October 2020

3 important things to look at in search of a fundamentally good company

Recently, there are friends asking me what shares to buy on Bursa. My answer to them is “I don’t really watch Bursa market very frequently hence it is very hard for me to comment.” Being a value investor, I always focus on investing onto fundamentally good company. This article will share with you 3 basic things to look for to determine whether the company fundamental is good.

Company’s revenue and net profit: for a good company, the company’s revenue and the profit must be rising over the last 3 years. To check the company’s revenue and profit, you can download the financial statement for the company. You can locate this info under the “profit & loss statement”.
Company’s debt must not be excessive: for a good and healthy company, the company’s debt shall not be too high. Else, the company will not be able to sustain upon the occurrence of an unexpected event, i.e. COVID 19. As a guideline, the company debt shall not be more than 50% of the company asset. This info can be obtained through “balance sheet” which shows the assets and liability of the company.
Company’s cash flow must be positive: this is crucial. A company will not be able to run well without cash. Sometimes even the company’s revenue is good, it does not mean the company has cash. Sometimes, the company might have difficulty in payment collection. You can get this info from “Cash flow statement” under the financial statement.

The above shows the major 3 criteria that one should consider before investing in a company. Of course, there are more criteria to be considered. The above are the MUST research criteria.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

What should you do on your investment while awaiting the US presidential election?

It is not easy to predict what will happen to the share market due to the US presidential election. Some views are being broadcasted on news. Some say market will move up if Trump wins, some have the contrary view. Being a financial planner, experience tells me that whatever we predict stays as prediction. Market can react upwards or downwards regardless what the news said. So, while we might not be able to predict the market right, what we should do?

First, we can evaluate our risk tolerance. The high market volatility during this period is almost certain. The share prices hence can swing up and down very fast during this period of time. If we cannot take the volatility (swing in investment value), it is time for us to trim down some of the equities on our investment portfolio. It is prudent for us to include fixed income (bond or cash) within the investment portfolio.

Second, if we are long term investor, it is time to prepare more cash to buy cheap and fundamentally good shares and funds if the market crashes during the election period. Volatility also means opportunity, market is always emotional. If Trump wins, US China trade war is likely to continue which gives us chance to enter more onto China market. Stay with good and fundamental stocks and funds. If the technology stocks / funds are dropping, it is a good chance for us to accumulate more if we have not had the chance to buy previously.

Third, it is time to have an investment plan to decide what to do for both scenarios as a smart investor. It is time to think about this before things happen. When you have done the preparation that the market will drop or rise, you are likely to stay calm. When market is dropping, panic selling will not do you any good. If market is moving up, continue to do buy bit by bit. Good businesses always go up. FOCUS on the BUSINESS and IGNORE the market price. If the investment horizon is long, the key is still to accumulate more investment at a regular interval (as market generally moves up in long term) and accumulate MORE when the market crashes.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

Do you need to be rich to retire?

Many are interested to make more money, no doubt, who does not want to be rich? But, do we need to be rich to retire?

In the past, I thought that I need to be having a lot of money for me to retire. In fact, I realized I don’t need to have a lot of money to retire, I just need to have sufficient money to retire. How much money is considered as sufficient? It depends on your lifestyle and monthly expenses. If you need RM5,000 a month for monthly expenses, you must have sufficient money to generate RM5,000 a month for you to retire.

If you are putting you money in property that gives you 5% rental income a year, if you have RM 1.2 million property portfolio, it will have given you RM 60,000 rental income a year (5% x RM 1.2 million). Similar to your retirement pot, such as EPF and PRS, if EPF and PRS is generating 5% dividend income, you only need RM 1.2 million to earn RM 60,000 dividend income. Hence, the sufficient money in this case is RM 1.2 million. When you have RM 1.2 million, is it rich?

According to Forbes magazine, rich means having $ 1 million or more a year in income. As such, while having RM 1.2 million worth of assets is no way to being rich yet. However, it can make a person retires if his expenses are only RM 5,000 a month.

The purpose of illustrating this is to make you realize that sometimes you don’t need to be rich to retire. Retirement needs a plan. If you do not know your retirement figure, it is very hard for you to even achieve it. It is a long journey, if you know you number earlier, the chances of achieving it is higher because you have more time to accumulate the figure. Start to understand you figure and work out a plan to achieve it. Read this blog to calculate your figure.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

Are you in the rat race?

According to Wikipedia, a rat race is an endless, self-defeating, or pointless pursuit. The phrase equates humans to rats attempting to earn a reward such as cheese, in vain. It may also refer to a competitive struggle to get ahead financially or routinely.

Since young, we were being taught to study hard, to get a good job with good income. We were being trained to be a good employee. Since graduation, many of us start to work to earn income in order to pay the bills (responsibilities). Because of the recurring bills, stress comes in, instant gratification comes in to lure us to enjoy better lifestyle after hardwork. If we are not careful, we are easily living beyond our income. Hence, no saving! Worst, we get into financial debt which forces us to work even harder for money.

