Morningstar Awards , so what it means?

June 24, 2008 at 3:22 pm · Filed under financial freedom ·Tagged ,

The US based fund rating company, Morningstar Inc is a leading provider of independent investment research in the United States and in major international markets. This time they have conducted a research on our local funds, Public Mutual has swept four out of six awards given by Morningstar.

Picked from www.thestar.com:

“Public Mutual picked up the awards for its Public Ittikal Fund and Malaysian Equity Public Growth Fund under the Equity cateogry. Its Public Bond Fund and PB Balanced Fund also won in the fixed income and balanced category.

The other winners are MAAKL’s Progress Fund under the Malaysia Small Cap Equity and CIMB’s Islamic Balanced Fund.”

One of my investors asked me today when I sent him this article. “How does it related to me or my investment if Public Mutual got awards?” Then I realized that someone somewhere out there may not know how importance are these awards and how does the awards distinguish this fund from another fund. While I do not suggest that we use these awards as a “buying signal”, I don’t deny that the funds that have received awards indicate that they have been performing well and have been managed well by the fund managers. These funds normally have delivered good results to investors and has a good long term track record. Funds that have been there for a few years and still performing consistently normally will be chosen.

So in the end does the award matters? I would say it’s still early to decide that it’s a “buying signal” though but it definitely helps in assisting you in evaluating your fund’s company and their fund managers’ performances. Therefore, you should be happy to see it.

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Cooling-off period

June 18, 2008 at 3:49 pm · Filed under financial freedom ·Tagged ,

If you are a first time investor for a particular unit trust management company, you are entitle for a 6 business days cooling-off period. What exactly is a cooling-off period? Cooling-off period is a time frame where investors have the right to request for a cancellation of their investment in unit trust. After the investors initiate their cooling-off period, they will be refunded with the full amount that they have paid without incurring any charges. However, investors can only exercise their cooling-off rights once which is only when he’s the first time investor of the particular fund management company.

How does the cooling off period works?
1. Initiate cancellation within the 6 business days after your investment.
2. With the assistance of your Unit Trust Consultant, fill in the Investment Within Cooling-Off Period form
3. Investor shall receive your refund in 10 calendar days.

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Money saving tips

June 13, 2008 at 3:01 pm · Filed under financial freedom ·Tagged ,

When it comes to saving our hard-earned money, it all boils down to one rule. Discipline. Without a proper mindset to save, it will ended up with another shopping spree, new gadgets, or another fine food session.

We have to repeat this word in our mind. Financial freedom. Financial freedom. And one more time, financial freedom.

When you receive your earnings, always set aside a suitable amount for your savings. When you hesitate to save, remember the phrase “Financial Freedom”. Ask yourself if you want to achieve financial freedom? If you do, you have to save. There are no shortcuts for it. Saving is the only key because everything needs capital. Investments need capital as well. Without saving, there won’t be any capital to do anything.

Let’s look at the formula below and apply it:
Earnings – Savings = Expenses

Splurging once a while to pamper ourselves is essential for rejuvenation but always look for promotion, discounts, buy 1 free 1, or best buys. 🙂

 

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Compounding interests

June 12, 2008 at 10:54 am · Filed under financial freedom ·Tagged ,

Albert Einstein called this the 8th Wonder, this is the power of compounding interests. Compounding interests simply means you earn interest on your money and then interest on your money with interest earned and so on. Look at the graph below for a clearer idea of how compounding interest works.

As you can see, the effect of compounding interest increases the value of your saving tremendously after some time. Another word is if you don’t save early, you lose out the miracle of the effect of compounding interests on you. The earlier you save, the longer you let it compound, and the better it gets. You don’t need to work hard for it. Time will make it works for you. 

One simple rule to enjoy the power of compounding interests:
Stay invested for as long as you can

Act now. Don’t procrastinate.

 

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Why should I invest my EPF?

June 12, 2008 at 10:21 am · Filed under financial freedom ·Tagged , ,

Based on the news update from KWSP website, more and more peoples are now starting to invest a part of their EPF in unit trusts.

