldest child’s education. The monthly income from rental was regularly invested in unit trust which is geared for the younger child’s education. If unit trusts are carefully monitored, the returns are very attractive. The returns can be as much as three or four times higher than fixed deposits. Investing in properties and unit trusts are both ways to hedge funds for education.

Pitt did not encourage his children to apply for study loans as he didn’t want them to start working life with a financial burden. Instead he bought insurance policies when they were born. Although he can’t plan for the full cost of the children’s education but some planning is better than nothing.

Hisham plans to withdraw money from the Employees Provident Fund (EPF) account for this purpose.

The above examples are not the only avenues. One of the keys is to have a good “basket of eggs”. Other options include buying foreign currency and investing in shares.

Parents should seek help when investing. Some don’t know what to do with the money they’ve set aside. They put them in fixed deposits, the returns which are probably lower than the inflation rate, thus effectively losing the value of the money. Some who are well versed with financial matters may invest in properties overseas, especially in the country their children intend to study in. By doing this, they cushion themselves against fluctuations in foreign exchange and the child can live there when he is studying.

Parents should also involve their children in their financial planning. The ‘don’t let the children know, we can handle it’ mentality is old school. Share with the children on the family’s financial resources. The children could also share some of the financial burden by working part time. This move will give them insights on the rough and tough of the rat race.

Money No' Enough

Money $ Money $ Money. How much do we need to survive in the present condition? Personally the biggest chunk of the monthly take home goes to pay the banks. (Interesting, they are well known to take away our umbrella when it rains!).

Since young, this equation was embedded into us. Incomes - Expenses = Savings. We started to save our angpow $$$ but still could not be rich :( Eureka! only recently, started to think out of the box and adjusted the equation. Incomes - Savings = Expenses. Still not rich but definitely heading towards the correct direction. How does it work? Before paying the expenses, pay ourselves first. Set aside a certain amount into a separate account or an investment plan. Then only spend the balance. (As compare to pay the expenses first, then whatever balance is the savings). Impossible?

Nothing is impossible. Let us start small, e.g. RM30 per month. RM1 per day. Reduce a cup of teh tarik or 2 sticks of fags? (maybe boycott and don't buy the mainstream paper is the better cost savings). Now it looks achievable! Eventually increase this amount to RM100, RM500, RM1,000 and up up and away. Is that all? What do we do with savings? Now the harder part, to accumulate wealth and let the money works hard. The rule of thumb is to diversify. Read, talk to people and explore about investment in shares, real estate & properties, unit trusts, golds, fixed incomes etc.

Just do it. It is never too young or too late to start saving for your retirement age or for your children education. Towards Financial Freedom!