May 2017

What is the best financial decision I’ve made so far?

I was asked this question during my recent training session. As I was thinking about the answer of the question, lots of memories flashed through my mind, and I remembered my investment journey with my husband.

My husband and I came from a middle-class family. We were not poor but we did not have extra cash to buy luxurious things. We only had enough to survive. Those who know us think we are thrifty. Sometimes, people just feel that we are too careful in spending. Yes, this is our nature and probably it is partly due to our profession as Quantity Surveyor. We are sensitive to cost and money as we do cost control in our job. We don’t spend on things that are unnecessary and do not give value or return.

I first came across the word “investment” when I was 16 years old from Robert Kiyosaki’s book – “Rich Dad Poor Dad”. In fact, the book belongs to my mum and had been kept on shelves for sometime until I was asked by my English tuition teacher to read various types of English books to improve vocabulary. I can still remember that I chose “Rich Dad Poor Dad” simply because it was the only book with big font, which I thought it would be easier to read and faster to finish reading. Haha! However, I did not finish reading the book. Through the first few chapters, I got the idea that I need investment to grow rich!

Unfortunately, even though I knew investment is important for wealth growth, I only started my first investment in year 2006 with Public Mutual.

As I continue with my journey of wealth accumulation, I started to equip myself with other investment information. I started to explore other options explained by Robert Kiyosaki, i.e. properties and shares. I bought my first property (for own stay) in year 2008 and my first share in the same year.

Now nearly 10 years has passed, my husband and I have already accumulated quite a number of paper assets and properties. Although not all our properties make money, most of the paper assets are in gain. With our consistent and structured way of investment, we are able to balance out our risks and make consistent long term return.

Our net worth has grown unconsciously through these investments. Let’s look at my unit trust funds as an example. I started off with only RM 1,000. With forced regular savings and returns over the years, the account has now grown to RM 80,000++ without much effort.

With the RM 80K+ in the unit trust, we are now looking for ways to increase its current return so that it can grow to RM 1 million in 20 years time. This money will be the education fund for our kids. We are consistently looking for other opportunities to diversify and grow our wealth.

If we did not realize how important structured investment is in wealth growth, we would never have started the investment journey. Thanks to Robert Kiyosaki who taught me this.

What is the best financial decision I’ve made so far? It is to have started investing in my early twenties and I’m so glad I’ve explored various investment vehicles all these years. as I started investment earlier, I’ve got the chance to encounter failures and problems that enabled me to rectify / change strategies earlier before it is too late.

I know it comes with risk and a lot of people have warned me about the risk. I’m afraid of risks too. However, what I learned so far is that investing requires disciplines and diversification. With the correct strategies and discipline, it can generate long term return.

“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”

Warren Buffet

I’m sure everybody needs to know about investment to achieve their financial goal. If you have not started any investment, do it as soon as possible as late investment comes with opportunity cost.

I’m happy to connect with people who are interested in investing topics. Connect with me via facebook and text me “Happy Investing!”.

Happy investing!

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Why Investing in Unit Trust?

There are a lot of investment vehicles in the market, e.g. shares, unit trusts, properties, options, futures, etc. Why unit trust? Some people will ask me.

The answers are simple. It is because of the following reasons:-

Diversification
Lower entry cost
Economy of scale
Professional management
Allow investment using Employees Provident Fund (EPF)
Liquidity

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DIVERSIFICATION

People always said “Do not put all your eggs into the same basket.”.

Diversification is the most important component of reaching long-range financial goals while minimizing risk. Unit trusts are collective investments which allow a group of people to pool their money into a single fund. A fund manager is then able to invest on your behalf in a wider range of assets (such as shares, bonds and property) than if you invested alone.

Because of its diversification feature, the poor performance of any one asset in the fund is less likely to have a major adverse impact on your investment as a whole.

LOWER ENTRY COST

In Malaysia, most fund starts with minimum investment of RM 1,000. Some unit trust companies even allow the minimum investment of RM 100 with monthly contribution. Unlike property investment, it requires high capital to enter. Similar to stock investment, it is impractical to buy just RM 100 value of shares as the brokerage fee would be too high considering the low starting capital.

ECONOMY OF SCALE

For a smaller amount of money, you can invest in a diversified portfolio of assets which could cost you more to buy if you had to pay for each asset in the fund individually.

PROFESSIONAL MANAGEMENT

When you invest in unit trusts, you have experts handling the procedure for you. This is convenient for those who aren’t able to constantly follow the stock market or lack experience in financial growth platforms. These expert services include obtaining quotations on shares that are being bought and sold and the safekeeping of cash, as well as the professional management of accounting and bookkeeping activities.

Hence, it allows anyone, even without experience to start investing at greater confidence.

LIQUIDITY

Unit trusts have a high liquidity, which means they can be readily converted into cash.

Buyers will normally get the cash within 10 calendar days from the date of sale.

ABLE TO INVEST USING EPF

In Malaysia, KWSP / EPF has allowed its members to take out money from Account 1 (which is meant for withdrawal only at the age of 55 and above) for unit trust investment with certain approved funds by the KWSP / EPF, with certain limitation.

Also, it is worth to note that the initial sale charge for unit trust for EPF is much lower than the cash investment due to the control of the sale charge by the authority.