“A total of 42,800 Employees Provident Fund (EPF) members invested a combined RM461 million in unit trust and other approved instruments under the Members’ Investment Scheme in the first three months of this year”

If you have read the article from TheStar not long ago, you will know that less than 5% of Malaysians have more than RM1,000,000 in their EPF account during retirement. Only during retirement, a lot will realize that the funds from KWSP is insufficient to get them through another 25 years if not lesser. This however depends on your own living cost. To cope with high living cost now, many will still opt to work harder even after their retirement age just to make ends meet. When you were younger, you may have various retirement plans like utilizing your EPF funds, or to depend on your children. It may sounds reasonable at this point of time but we wouldn’t be able to predict future. What if your children is also trying to make end meets too by your retirement time? Would you be happy to increase their burden? You may even come up with the most ridiculous retirement plan but believe me, only an early and proper financial planning can ensure an enjoyable retirement.

plan

Benefits of investing your EPF:

1. You get capital growth and dividends instead of only dividends
2. If you start investing young, you have plenty of time to see your money grow and also with longer time horizon, it also means that the risk is minimized with proper monitoring
3. Some unit trusts funds comes with free insurance
4. Instant diversification of your EPF funds which means more opportunities and less risky
5. Low service charge that capped at 3%

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Maximize your Employee Provident Fund

June 9, 2008 at 7:44 am · Filed under financial freedom ·Tagged , , ,

If you have not already knew, this year our government has announced that Malaysian can conditionally withdraw part of our EPF savings under Account I for investment. However, you can only transfer these savings to your choice of investment fund under the funds that are appointed by the Ministry of Finance. With this in mind, the risks and benefits of investing in the particular investment fund will directly be borned by you, no longer by KWSP. Therefore it is very important for you to be selective in choosing a right investment fund if you wish to minimize the risks and see higher returns during the investment process.

Investment conditions:
1. Minimum amount = RM1000
2. Amount that you can invest = 20% of (total in Account 1 – Basic savings)
3. Withdrawals can be made in every 3 months as long as your account met those conditions above.

*Basic savings differs according to your age

For more information on the minimum savings, you can refer to chart below:

 

Example of calculations:

Age: 27
Amount available in Account 1 = RM50000

Amount that can be invested = 20% x (50000 – 12000)
= 20% x 38000
= 7600
So the amount that you can invest is RM7600.

Please also bear in mind that with this investment, all gains and loses will go into your EPF account. It means that if you earn RM1000, you will not be able to withdraw it for personal use. If you would like to stop investing on a particular fund that you have invested with your EPF funds, the gains or loses will be credited back to your EPF account which you can only use it during retirement / after age 55.

The initial service charge is now capped at 3% for EPF investment rather than 5% to 7% for the normal charge. Invest while you can because you are not going to take the risk later in life.

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Public Mutual launches Public Islamic Optimal Growth Fund

June 8, 2008 at 4:35 am · Filed under new fund ·Tagged , ,

Capital growth and income funds aim to achieve capital growth and provide income by investing in a diversified portfolio of growth and dividend stocks. Public Islamic Optimal Growth Fund (PIOGF) is a fund that invests 50% of its equity investment in Shariah-compliant growth stocks in the domestic market while the remaining 50% of its equity investment is invested in Shariah-compliant stocks which offer attractive dividend yields. Given its investment strategy, PIOGF is a capital growth and income fund that is suitable for medium- to long-term investors with aggressive risk-reward temperaments.

Share prices of growth companies may be more volatile than the broad market as these companies are focused on achieving strong earnings growth. On the other hand, dividend stocks are considered to be more stable and less risky as their dividend yields help to cushion potential declines in their share prices during periods of market volatility. Consequently, investors who are keen to invest in a portfolio of growth and dividend stocks in the domestic market would be able to achieve an optimal combination of capital appreciation and income growth over the long-term.

