TOP Money TIPS for Malaysians

If there is an easy and yet effective guidebook on taking good care of your hard earned money,
then please go for this one:



Title : Top Money Tips for Malaysians

ISBN : 978-983-3364-68-8

Author : Lau, KC; whom I met via googling at his http://KCLau.com.
His nice photo of a young face caught my first attention! Not sure of his age though.

Publisher: True Wealth Sdn Bhd, www.MillionairesPlanet.com.

List Price: RM29.90 (Please read on if you are interested to buy at a discount from me!)

Extend: 208 pages

There are a total of 24 tips which are organised under four categories, namely

• Smart Money Tips
• Money-Making Tips
• Money-Saving Tips
• Money-Protection Tips

These tips may sound mundane, but they are not to be ignored as they are simply practical yet seldom practised by most of us.

You may not believe that you could get your first car free! How? Make use of NCD, No-Claim Discount, of the motor insurance. In the example given in the book, you could earn your first used car of RM5000 eight years later. The gist of the lesson is how one can make full use of NCD when one adds himself a new expensive car, if one bothers to transfer the NCD to the more expensive car. I know of my money-savvy friend, CK, doing this. Read this practical guide in Chapter 13.

The above tip is a Money-Saving Tip. Let's look at a Money-Making Tip next.

I for one have been thinking of how to make money via Internet. Do a business by creating a website or a blog? The fear of time, money and effort to be spent and uncertainty of making any profit puts me off even before I get started! KC Lau has been getting more than USD5 monthly for creating a lens. You need to read Chapter 8 to find out what a lens is. I will try his method and shall blog on this again once I make my first US Dollar!

His last section of the book, Money-Protection Tips, dedicates entirely to the intelligence and advice on insurance planning. Practical tips on choosing a traditional or an investment-linked insurance; insurance switching; investment replacement; and how to choose the frequency of premium payment to your advantage are definitely very useful.

You may have noticed that I have not covered the first part of his book, the Smart Money Tips. I am leaving this favourite section of mine to the last. I am particularly proud of myself as this is one book that confirms my principle of earning versus spending money. Chapter 3 starts with a quotation credited to Lynson Forman that makes me happy, "Don't focus on how to spend less money. Focus on how to make more money." This chapter assures me that the risk management that I have been taking in dealing with money could be right only if I know how to find ways to make more money! And THANKS to the author, he has listed 50 ways on how I can spend less money as against 25 ways of how I can make more money! I guess what I need to do now is to look at each of these latter 25 ways seriously in order to live with a positive cash flow happily always.

I have found this book not an ordinary one as compared to the many titles on the book shelves, which are full of jargon and theories, that are far from practical. As a service to all my dear friends whom I dedicate this review to, I am offering you a special price for this book: you just need to pay me RM25.00 to have one copy delivered to your home within Malaysia. If you are interested, kindly email me at shpoh88@gmail.com. Offers ends before Christmas 2008.

Let Your EPF Savings Grow

Do you know that you can invest part of your EPF Account I in Mutual Trust Fund?

Please see the table below:


The following is an example:

If you are 25 years old, and you have RM20,000 in your KWSP Account I, the table shows that the minimum cash amount you need to maintain is RM9,000. You can then invest 20% of the amount in excess of RM9,000 in Mutual Funds.

So, amount to invest is (20,000 – 9,000) x 20% = RM2,200.

Please check if your Account has excess for Mutual Fund Investment.

FYI, I have invested in Mutual Funds regularly for the last 7 years, and the returns are much better than EPF interest. I would thus like to share my happy experience with you!

Please let your family members and friends know about this.

Let me know and I can help you invest.

If you have any question on this matter, email me please.

shpoh88@gmail.com

[This posting was first published on May 1, 2008]

What Is A Unit Trust?

A unit trust is a financial tool through which you may invest your savings. The idea behind unit trust is having better investment through collective investing. That is done by pooling the investments of many investors, individuals and institutions.