EPF members are not allowed to take out EPF money for stock investment and are only allowed to take out money from EPF Account 2 (not Account 1 with more money allocation) to buy property with certain limitation.

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Wanting to invest in Unit Trust but do not know how and where to start? Feel free to contact me via facebook or submit a form via this website.

The Power of Compounding Interest

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

― Albert Einstein

The key principle to note when investing is “the principle of compounding”. Put in its simplest terms, the phrase compound interest means that you begin to earn interest income on your interest income, resulting in your money growing at an ever-accelerating rate. It is the fundamental of growing your wealth and anyone can take advantage of the benefits through a disciplined investing program.

This blog post shall be read in conjunction with setting your financial goal in order to select the most appropriate investment vehicle for you.

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2 Things That Determine Your Compound Interest Returns

There are two things that will influence the rate at which your money compounds. They are:

The effective interest rate – When calculating the effective rate, tax rate and the inflation rate shall be taken into consideration for accurate calculation. The higher the effective rate, the higher will be the total return;
Duration of investment – The longer you invest your money, the bigger your money grow.

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INTEREST RATE: This following picture shows the impact of the interest rate:

For a monthly investment:-

See the impact of compounding interest? A regular saving of RM 100 per month for 25 years, totaling at RM 30,000 grows to RM 132K+ at 10% (a total difference of RM 100K+).

For a lump sum investment:-

A lump sum investment of RM 10,000 grows to RM 120K+ at 10% (10 times growth after 25 years)!

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DURATION OF INVESTMENT: This following picture shows the impact of the duration of investment. The earlier the investment is made, the better it is. Ali invested RM 2,400 per year for 10 years at the age of 26, his money grows to RM 171K+ when he is 55 years old. On the other hand, Andrew invested the same amount of money but starting at the age of 36 (10 years later). His money grows to only RM 79K+ when he is 55 years old.

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Hence, to achieve our financial goal, it is important for us to know how long period we have for investment and to select investment vehicle that generate the required interest rate. The sooner you start to save, the greater the benefit of compound interest.

To check how much of a lump sum should you invest to build a RM 1 million retirement fund, see the picture below:-

Happy investing!

Why it is important to invest your money?

When you invest, you use money you have, called your principal, to buy assets that have the potential to increase in value, provide regular income, or do both. As you accumulate these assets — typically stocks, bonds, and mutual funds — your net worth and your financial security grow.

Liberty Bank

Many people still do not understand the importance of money investing. Hence, I thought of writing this so illustrate the importance of it.

There are 2 main reasons why we need to invest our money:-

REASON 1: We need it to fight against INFLATION

Inflation is a general increase in prices and fall in the purchasing value of money. It is best illustrated via the following picture.

In year 1998, with RM 50 you could buy a trolley of things in the shopping mall. In year 2005, your RM 50 was enough to buy only half trolley of things. In year 2014, you could only buy a number of things with RM 50.

This clearly shows that your money is shrinking over years. But, do you realize that your salary does not increase in the same pace as the inflation? If you do not invest your money, you are very likely to be poorer and poorer when time goes by.

A lot of people still think that Fixed Deposit (FD) can help them to fight with inflation but it, in fact, cannot. The average inflation rate in Malaysia is about 3% but the current FD rate is lesser than 3%. It shows that in order to fight with inflation, we need an investment vehicle that is higher than inflation.

REASON 2: We need it to increase our WEALTH

Everybody likes to be financially free. There will be no one like to work for money forever or still prefer to work due to money when they are old. Hence, wealth accumulation and wealth acceleration are important and they should be started as young as possible.

Wealth accumulation: If wealth is accumulated in young age, there will be plenty of time left to accumulate enough wealth for retirement. If the process is started late, it will be more difficult to accumulate enough wealth at a shorter period of time.

Wealth acceleration: With inflation, the wealth accumulated will decrease over time. To increase wealth, we need to invest our money in the investment vehicle(s) with higher return.

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The above 2 reasons are well illustrated by the following table. See the effect of investment on your money after 20 years.

Can you see the effect? With 5% annual inflation, your RM100,000 actually shrinks to RM 35k+ after 20 years. If you continue to put your RM100,000 in the Fixed Deposit that provides you 4% return (bear in mind that average FD rate is less than 3% now), your money will also shrink to RM 81K+ after 20 years.

However, if you choose to invest your money in investment vehicles that give higher return that the inflation rate. Your money starts growing, and it means your wealth increases over time!

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Now we do another stimulation on consistent wealth accumulation, saving RM 1,000 a month for 20 years.

See the effect? If you have 20 years, RM 1,000 can generate RM 413K+ for you in 20 years, assuming you invest in a investment vehicle that gives 10% return annually.

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Some people will think that they make a lot of money and hence they don’t think they need to do investment. But…..

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”

Robert Kiyosaki

In conclusion: START ACCUMULATING YOUR WEALTH (SAVING) and START INVESTING so that your wealth will increase and not decrease.

There are several investment vehicles that can help increase wealth, i.e. shares, unit trust, properties, etc. I shall discuss this in greater depth in the future posts.

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I’m happy to connect with people who are interested in investing topics. Connect with me via Facebook and text me “Happy Investing!”. You can also subscribe to my Telegram channel to receive weekly newsletter here.