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Wednesday, November 8, 2017

Time for Private Retirement Scheme (PRS) Again!

Every year I have written one to two posts on the Securities Commission (SC) Malaysia regulated Private Retirement Scheme (PRS). This year I will do the same as well since we are going towards the end of 2017 and it's about time to invest in PRS again! 

If you have read my previous PRS post back in 2015, you would have known all the advantages of investing in PRS. Up to date, the advantages are still remain the same, which include:

  1. Set aside another retirement saving on top of Employee Provident Fund (EPF)
  2. Enjoy up to RM3,000 Tax Relief allowable by Lembaga Hasil Dalam Negeri (LHDN)

And also the newly added and change to the advantages:
  1. Nominate for your loved ones
  2. Get rewarded with RM1,000 Youth Incentive (Only for Malaysian aged 20-30)  

If you happen to be one of #YourFinanceDoctor's clients, one of my advice is to invest at the end of the year. PRS allows you to enjoy the RM3,000 tax relief regardless of when you invest the money, as long as it is within the calendar year. So why not make good use of the money first in the beginning of the year, be it to invest in share market or unit trust, then only invest in PRS at the end of the year. 

Of course, this does not apply to all, especially those non-financial savvy person or those without the discipline to keep the money, which may ended up with no more cash at the end of the year. So in this case, #YourFinanceDoctor may advise you to just apply for a monthly auto deduction (direct debit authorization) from your bank account to PRS. 

So regardless which type of person you are, if you are reading this and you have yet to invest in PRS, NOW IS THE TIME! I strongly believe that you should be investing in PRS as long as you fulfill the following criteria:
  1. Your Income is Tax Liable (You are required to pay tax!)
  2. You are Malaysian aged 20-30 (More reason to invest!)

In other words, I can't think of any reason for you to say no to PRS unless you are:
  1. Your Income is not Tax Liable (You doesn't need to pay tax!)
  2. You are older than aged 30

So let's get it done! Then, your next question will be...  Which PRS Fund to Invest? Similarly, I have written in 2015 (click here to read) on the 3 methods for you to determine which fund to invest out of a total of 56 available PRS funds.  

Contact #YourFinanceDoctor now to kickstart your PRS!

Next PRS post I will be writing about the newly added advantage of Nomination and the change of Youth Incentive from RM500 to RM1,000. Stay tuned! 

Tuesday, November 7, 2017

I Make 36k A Year: How Much Should I Invest?

Recently graduated with a starting pay of $36,000 a year and you are wondering how much you should invest? Regardless of how much money you make, the amount you invest each year should always be based on your financial goals. Your financial goals not only provide you with a target to achieve, they also provide the motivation to stick to your financial plan.

Given the annual income of $36,000, the ideal amount that you would like to invest maybe constraint by the ever-rising living expenses. But remember when you were young, the same you were able to save every little penny so that you could to buy yourself a PS1 (for #YourFinanceDoctor's case) or whatever toy that you would want.

So what's missing now? Goals and a plan!

If you set you your mind on your goals, you should be able to achieve, just like how you did it before. With the four key financial planning steps here, you can find out exactly how much to invest in the beginning and have a plan for reaching your goals through the gradual increases in the amount you invest. 

For the purposes of illustration, this particular case involves a 25-year-old, earning $36,000 per year with an expected income increment of 3% per year.

Begin With The End In Mind
At age 25, you may only have a few goals you want to achieve, which could include preparing an emergency fund, purchasing a car, buying a house and probably retirement fund. Okay maybe not, most of you may not have think about retirement yet, but trust me, you should!

Well, this is a lot to accomplish with just $36,000 income and it might sounds scary to you. Nevertheless, you should not let your current income constrain your financial goals since your income will increase gradually over the years. You just have to list down all your financial goals and sort it according to your priority and urgency.

The financial goals you set have to be a SMART goal, namely, specific, measurable, achievable, realistic and time bound. So for example, assume one of the goals you want to achieve is to retire at the age of 55. So a SMART goal will be "Monthly Expenses of $5,000 (based on present value) After Retirement at Age 55". After all the calculations, you will know exactly the amount needed to prepare for each goals. 