The prospects for Shariah-compliant growth and dividend stocks listed on Bursa Malaysia are bright as the broad base of the Malaysian economy offers vast opportunities for these two different types of companies to thrive in. In general, growth companies tend to be in the technology, construction, manufacturing and resource-based sectors while dividend stocks tend to be in the consumer, utilities, banks and services sectors. Over the years, these sectors have benefited from the sustained growth of the Malaysian economy and should continue to be supported by the country’s healthy economic prospects in the years ahead. After growing by 6.3% in 2007, the Malaysian economy is projected to grow by 5-6% in 2008 supported by resilient performance in the services, agriculture and construction sectors.

Prospects for Growth Stocks

The property sector is poised to perform well in the medium-to long-term supported by the liberalisation of foreign restrictions on property ownership and the removal of Real Property Gains Tax effective 1 April 2007. In addition, demand for residential properties is also expected to increase following the incentives unveiled in the Budget 2008 such as stamp duty waivers and allowing EPF contributors to make monthly withdrawals from their EPF accounts to repay their housing loans.

Meanwhile, the outlook for the construction sector depends on the roll-out of projects under the 9th Malaysian Plan (9MP) and the development of the various economic corridors. The building materials sector is expected to benefit from higher demand for steel and cement products due to the ongoing construction of commercial and residential properties.

The earnings of plantations stocks are supported by firm crude palm oil (CPO) prices on the back of rising global consumption. The plantation sector is expected to perform well in the medium to long-term as demand for CPO products is fuelled by sustained consumption in emerging economies and potential demand for biodiesel which is sourced from palm oil.

The oil & gas industry has benefited from high crude oil prices in recent years. Crude oil prices are expected to remain firm in the medium term. Consequently, oil & gas support services companies in Malaysia will benefit from increased exploration and production activities in the region.

Prospects for Dividend Stocks

Dividend yields in the Malaysian equity market are attractive and supported by sustained corporate earnings and dividend payouts. The estimated dividend yield for Bursa Securities is estimated at 4.25% as at 31 March 2008, above the long-term average yield of 2.59%.High dividend yield stocks such as consumer stocks are expected to perform well in the medium- to long-term. In the medium-term, consumer spending in Malaysia is envisaged to remain robust, supported by the pay hike for civil servants in July 2007, rising disposable income and the strengthening of the Ringgit. The longer term outlook for consumer spending is driven by Malaysia’s favourable demographic profile. With half of the nation’s population currently below the age of 25 years, consumer spending in Malaysia is projected to gain pace over the longer term as a greater proportion of these young people enter the workforce and spend their incomes on consumer goods and services.

Malaysia’s telecommunications sector is expected to show robust pace growth over the medium term due to a growing subscriber base and increasing wireless broadband usage. In addition, telecommunications companies in Malaysia are able to maintain a stable stream of recurring cashflows that will support high dividend payouts.

Meanwhile, growth in the power sector will continue to be driven by demand for energy amidst resilient economic growth in Malaysia. The power sector may also benefit from the anticipated increase in long-term demand for electricity if the proposed infrastructure projects under the 9MP and the Iskandar Development region come on stream.

Source: www.publicmutual.com.my

 
 
 

 

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Dollar Cost Averaging

June 4, 2008 at 5:36 pm · Filed under financial freedom ·Tagged , ,

This method is used to minimize the risk in a fluctuating market. This method will reduce the price per unit for your fund’s units by taking an average point among all the fluctuating points.

One simple golden rule to achieve the benefits of dollar cost averaging:
1. Invest in a fixed amount in a regular interval (eg: RM500 monthly), no matter the market is up or down.

Illustrations:

Jane
Unit price         Units acquired                 Cost 
10                    1000                                10000
6                      1000                                6000
8                      1000                                8000
6                      1000                                6000
2                      1000                                2000

Average cost = Total invested / Total units
                      =  32000 / 5000
                      = RM6.00 per unit.

Rena
Unit price         Units acquired                 Cost 
10                     600                                 6000
6                      1000                                6000
8                      750                                  6000
6                      1000                                6000
2                      3000                                6000

Average cost = Total invested / Total units
                      =  30000 / 6350
                      = RM4.72 per unit.