Are you in such circle? If yes, then you are stuck in the rat race. If you feel that every month you need to work to get income to pay off your bills or debts, you are in the rat race!

How to break free? The key is to work on each element that are within the rat race circle (see the picture above). We should reduce debts so that we don’t work every month just to pay off the debt or the minimum monthly debt repayment. We need to practice delay gratification, balance between spending and saving. We spend only within our means. All these effort will result in more saving.

Most of us know this, why it seems harder to implement and to take action? The reason is lack of clarity. Some are unaware how serious is the situation. Some are unsure how much they have overspent, how much saving is required to escape the rat race.

You can start to track your expenses to check whether you have any saving every month end. This will be the starting point for you to break free the circle. If you don’t have saving, you need to find some by increasing your income or reducing your expenses. After having more saving, make the extra money working harder for you, i.e. invest! When the money flows in through investments (or any other method without working hard) is sufficient to cover your bills and debts, you have the choice to stop working. Yeah, you escape from the rat race!

The beginning is always the hardest. The key is to START, after starting you will realize doing it is not that hard anymore.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

Choose credit card, personal loan, debt consolidation loan or balance transfer?

While thinking about borrowing money or managing your debt better, you need to choose the correct debt instrument. The following are the criteria to be considered while choosing the right debt instrument.

Purpose: New purchase or old debts?

If you want to borrow money to buy something new, you can only consider using credit card or personal loan (using fast cash based on unused balance of your credit card). If your purpose is to reduce interest of your current debt, then what you need is either balance transfer or debt consolidation loan.

What is it for? How much loan you require?

For balance transfer, it can only be used for credit card debts. If you have more than credit card debts, you should use debt consolidation loan. If you require large amount, you can only consider personal loan or debt consolidation loan. You can use credit card for smaller amount.

How fast you can repay the loan:

If you just need 14 days before your next cash in to purchase something, perhaps credit card is a good choice as it offers 0% interest, as long as you can pay off the whole amount before next credit card payment due date. If you are buying something more expensive and wish to spread the loan over longer period of time with lesser interest, you shall use fast cash personal loan. This allows you to repay the amount in a longer period.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

What is balance transfer? What is personal loan?

As shown in this article (read here), Malaysia household debts are expanding. Borrowing is very normal in Malaysia. You will also receive calls from loan agencies or banks offering you personal loan or balance transfer. This article is to explain these and what is the difference between these two.

Balance transfer works only when you have outstanding on your credit card(s). It allows you to transfer the outstanding amount owe on your existing credit card(s) to a new credit card. For example, if you have 2 credit cards and you have RM 5,000 debt on credit card 1 and RM 3,000 debt on your credit card 2. Instead of paying the minimum balance for these 2 cards and letting the balance to incur more than 15% interest rate, you transfer the whole balance of RM 8,000 to a new card. Now, many banks are offering 0% or lower interest to pay off the whole amount in the selected time frame. You can choose to pay off in 3, 6, 9 or 12 months typically. This method can help you to reduce the total loan interest (>15% compounding interest) and have a structured way to pay off your credit card loan.

Personal loan on the other hand can be used for any purpose. You can take the loan for your business, paying your expenses, house loan, etc. Generally, the effective interest rate is still about 6 to 8% with flat rate of 2% to 5%. It can be used to consolidate all your debts or getting new fund. Currently, you can apply for quick personal cash loan based on unused balance on your credit card. Let say your credit card limit is RM 30,000 and you have an outstanding balance of RM 10,000. So, you will be able to apply for RM 20,000 quick cash and pay it off at lower interest (e.g. 6 to 8%) at a longer period selected, i.e. 12 months, 24 months or 36 months. Please note that the banks normally quote the interest rate as flat rate which does not consider the effect of reducing principal throughout the loan tenure. The effective interest rate is therefore higher than the flat rate.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

3 top financial ratios to determine your financial fitness

One recent article on CNBC (read here) mentioned that financial planning can improve health. Financial fitness does affect physical health. So, how do you know you are financially fit? I’m going to share with you 3 important financial ratios to determine your financial fitness.

Debt / asset ratio: Debt ÷ asset x 100%

This is the ratio determining whether your debt level is healthy. The benchmark for this should be less than 50%. When the ratio is higher than 50%, it means that you are leveraging too much. Exceeding 100% indicates you are borrowing more than what you own. It does not mean it is good to be 0. Good debt can help you to grow your wealth faster. However, extreme debt will expose you to unnecessary borrowing risk. You could be exposed to insolvency if you are not carefully managing the borrowing risk.