Lazy to do it yourself...? Hire #YourFinanceDoctor today!

Create a Plan
The most common mistake many people make is that they roughly determine (a.k.a agak-agak) their saving amount, in other words, they save what's left after all the expenses. Like the wise man always said, spend what is left after saving. Common sense? More like common mistake. 

As you would expect, there could be no money available for investing when expenses run high in particular month. But people who are intent on achieving their financial goals reverse the process and determine their monthly expenses around their savings goals. Which is why the wise man is one of the billionaire! 

So if you are required to save $1,000 monthly to achieve your financial goals, make this amount as your first expenditure. With the advancement of internet, it would be easier to do if you set up direct debit authorization from your bank account for a qualified investment plan. This forces you to manage your expenses on $1,000 less each month.

Maintain a Healthy Financial Ratio 
With a financial plan where all your incomes, expenses, assets and liabilities are being analyzed, you would be able to know all your financial ratios and more importantly, how to improve if the ratio is not healthy. Percentage on each category of expenses are equally important too so that you understand where your money goes!

The financial plan would acts as a monitoring tool where you know your exact budget for each items so that you would not overspend. Most financial advisers would recommend saving at least 10% to 15% of your annual income, but #YourFinanceDoctor would advise you to save as much as you can! So, $1,000 a month amounts to 33% of your income, which is healthy considered you just started out with not much commitment.

Invest According to Your Risk Profile
After knowing your investment amount through financial plan, you need to know your risk profile too! Understanding your money may not be enough as you need to understand yourself too. Be it a risk taker or a risk adverse, there are always different option of investments suitable for you.

At a younger age, you have a longer time horizon, which may allow you to assume a little more risk for the potential of higher returns. As you are nearer to your retirement age, you then may want to reduce the risk in your investment portfolio by increasing the allocation in fixed-income investments. 

Having a well diversified investment portfolio may also effectively reduced your investment risk. Over the time, your investment portfolio allocation should be evolved according to your risk profile at different life stages.

There isn't a definite answer to the question on how much one should invest as it varies from one to another depending on your financial goals. But as a rule of thumb, it should be at least 10% to 15%. Another common mistake to avoid is to remember to increase investment amount according to your yearly income increment. Salary increases, lifestyle improves, same goes to your investment too! 

Wednesday, November 1, 2017

Which Household Income Group Do You Belong To? Top Middle or Bottom?

Department of Statistics Malaysia recently has released Report of Household Income And Basic Amenities Survey 2016 in their website on 9 October 2017. Personal interviewing approach was used for a period of twelve months starting from May 2016 until April 2017 to collect data on the characteristics of Malaysian household particularly on income and basic amenities.

What is Household Income?
#YourFinanceDoctor came across some Facebook posts where people seems to be confused with the data. First and foremost, Do bear in mind that Household Income is not the same as Personal Income. Household Income refer to total incomes received (accrued) by all members of households, both in cash and in kinds which occur repeatedly within the reference period (within a year). 

So remember, the figure is not just your salary alone, you have to add it all together with your spouse, parents or whoever that is staying with you. Next, the difference of median and mean. What is median and mean? Why both are important?

What is Median? 
If you still remember the maths in high school, Median is the middle number in a sorted list of numbers. For this survey report, all the household income data collected will be sorted from smallest to largest. So, Median is the middle value that separating the higher half from the lower half. 

What is Mean?
Mean is the average of all the values, which computed by dividing the total of all values by the number of values. In other words, all the household income data collected were being summed and divided by number of household. 

Why Median & Mean are Important?
A lot of you might be curious what does Median tell us? Well, in this case, Median gives a helpful measure of center of the data, especially if there is an extreme value which could impact the Mean. 

RM3,000    RM4,000    RM5,000   RM6,000    RM200,000 (extreme)

Mean = RM218,000 / 5 = RM43,600
Median = RM5,000

For example, if there is a millionaire (extreme value) which earns RM200,000 a month, then it would greatly increases the Mean (RM43,600). However, the Median (RM5,000) would more accurately represent the income of most of the people in this example. 