Investing in a unit trust offers investors numerous advantages, including:

a. Professional management at a low cost
b. Safety through the spreading of risk (diversification)
c. Liquidity - able to convert investment into cash at any time
d. Ease of transaction - I can help you invest!
e. Capital appreciation/income stream - let your money grow!

The operation of a unit trust may be best explained by outlining its similarities with the operation of a bank, with which most individuals are familiar.

Many individuals deposit money in the banks, for which they receive interest. These individuals expect complete liquidity where they must be able to withdraw their deposits in cash at any time. The banks employ professional managers to look after the deposits. The deposits are invested. These managers lend the deposits to other individuals requiring funds and a host of other profit generating facilities of the banks.

Similarly, unit trust holders wish to put their money to generate higher returns. The goal of all investments is to make money more productive, either through producing income or growth. Unit trust holders have liquidity because their units can be readily converted into cash at any time. By investing in unit trusts, it allows them to engage professional fund managers at a low cost to the individual investors. These managers diversify the investible funds in many different securities (shares in stock market) and other approved channels to spread the risk.

The unit trust is constituted through a document known as a deed (contract-like) which brings together and binds the various parties to the deed:

• The trustee (a third party company appointed by the unit trust company), who holds the assets of the trusts on behalf of the unit-holders.
• The manager (the unit trust company), who is the promoter of the scheme and provides investment and administrative expertise and markets units to the public
• The unit-holders (you as the investors) who provide the funds for investment and expect to receive the benefits derived from the investment. The effect of dividing the beneficiaries' interest in the trust into units is that their interest is quantified into discrete portions.
  

Particular advantages of unit trusts over the pooled investments include :

• The provision of an independent trustee to hold the trust's assets on behalf of unit-holders and to watch over their interests on an on-going basis.
• The deed and prospectus are scrutinised by government authorities, prior to an offer of units being made to the general public. The managers and trustee are themselves approved by the regulators.
• A buy back provision or covenant in each deed which requires the manager to redeem an investor's units within specified time limits at a price determined in accordance with the deed.
  

Provisions in the deed under which the manager and trustee are in a fiduciary position in relation to the trust (i.e. they can only profit in ways laid down under the deed). The investor can determine in advance what costs and charges they will be required to pay to join and stay in the trust.

Email me if you wish to invest or for more info: shpoh88@gmail.com

[This posting was first published on May 1, 2008]

Why EPF Pays Lower Dividends?

[The following extract was taken from theStar, http://thestar.com.my/news/story.asp?file=/2007/12/6/nation/20071206205452&sec=nation.

Though it was a piece of news dated five months ago, it shows why EPF could not pay very high dividends. There are three main classes of investments.

(1) EPF investment in Government securities, loans and bonds, and instrumental money market takes up 80%. These investments have low rate of return with the advantage of low risk.

(2) The RM58.64bil investment in equities makes up only 19.4%. This investment fetches high return which comes with high risk too.

(3) EPF has started to invest properties, amounting RM1.72bil which is only 0.6%. This investment is of higher return and higher risk than the investment in Government securities, loans, bonds and money market.

As a large portion of EPF investment is of low return, EPF dividends average at 4.7% . ]

*****

Thursday December 6, 2007
EPF invests RM300bil in first 6 months of 2007

KUALA LUMPUR: The Employee's Provident Fund has invested RM301bil as at June 30 this year, Finance Ministry parliamentary secretary Datuk Seri Dr Hilmi Yahaya told the Dewan Rakyat.

He said that of the amount, RM104.21bil or 34.6% was invested in Government securities, RM112.15bil or 37.2% in loans and bonds, RM58.64bil in equities, RM24.72bil in instrumental money market and RM1.72bil in properties.

[This post was first published on May 13, 2008]

EPF Dividends vs Unit Trust Returns

I was asked about the returns of Unit Trust investment, particularly with reference to my statement in my first article that "I have invested in unit trust regularly for the last 7 years, and the returns are much better than EPF dividends."