Saving ratio: Total monthly saving ÷ gross income x 100%

This ratio determines whether your saving habit is good. The benchmark for this ratio is 20%. The higher the percentage, the better it is. Generally, one should save at least 20% of their gross income. If your saving ratio is less than 20%, it is time for you to relook at your monthly expenses to make sure you cut some to maintain the minimum 20% saving rate. The lesser saving rate you have indicated you need to take more time to achieve financial freedom.

Liquidity ratio: cash available ÷ total monthly expenses

This ratio shows how long your available cash can sustain if you do not have any future income. The recommended benchmark is 6 months. It means your cash can last you 6 months if you stop working. Low liquidity is not good because it means your sustainability towards job loss or revenue drop is low. You will easily feel stress if your number for this ratio is low. High number does not necessarily mean good because it indicates you are keeping too much cash which you can use for investment for wealth growth.

If you are still unsure about how you can calculate the financial freedom, do contact me via Facebook to ask for financial health check.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

3 important financial concepts that you should teach your kids

Kids can absorb knowledge faster when they are young. Hence, it is important to instill good money management concepts in them when the kids are still small. Here are 3 things you can teach your kids:-

Ways to earn money: teach your kids about active and passive income. You can start to pay them small allowance if they offer to do some house chores. This can let them understand the concept of active income and it takes effort to make money. You shall also be educating them that the money can be used to make money (generate interest) even without much effort. Help them to save their money and show them the interest even they are not doing anything. Let them understand the concept of passive income.

Delayed gratification: Place a small amount of your kid’s favourite food in front of them; offer them more food if they can choose to delay eating them by 30 mins. This is to let the kids understand the concept of delayed gratification. Sometimes, good things do not come immediately, they need to wait and delay the instant enjoyment to enjoy more in the future.

Money is just a tool: Explain to your kids that money is not the utmost important thing in life. It is just a tool we use to achieve what we want in life. Explain also money cannot buy time.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

Should you opt for further loan extension after 30 September if you are eligible to apply for the extension?

The automatic moratorium programme which started on 1 April 2020 to assist Malaysians affected by COVID-19 will come to an end on 30 September 2020. Prime Minister Tan Sri Muhyiddin Yassin announced on 29 July 2020 that banks will offer a three-month loan moratorium extension and assistance to targeted groups in view of the current tough economic times. Individuals who have lost their jobs in 2020 and remain jobless are eligible for the targeted moratorium extension of three months.

The question now is, if you are eligible, should you opt for further loan extension? It depends on your current finance situation. If you are capable to repay the loan with your extra saving and have your emergency fund in place, you should not opt for further extension. Loan extension may incur more interest. While you have your extra saving (not your emergency fund) which does not attract high interest in view of the low interest environment, it is better to be used for loan repayment. In addition, allowing yourself not paying the loan payment for longer time might set yourself up for bad habit which will hurt your finances in the long run.

Having said that, if your cash flow is tight, then the loan extension can help to ease your financial burden temporarily. However, while applying for the extension, you shall also consider the following:-

Reducing your expenses to save more money in the near future to avoid the same issue again after the end of extension period.
Restructuring your debt. It is a good time to consider perform loan consolidation while the interest rate is low.
Refinance your existing properties to ease the cash flow problem.

Remember, the applying for the loan extension is only a temporary measure. There will be an end to this, the best thing to do now is to get prepared financially and save up more cash to ease the cash flow issue.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.

5 things you should do if strict MCO is to be imposed again

Health director-general Dr Noor Hisham Abdullah advised the public to stay at home following a surge in the number of Covid-19 cases in the past week. If the Covid-19 cases kept increasing, there is a chance that the strict MCO is to be imposed again.

The followings are the 5 things you should do for your finances if this happens:-

Make sure you have at least 6 to 8 months emergency fund – economy is going to get worse if the lock down happens again. Jobs and businesses will be hit again. Therefore, larger emergency fund is required to cater for the unexpected events.
Postpone all big purchases – if you are thinking to upgrade your car or house, please re-consider the big decision. Even though the interest is low at the moment, things might happen that can reduce or stop your future income streams. Assess your finances well before any big purchase.
Track and reduce expenses – cash is king during the pandemic period. The more cash you have, the more secure you will be. While being lock down at home, you shall start tracking and reduce your expenses to save more cash.
Look out for good investment opportunities – if the strict MCO is to be imposed again, the share market will most likely drop drastically too. Look out for good fundamental stocks / unit trust funds to invest during the market crash. Property market may lag compared to share market, hence the property price movement may come later.
Upskill – the workforce / business market is going to be competitive during tough time. Hence, it is important to equip yourself with more knowledge and skill so that you can sustain better. Take the chance to learn some new skills if you are forced to stay at home again.

In conclusion, prepare more cash in hand for better investment opportunities and for security. Stay safe always during the difficult period.

************************************************************************

You can receive constant broadcast message relating to wealth creation to financial freedom through Telegram. Click here to subscribe to the telegram for the weekly newsletter.