Which one should I use?
BOTH. For this Household Income case, Median would be more preferrable, but Mean tells you something too! Ideally, if Mean and Median are having the same figure, then the data are normally distributed or also known as the "Bell Curve". So by comparison of Median and Mean...

1. Malaysia as a whole, rich people are a lot richer!
As shown in the first figure, Malaysia Household Income as a whole has a Median of RM5,228 which is lower than the Mean of RM6,958. In other words, those higher than the middle value, Median (RM5,228), is a lot richer. 

2. T20 of Malaysia, rich people are a lot more richer! 
For the T20, Median of RM13,148 is lower than the Mean of RM16,088. So there must be extreme value in the T20 from the super duper rich! 

3. M40 of Malaysia, near to normally distributed 
For the M40, Median of RM6,275 is slightly lower than the Mean of RM6,502.

4. B40 of Malaysia, poor people are a lot poorer!
Lastly, for the B40, Median of RM3,000 is higher than the Mean of RM2,848. In other words, there are extreme values from the B40, which is way below of RM2,848.

By now, you should roughly know which household income group you belong to. And within the group itself, is your household income higher or lower than the Mean and Median? Regardless which group you are in, as a Malaysian, let's do our part by earning more money to help Malaysia achieve high income nation status by 2020! 

Click to enlarge

p/s: Data taken from Department of Statistics Malaysia

Tuesday, June 20, 2017

What $1,000 Invested in Facebook, Apple, Amazon, Netflix and Google 10 Years Ago is Worth Today

Generally, the stock market cycle has an average period of 10 years, which consist of both bull and bear markets. So it would be interesting to find out how the company's stock is performing throughout the whole market cycle. Let's take a look at how the most popular technology stocks, namely, Facebook, Apple, Amazon, Netflix and Google, also known as FAANG, would perform!

For better illustration, #YourFinanceDoctor gathered Morningstar data to see what $1,000 invested in these FAANG companies back in 2007 would be worth 10 years later. If you would like to find out the 5 Best Performing Unit Trust Funds in Past 10 Years, click through to see which funds have produced spectacular annualized return in the past decade. 

1. Facebook (FB) : $3,940.29 (5 years)
Share Price May 18, 2012 : $38.23 
Share Price June 16, 2017 : $150.64
5-year Annualized Return : 38.08% 
10-year Annualized Return : N/A

Facebook held its Initial Public Offering (IPO) on Friday, May 18, 2012, which was the biggest in technology sector with a peak market capitalization of over $104 billion. Since it is less than 10 years, it would not be fair to compare along side with the rest. However, a whopping 38.08% of 5-year annualized return still very incredible! 

2. Apple (AAPL) : $7,961.29
Share Price June 18, 2007 : $17.87 
Share Price June 16, 2017 : $142.27
5-year Annualized Return : 13.13% 
10-year Annualized Return : 24.34%

Everyone knows about Apple as they build their branding well thanks to their premier consumer products that became a status symbol of luxury. Apple managed to refocus into consumer electronics successfully by keeping things simple and packing more features into their devices. Invested $1,000 10 years ago would brings you to a magnificent $7,961.29! 

3. Amazon (AMZN) : 13,749.91
Share Price June 18, 2007 : $71.83 
Share Price June 16, 2017 : $987.71
5-year Annualized Return : 35.24% 
10-year Annualized Return : 29.86%

Founded by Jeff Bezos where Amazon started as online bookstore back in 1994, and now became the largest internet-based in the world by total sales and market capitalization. If you noticed the logo of Amazon, you would realized that there's an arrow pointing from A to Z which represents their A-to-Z guarantee claim policy. Investing in Amazon would yields a 29.86% of 10-year Annualized Return! 

4. Netflix (NFLX) : $53,279.67
Share Price June 18, 2007 : $2.86
Share Price June 16, 2017 : $152.38
5-year Annualized Return : 74.57% 
10-year Annualized Return : 49.05%

In the initial years, Netflix focuses on DVD rental by mail business. As the technology changes, Netflix switch the focus to streaming media which expanded internationally, and even entered the content production industry in 2013. Among all the FAANG companies, Netflix generates the highest 10-year Annualized Return of 49.05%, which means the $1,000 invested 10 years ago has now became $53,279.67!