As for returns of mutual trust investment using our EPF saving, the annual EPF dividend is a better parameter for comparison.

Below are the graph and table of EPF dividends from 2001 to 2006. In 2007, the dividend was the highest at 5.8%.

You could notice that EPF has been paying an annual dividend of 4.25 to 5.8% since 2001. Subtracting the inflation factor, the Real Dividend Rate ranges from 1.35 to 3.6%.

What about Returns from Unit Trust Investment?

I started investing in unit trust on 10 June 2000. Every three months or so after that, thanks to Ms Demy, my Unit Trust Consultant, she would come to my office and process the EPF withdrawals and Trust Fund investments for me.

I have six funds under my portfolio by now, one of which is a bond fund. The oldest fund in my portfolio has grown more than double, 2.17 times to be exact. A check with the latest Master Prospectus of the Trust Funds, this fund has recorded an Average Annual Returns Since Launched of 29.83%, which is far much better than EPF.

Last year, EPF made a ruling that all EPF withdrawals have to be invested in local funds. Therefore, we should look at the the returns of local content funds. The four local content funds listed in the Master Prospectus show Average Annual Returns of 16.26%, 14.40%, 33.75% and 19.82%. These Average Annual Returns were based upon the returns since the funds were launched.

The various funds that I used for comparison above are equity or balanced funds which invest substantially in share markets.

Mutual fund companies in Malaysia have launched several new funds which were approved for EPF investments. There are ample funds which are open for new investors to choose from.

If you would like to have more information of EPF-approved mutual funds, kindly email shpoh88@gmail.com.

[This posting was first published on May 5, 2008}

Some Figures on Returns

[This is a news article from Business Times Online. There is a general comparison of the rates of return from various investment tools, as highlighted in the article below. I am not in any way related to CIMB Wealth Advisors Bhd. This article simply serves to illustrate various ways of managing wealth cycle. Read on.]

CIMB Wealth upbeat on 3-in-1 education plan
By Chong Pooi Koon Published: 2008/05/07


CIMB Wealth Advisors Bhd is bullish on its new three-in-one education plan, a package that uses unit trust investment instead of endowment to help parents keep enough money for their children's education.

Chief executive officer Tan Beng Wah said the product comes with insurance coverage to ensure that the fund will continue to grow in the event of the investor's sudden death or total permanent disability.

A trust nomination service is also thrown in to ensure that the money will reach beneficiaries without delay.

"We designed this as we know this is what the customers want, based on years of experience. I'm really excited about it," Tan said in a media briefing in Kuala Lumpur yesterday.

The unique part is, even with the additional features of insurance and trust nomination, the product is still cheaper than an average education plan in the market which uses endowment to grow the fund.

For example, parents planning to raise RM200,000 over 15 years for the study plan of a three-year-old will need to put in an average of RM11,000 to RM12,000 a year.

This compares with a payment of RM27,000 a year for an average endowment plan for the same goal.

Tan said unit trusts may be a more appropriate investment tool to finance long-term needs such as education.

This is because unit trust investments in general return 9-12 per cent a year, much higher than an insurance's annual yield of 5.7 per cent.

The Employees Provident Fund pays 4.7 per cent a year on average, while a fixed deposit gives 3.7 per cent interest per annum. Savings rate is the lowest, at 1.7 per cent.

"This product is not possible at this cost if not for all the necessary business components within the CIMB Group," Tan added.

CIMB Wealth has worked with the insurance division, the trustee service provider and the asset management arms within the group to package this plan, which helps to cut costs.

The education plan targets those with a household income of more than RM5,000 per month.

The company aims to sell 400 plans every month, with an average value of RM200,000 each.

The plan is available in both conventional and Islamic versions. Tenures range from nine years to 20 years.

[This post was first published on May 8, 2009]

Dollar Cost Averaging

What is Dollar Cost Averaging Principle?

