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Thursday, January 18, 2018

Net Asset Value - NAV

What is Net Asset Value - NAV?

Net Asset Value (NAV) is the value per unit of a unit trust fund or a mutual fund on a specific date. The per-unit amount is based on the total market value of all the securities in a unit trust fund's portfolio (Total Assets minus Total Liabilities) and divided by the number of units outstanding. Hence, it is the price per unit of the fund which used for subscribing (buy) and redeeming (sell). 

What is the difference with share price?

Unlike share price which fluctuates throughout the day, NAV per unit is only computed once per day based on the closing market prices of all the securities within the unit trust fund's portfolio. So, investors usually can only get to know the NAV per unit the next day. However, all the subscription and redemption order will be processed using the NAV of the Transaction Date. 

Investor A bought RM10,000 into Unit Trust X on 10/1/2018 (Transaction Date).
But Investor A can only get to know the NAV he bought on the following day, 11/1/2018. (T+1)
In other words, today you only get to know the NAV of a unit trust fund for the day before.  

What else I need to know?

Unlike share price of a share company, the NAV of a unit trust fund does not depends on demand and supply of the unit trust fund. In order to buy a share at a certain share price, one would need wait for a matching seller and vice versa. But for unit trust fund, one can always make subscription and redemption at anytime. 

From the NAV formula, only increases in Total Assets or decreases in Total Liabilities can directly affect NAV of a unit trust fund. As a result, changes in NAV are not the best gauge of a unit trust fund performance. Many other measures such as Annualized Return, Sharpe Ratio, Alpha, Beta and so on, would be much better indications of a unit trust fund performance. 

Tuesday, December 19, 2017

What's your New Year's Resolution?

We are entering towards the last few weeks of the year, probably you have started thinking about your new year's resolution and how you are going to be better in the new year. But, chances are that you would probably end up the same like any previous year.  

Every year, you stopped at just having the thought but without any actual actions. Then, time flies by in the blink of an eye and turn that into a vicious cycle. You aged year by year and as you get older, you start to stay in your comfort zone and too afraid to try anything new or even to take the leap of faith. 

But deep down, you know you have to make a change. So here's how!

Decide to do something different!
How bad do you want it? You may have heard about this a lot but nothing can really happen until you actually make the decision. You have to decide what you really want and what you are willing to sacrifice to exchange for it. Tell yourself, "I will do whatever it takes to get me there!". 

Set Goals!  
Imagine how a runner can win a race without knowing where the end point is? It's like kicking football penalty without a goal post, shooting basketball without a hoop or even driving without a destination! How horrible would you be feeling? And set a SMART goal, make sure it is specific, measurable, attainable, relevant and time-bound. 

Make Plans!
Many people just start right away without a plan, which is also why they failed halfway through. Yes you may have your eyes on the prize/goal/destination, but without knowing what actually you need to do is not going to get you there. It's just like in order to get you to your destination, how much petrol you need to pump into your car, how much money you need to prepare for the toll, what are the directions and most importantly, can you arrive on time? Make a thorough plan!

Take Action!
3....2....1... Action! Life is pretty much like a movie where you are your own main actor/actress, as well as the director, except that there is no take two in life and you just wasted another day or another year. There is certainly no stuntman to replace you too, you just have to do it all by your own. So, can you be the best actor/best director for your own life movie? You can and you should

And again, this may be just another typical articles that you read which could only sparks for a moment for you. You may find it inspiring, liking the post or even sharing to your friend. But at the end of the day, it is you who is going to change your own life! Take action now!

#YourFinanceDoctor is Licensed Financial Advisor with CFP®! He helps his clients to achieve their financial goals through proper comprehensive financial plan. He also provides unbiased and independent professional financial services including financial plan, investment, insurance, will and trust. Hire #YourFinanceDoctor today

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!

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