5. Alphabet (GOOGL) : $3,717.53
Share Price June 18, 2007 : $257.60
Share Price June 16, 2017 : $958.62
5-year Annualized Return : 21.94%
10-year Annualized Return : 11.65%

Alphabet, a.k.a Google is the most well known brand given the success of their internet related services and products, particularly the search engine. Now Google is just one of the subsidiaries under Alphabet as Alphabet is a conglomerate of various interests such as Youtube, Blogger and many more! But don't be surprised that the 10-year Annualized Return is actually the lowest with 11.65%, simply because 10 years ago their share price has already exceeded $100 since 2005.

This is the power of investing! But here's the question, how many of us can actually resist the temptation to sell when it is high or fight the emotion to keep when it is low? Most importantly, these are just the successful cases for technology companies, there are still plenty that ended up badly. So it is important to know what's your investment objective and what you are investing in!

All the result were prepared by #YourFinanceDoctor using Morningstar data.

Wednesday, June 14, 2017

5 Best Performing Unit Trust Funds in Past 10 Years

When it comes to Unit Trust Funds, what is your common perception towards the return? Well, most people would have different answer depending on their personal past experience. Given to the wrong hand of those bad apples will surely yields you a bad return with your hard earned money. So, are you getting the best funds from the market? 

Table from Morningstar

Let's take a look at the 5 Best Performing Unit Trust Funds over the past 10 years out of 540 funds available in Malaysia. You can invest into any of it with minimum of RM1,000, some can even start as low as RM100

Affin Hwang Select Asia (Ex-Japan) Quantum Fund (AHSAQF) seeks to achieve consistent capital appreciation over medium to long-term by investing mainly in growth companies in Asia with market capitalization of not more than USD 1.5 billion at the time of acquisition. The fund has a 10-Year annualized return of 15.32%. However it is currently soft-closing as it almost reaches the maximum fund size, so cash investment is no longer available, but you may still invest in it using EPF Withdrawal. 

Kenanga Growth Fund (KGF) aims to provide Unit Holders with long-term capital growth by invest principally in a diversified portfolio of equity and equity-related securities in Malaysia. Lee Sook Yee is the fund manager as well as the Chief Investment Officer (CIO) since 2013, bringing with her more than twelve (12) years of experience in local and regional equities investment. The fund has a 10-Year annualized return of 14.51%. You can start investing in it as low as RM100

Eastspring Investments Small-cap Fund (EISCF) targets to provide investors with maximum capital appreciation by investing principally in small market capitalization up to RM3 billion at the point of acquisition companies in Malaysia which will appreciate in value. The fund led by Chen Fan Fai, where the team continue to adopt a bottoms-up approach in selecting stocks where they prefer stocks with healthy earnings growth and strong balance sheet. The fund has a 10-Year annualized return of 14.02%. However, it is no longer available to invest as it reaches the maximum fund size limit. 

Manulife Investment Progress Fund (MIPF) strives to provide Unit Holders with steady long-term capital growth at a reasonable level of risk by investing in a diversified portfolio of small- to medium-sized public listed companies in Malaysia. Nicholas Tiong is the fund manager since 2002. The fund has a 10-Year annualized return of 12.26%.

Public Smallcap Fund (PSCF) works to achieve high capital growth through investments in companies with market capitalization of RM1.25 billion and below with special focus on growth stocks. To achieve increased diversification, the fund may invest in foreign markets. The fund may also invest in fixed income securities to generate additional returns. The fund has a 10-Year annualized return of 12.16%. However, it is no longer available to invest as it reaches the maximum fund size limit.

***Noteworthy - KAF Vision Fund (KVF)'s  investment objective is to provide Unit holders with medium to long-term capital growth with a mixture of maximum 65% of the Fund’s NAV will be invested in smaller capitalized companies not exceeding RM1 billion at the time of purchase and maximum 30% of the Fund’s NAV in larger capitalized companies exceeding RM1 billion at the time of purchase. The fund has a 10-Year annualized return of 10.46%.

Did you invest any of these?