Dollar Cost Averaging (DCA) is when a unitholder invests a fixed amount of Ringgit in a unit trust fund regularly. For cash investors, you can instruct your bank to direct debit a fixed amount monthly to invest into a named unit trust fund. For EPF investors, you can practise DCA by investing once every three months as permitted by EPF.

For DCA, you are buying a fixed ringgit amount, say RM100 of a particular trust fund on a regular schedule, regardless of the unit price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.

Eventually, the average cost per unit of the trust fund will become smaller and smaller. Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time. The idea of Dollar Cost Averaging Principle is to solve the problem of TIMING.

What is the advantage of applying the Dollar Cost Averaging Principle to a regular savings plan?

a) No timing problem.
b) The total number of units will be more in the long run.
c) The average cost will be lower in the long run.

Why NOW?

As the prices of shares now are low, the unit prices of equity-based unit trust funds are also low. Many unitholders, however, are worried and are refraining from investing NOW. Acutaully, NOW is the best time to invest, as every one of your Ringgit will bring you a GREATER number of units! This is what the saying BUY LOW SELL HIGH implicates!

If you want to know more investment in Unit Trust, kindly email me for more details at shpoh88@gmail.com.

[This post was first published on Sept 7, 2008]

Q&A on Financial Planning

[This is an article from theStar
http://thestar.com.my/news/story.asp?file=/2007/6/10/focus/17962749&sec=focus.

From the article, it makes sense to invest in Unit Trust rather than keeping the saving in FD. However, we must bear in mind that higher returns come with higher risks, like the saying that no risk no gain.

Another lesson is that investment in Unit Trust should be of long term, of say three years.]

*****

Sunday June 10, 2007
When playing it safe might not be that safe after all

Q & A on financial planning

Q: I CURRENTLY have about RM120,000 in my FD, which only provides me a 3.8% annual return. Can you suggest any other safe methods of growing it faster? As you know, our inflation rate is about 6% per year, which means my money is at a losing rate of 2.2% (6% to 3.8%) if I keep it in FD.
SW Yeoh

A: Congratulations on realising that placing your hard-earned savings in fixed deposit (FD) is not as safe as many people think. You are absolutely right when you said you are indeed losing 2.2% after taking into account your inflation rate of 6%. In fact, playing it safe is not “safe” at all as your money cannot grow fast enough to outpace inflation.

From our many years of experience in helping investors achieve their financial goals, we have concluded that investors want a reasonable personal rate of return, within an acceptable level of risk. Therefore, it is important to understand that investment returns are always a function of investment risk.

Generally speaking, the higher the sought-after investment returns are, the higher the associated risks. Therefore, you must be prepared to take risks, with a view of investing in the long term (at least three years), in order to invest successfully.

The next step is to explore the investment options available to you such as property, stocks and unit trusts. Investing directly in the stock market is great if we have the time, skill and money required. Since most of us do not have the time or skill to invest directly in the stock market, unit trusts could be the answer for us.

According to well-known investment author and fund manager Peter Lynch, “The Mutual Fund (unit trust) is a wonderful invention for people who have neither the time nor the inclination to test their wits against the stock market, as well as for people with small amounts of time to invest who seek diversification.”

Before investing, you should understand the various asset classes of unit trust fund. There are three broad asset classes based on risk. The highest risk is associated with the Equity class. Second is the Bond class. The third and lowest is the Money Market class.

The most basic question you must ask yourself when you decide to buy a particular unit trust fund is: Is it an Equity, Bond or Money Market fund?

Each of us is in different financial circumstances. Therefore, it is very important that you meet with a qualified Financial Planner to undergo a detailed and systematic process of analysing your investment objectives, risk profile and investment time horizon.

Without going through a systematic process, it is difficult to design the most appropriate unit trust portfolio that matches your unique risk profile and investment needs.