Besides a fluctuating market, this method works perfectly for rising market and falling market as well. Comparing Jane and Rena scenario above, Rena will start to earn if her fund price is more than 4.72 whereas Jane only start earning when the price is more than 6.00. Both of them have invested the same amount of money. Rena has used a dollar cost averaging method to invest whereas Jane bought a fixed number of units everytime. Even if you do not plan to buy a fixed number of units everytime, it’s still hard for you to time the market when to buy more or when to buy less. So, the keyword for dollar cost averaging here is, never time the market. Invest in a fixed amount regularly to minimize the risk of a relatively short term market downturn.

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Unit trust is like sharemarket. Too risky! True?

June 4, 2008 at 4:41 pm · Filed under financial freedom ·Tagged , ,

All investments have risks associated with them. Be it inflation risk, market risk, currency risk, country risk, etc. These risks of course depends on what kind of investments you are in. Let’s take Jo who invested in fixed deposits (FD) where she have set aside a lump sum of RM5000 for her FD. If she opts for the 1-year FD, the interest rate is max 3.75%, which means after one year, she’ll get RM5187.50.

Let us take a look at inflation which can go up to 6% in urban area like KL. Life is unexpected nowadays, so 6% is not too high. Look at our LDP toll which inflates from RM1.00 to RM1.60, and that is more than 50% of increase. Look at petrol, electricity, grains…etc. By this time, Jo will have less spending power. Because the 3.7% interest rate she got from FD is unable to hedge against the inflation rate of 6%.

Unit trust investment is a way to hedge inflation. However, investing in unit trust comes with more risks. It involves market risk, currency risk, fund manager risk, etc…Therefore, an investor should analyze and choose wisely on their unit trust investment. Look for awards. Look at the track record as a reference. Look at the service charge and fees? Compare the charges.

After we have done on the analyzing part, now we can start to invest in a fund. However, funds go up and down, just like the market. Sometimes we see bull market. Other time it’s bearish. So how do we time it? How do we ensure that we go in just the right time? Well, for unit trust investment, there are 3 important keys you should take note of:

1. Medium to long term (3 – 5 years and above)
2. Never time the market
3. Main purpose is to accumulate units as much as possible

In the next article, I will write about how to manage the risk in Unit Trust investment. It’s called the Dollar Cost Averaging method.

 

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Saving and Investing?

May 26, 2008 at 8:28 am · Filed under financial freedom ·Tagged , ,

As far as everyone knows, the earlier we put aside the money for your savings, the bigger the amount would get at a point of time. From when we were still in elementary school or kindergarten, our parents normally would get us a piggy bank to keep our extra coins. When we were little kids, we seemed to understand the theory of putting aside the extra coins to buy our favourite toys but after we grew up, we tend to forget this simple rule.

PIGGY BANK

Today many Malaysians spending tomorrow’s money for today’s needs. Some don’t just earn pennies. Some salary can easily pay for a condo instalment every month but still it’s never enough. All the pleasurable feelings of satisfying their needs blinded them up from the simple old rule. However, some does save in the bank accounts, but, can bank accounts take our money to greater heights?

Now the old rule of putting aside money in the piggy bank just won’t work as effective. Remember inflation? It is our main enemy in putting aside your money in the piggy bank. According to financial experts, inflation rate is easily 6% in the urban area like Kuala Lumpur. Can interests in our savings account (piggy bank) beat 6%? Hardly I would say, if not never.

The keyword here is investment. Only investment can beat the value of the inflation. To make the money works harder than us, invest them. Investment comes with risk but see long term. Future value will always better than current value. Market fluctations are a norm and if we can hold on longer to our investment, we gain. I read from an article that the worst enemy for an investor is the investor oneself. When we invest, we should look forward for a longer time horizon for returns. Sometimes the investor may get panic over a bearish market and decided to sell off the investments. Recessions happen but they always recover. Just be patient.

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