Take note that the only 4 funds, namely AHSAQF, KGF, EISC and KVF managed to get DOUBLE-FIGURE annualized return for all 10-year, 5-year, 3-year, 1-year and even Year-To-Date! Although past performance does not guarantee the future return, but judging from the past performance of the fund, one can tell how good is the fund manager in their investment approach, stock selection methodology and even how efficient is the fund manager utilizing the pool of funds from investors. (provided that there is no change in management) 

Anyway, this post is just to show that Unit Trust Fund can yields high return as well (does not indicate any buy recommendation), provided that you have done your research and analysis on which fund to invest in. If the fund recommended by your agent is still not performing after a long period, the reason can only be one - your agent is not managing for you! Time to hire #YourFinanceDoctor!

Thursday, June 1, 2017

Time Value of Money (TVM)

What is Time Value of Money?

Time Value of Money (TVM) is the concept that the value of the same amount of money available today is worth more than the value in future with the same amount of money receive. The main reason is because of INFLATION, where the value of the money is reduced in time. In other word, your purchasing power is reduced with the same amount of money comparing today and 10 years later. 

Why Understand Time Value of Money is important?

Simply because time is money! You want to fully utilize your time and money to make more money. The value of your money is decreasing every single day when you waste/procrastinate by letting them do nothing in your pocket. So what you do with the money you have NOW is utterly important! Time Value of Money can be better understand with the basic formula of calculating future value.

How to Calculate Future Value of Money?

Future value of money can be calculated by using these variables, namely present value, interest rate and number of periods. Looking at the formula, by increasing any of these variables, the future value of money will be increased too and vice versa. Which is why you have to start invest early, so that your number of periods is bigger and future value will be greater too. Greater return (interest rate) will yield higher future value too, so keeping in your pocket, keeping in bank and keeping in investment make a big difference as well!  


If you won a lottery (forget about the tax or whatsoever) and you are given a choice to choose:
Option A : Receive RM1mil now
Option B : Receive RM1mil 5 years later
Which one would you choose?

Obviously, the answer would be A, you want it now since Option B doesn't give you any extra incentive. And the same RM1mil probably not enough to buy you the same house or same land or same car or anything 5 years later because of inflation. So this is easy to choose, what about....

Option A : Receive RM1mil now
Option B : Receive RM1.5mil 5 years later
Which one would you choose?

Now, this is tricky! But actually not if you understand Time Value of Money. 

Step 1 - Find out the interest rate (return, r)
By moving around the future value formula above, we will get the number of period formula as per below. Do you feel familiar with this formula? Yes, this is indeed the same as Annualized Return where I have posted about it in previous post (read here). Simply go to Online Finance Calculator (click here) and key in all the values, you will find the Interest Rate/Annualized Return is 8.447%

PV = RM1mil, FV = RM1.5mil, n = 5, find r?

Step 2 - What will you do with the money?
Now the question is simple, what will you do with the money if you receive it now. If you are going to take the RM1mil now and put in your home (with 0 interest) or put in fixed deposit (around 4%), then you might as well choose Option B. Let's not forget that you may want to include inflation into your calculation as well. So bottom line, 8.447% should be your benchmark, unless you can beat the benchmark of 8.447%, otherwise you should always choose Option B, you want it later

If you won a lottery, probably these are not in your mind...
I bet most of you will be thinking how to spend it all away. Which is why according to National Endowment for Financial Education, about 70% of lottery winners actually end up broke within a few years. (Read here)

Well, nothing wrong with that, it's natural to want to spend money on nice things once you receive a huge amount of money. But if you do not have a proper financial plan, even for millions of dollar, you can easily lose track of how much you have spent until it is too late to realize.  

So remember, if you happen to win a lottery or receive a big inheritance, regardless of Option A or Option B, remember to hire #YourFinanceDoctor to ensure that you can spend part of the money yet keeping the rest of them to generate more money for you!  😉😉😉

Friday, May 12, 2017

7 Important Financial Lessons to Master before You're 30

You may feel young, wild and free during your 20s, but in the blink of an eye, reality will hits you fast and hard with all the financial commitments which may include getting married, getting your own house and having children. Then suddenly in your 30s, you realized that you are halfway to retirement, yet there are far too many outflows with too little inflow of income to cope with.