Answer provided by MAAKL Mutual Bhd, a Charter member of FPAM

Note: Financial or retirement planning requires an analysis of the readers' personal and financial circumstances and knowledge of their goals. Without the necessary details, the answers will have to be general in nature. For a proper plan specifically tailored to the needs of each individual, they are advised to see qualified professionals.

[This post was first published on May 13, 2008]

Insights into Wealth Cycle

[This article is extracted from theStar Business, Thursday July 5, 2007. It gives a very good introduction to WEALTH cycle]


Most individuals and families go through a series of financial events during their lives. As they pass each of these stages, their financial strategies need to change to reflect their evolving needs and financial circumstances.

RALPH Waldo Emerson, an American author in the early 19th century, once said: “It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have it, it requires 10 times as much skill to keep it.”

Even back then, the West understood the importance and the difficulties of accumulating and preserving wealth. They discovered that everyone goes through a lifecycle that consists of different stages and each phase calls for certain financial needs and objectives they want to achieve. These different stages are known as the “cycle of wealth”. Our Western counterparts have actively practised this concept, as they understand the significance of the cycle and the important role it plays in building and sustaining one’s wealth.



Via a simple research, we found that a majority of Malaysians has yet to adopt the wealth cycle formula. Instead, Malaysians tend to manage their wealth in fragments with most concentrating on wealth creation and enhancement, and often ignoring preservation and distribution.

Neglecting any of these cycles will impact on one’s retirement and can result in insufficient means to provide for family members or even future generations. Taking the right steps in accordance to the wealth cycle can reduce financial uncertainty and financial distress.

The wealth cycle is commonly known to consist of four pillars – creation, enhancement, preservation and distribution.

“Wealth creation”, also known as “start-up”, is the first pillar of the cycle. It plays a vital role in forming the base for the wealth accumulation process.

“Wealth creators” are individuals who are in the early stages of their professional career and they tend to have larger financial responsibilities such as mortgages and credit purchases. Typically, their liabilities tend to be higher than their income.

Financial decisions tend to be mostly short term and they often adopt the characteristic of an aggressive investor, seeking ways to maximise the returns on their assets.

Once wealth is established and created, these individuals – by now in their mid to late career life – would shift their focus to “wealth enhancement”. The primary objective of this cycle is to multiply or enhance the returns on the accumulated assets with lower risks or better capital protection.

This is where with proper asset allocation, they are able to determine areas of financial interest and investment products that suit them in order to generate more income. Managing the acquired wealth is also crucial at this stage, taking into account tax considerations and debt management.

“Wealth preservation” starts when one has built up a substantial amount of wealth. The key strategy is to ensure that wealth is well managed with protection being the key objective. At this stage, the portfolio is managed with greater focus to generate income, while minimising risk.

Many times, individuals or families fail to anticipate and prepare for this cycle. They focus on accumulating wealth only to lose almost everything in the end as a result of not having proper wealth management structure.

Finally, the “wealth distribution” phase is where one ensures that one's assets or wealth and even business are transferred or distributed in the most optimal way and according to one's wishes. This is also a stage most individuals and families often ignore.

Estate and succession plans should be put in place well in advance to ensure that the family wealth and the reins of the family business are handed over to the following generations in an orderly manner.

Too many people have learned that making a fortune is the easy part. “In the long run,” cautions multi-millionaire entrepreneur and educator Robert T. Kiyosaki, “it’s not how much you make, it's how much you keep, and how many generations you keep it.”

As such, wealth distribution through the use of mechanisms such as trusts and wills would make certain that one’s wealth will last over many generations, thus ensuring a legacy of prosperity that every individual dreams of.

It is every individual’s dream to have financial freedom at retirement or at the very least, most hope to be free from any debt obligation. This is achievable if one were to diligently practise the management of wealth cycle accordingly.

In essence, one needs to understand that the key to success in using the wealth cycle is to know what steps to take and in what order.

[This post was first published on May 1, 2008]