Thankfully this scenario can be avoided, but every financial decisions you make now will be crucial. Here are 7 most important financial lessons that you should master early on, ideally before you turn 30.

1. Forget about Everyone can Fly

No doubt that the flight ticket is cheaper than ever, but just because it is affordable does not mean you should do it. I am not saying that you should not go for vacation at all, but rather make it a delayed gratification, where you resist the temptation for the immediate reward and wait for a better reward later. Travel is in everyone's bucket list nowadays, but instead of spending away all the money on vacation, plan and save for it according to your affordability with other financial goals taken into consideration, which leads us to the next financial lesson. 

2. List Down Your Financial Goals

One of the 7 Habits of Highly Effective People written by Stephen Covey is to begin with the end in mind. In order to prepare for your financial future, you should have a clear written list of all your financial goals. Most often than not, you probably have not figure that out in your 20s. But don't let it stop there, take time to sit down and think about them. Write them down and plan how to make them a reality so that you have a clear vision of actually achieving them. You are less likely to achieve any goal if you do not write it down and create a concrete plan.

3. Stick to a Budget

Everyone knows the importance of having a budget, but how many of you, especially in your 20s, actually stick to a budget with discipline? So, with all your goals written down, the next thing to do is to understand your current financial situation and the best way to find out is to have a budget to know where all your money goes and start to allocate where each dollar you earn goes. Knowing where you spend can limit yourself from over-budgeting too, such as impulse buying especially when there is promotion going on.  Allocating at the right place is essential as well because you want to fully utilize your money, making sure your money works harder than you.

4. Build a Strong Emergency Fund

One of the first thing to allocate in your budget is to build a strong emergency fund. As a rule of thumb, you should have an emergency fund of at least 3 to 6 months of expenses. The number of months of expenses will be depending on your comfort-ability as well as how fast you are able to get a new job in your particular field. In other words, if you happen to lose your job, at least you are able to sustain for few months. Generally, you do not want to be over saving, as letting your hard earned money to rest in bank while you are working hard may not sound like a good idea. 

5. Be Prepared for Unforeseen Circumstances

Besides of having a strong emergency fund for unforeseen circumstances (which may not be enough), another smart way to be prepared is to have risk transfer strategy. Transfer the risk of loss to the insurer through insurance, be it for yourself, your family and even your assets. Imagine if you had an car accident without insurance, medical expenses (maybe repairing cost too) are going to burn a hole in your pocket. In your 20s, probably you are feeling strong and invincible, where illnesses are unlikely to come to you. But the real "sweet spot" for buying coverage is actually in your 20s when you are still qualified with good health condition at a cheaper rates.  

6. Best Time to Begin Investing is NOW

For Malaysian, I am sure you are familiar with this peribahasa (proverb) - "Sedikit-sedikit, lama-lama jadi bukit" which literally means bit by bit, long enough it will pile up like a mountain. So the keyword here is "lama-lama (long enough)", period of time is vital especially with the compounding interest effect. So the best time to start is as soon as of now! Many misperception on investing is that you can only start to invest when you are rich, but the fact is, it is the opposite way round! Think of any self made billionaire or millionaire, how many of them are not investing to get them richer? Best of all, you can actually start to invest as low as RM100!  

7. Don't Forget Retirement!

Now you just started to work where retirement seems like a long way to go. You might even be thinking that it is more than enough as a small part of your income has already been deducted for EPF retirement fund. But here are the cold hard facts, your salary probably just about the same compare to those who started to work 10-20 years ago; your annual increment does not catch up with inflation where cost of living is ever rising, yet our lifespan is getting longer with medical advancement! Many simply cannot afford to retire especially in the developed country, where the retirement age increase gradually once every 5 years according to the increase in average lifespan. So to ensure your wealth span outliving your lifespan, you just gotta START NOW! 

All in all, 20s are the most significant years in everyone's life. So be sure that you master all the lessons above to make more right financial decisions so that you do not have to regret later in life. Plan and implement as early as possible will only bear sweet fruits. After all, failing to plan is planning to fail!  

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