Bored of the usual investment vehicles such as stocks, ETF (Exchange Traded Fund), bonds, unit trusts, robo-advisors, properties and the rest? Looking for something else?
With alternative investments, there are plenty of other options that you can consider to invest in. But just like any other investments, don’t just go diving in without first taking the time to understand what it’s all about.
Warren Buffett reminded us that we must not invest into something that we don’t even understand. Otherwise it will be just like gambling, rather than investing.
You have to know yourself first, know your risk tolerance, know how much capital that you can invest, whether it is a lump sum or you can invest every month. With this knowledge in hand, you will be able to sleep soundly at night. Because you then understand what investment is all about, the risks involved, and the potential return from the investment over the years.
Why Alternative Investments?
Normally an individual will start looking for alternative once he or she have exhausted the current options. Which usually means that the person have already invested in traditional investment vehicles such as the stock market, unit trusts and properties. It is mainly a strategy to further diversify their investment portfolio.
Or it could also be that the current investment options that are available could be the investment horizon is too long or the potential returns are not high enough. There’s no stopping you from going for alternative investments, as long as you know what you are getting yourself into.
One of the popular alternative invesments is peer-to-peer (P2P) financing. It allows entrepreneurs and small businesses to unlock capital in small amounts from a pool of individual lenders. It means that you can borrow money without having to go through a bank.
There’s also equity crowdfunding (ECF) which is an innovative form of alternative fundraising that allows small businesses to raise capital from the public. As you may have noticed the word equity here, this means that the investors will get some equities, which effectively makes them shareholders of the company.
Both P2P and ECF are alternative sources of funding that offer access to fi nancing to the micro, small and medium enterprises. They disrupt the traditional banking system by enabling businesses to obtain capital from a pool of investors via an online platform.
The key difference between P2P financing and ECF is that in ECF, you become a shareholder of the company that you invest in.
Of those considering alternative investments, cryptocurrency is currently gaining attention as the most popular asset class. It started with the birth of Bitcoin in 2009, and it has also been referred to as digital gold.
Last year Bitcoin’s performance outperformed every other asset classes and was the biggest winner, however this year, the crypto market comes crashing down. From its height of US$69,000 in November 2021, to the low of US$17,500 in June 2022, it is defi nitely not for the faint hearted.
Then who could forget how Luna (one of the top 10 cryptocurrency at the time) lost almost 100% of its value in just a few days time. It sent shockwaves through the market and this leads to panic all over.
We all heard of the concept, ‘high risk high return’. One of the reasons that alternative investments are gaining popularity, is on the high return aspect of it. But are you willing to take the risks associated with it?
High risk investments can be a part of your investment portfolio as it can help grow your wealth. However, it is crucial to understand the existing risks involved and decide whether it is aligned with your investment objectives. Finally, remember not to put all your eggs into one basket to ensure you minimise risk to your capital.
Do take note that your risk profile, commitments and requirements may also change throughout the years and you may want to adjust your investment portfolio and exposure to high risk investments accordingly.
Islamic finance is growing at a remarkable rate. The impressive performance of Islamic finance is due to the vigorous development of infrastructures focusing on financial support in the industry. Malaysia is a hub for Islamic finance with the dominant sectors being Islamic banking, takaful and Islamic capital market, which includes Islamic financial planning solutions.
With the growing demands for modern-day Islamic finance, Islamic financial planning solutions is seen as a service that best caters to these ever increasing needs and covers the wealth cycle to cater to the financial needs of individuals.
Muslims may obtain advice and benefits from Islamic financial planning professionals on a wide range of issues, including cash flow and risk management, investment, self-managed retirement funds, zakat, taxation, takaful and legacy planning. All these tasks require specific knowledge and expertise in legislation, regulations, and market practices.
Unnerving as it may sound, the importance of Islamic financial planning once again received sporadic attention when COVID-19 severely impacted many Malaysians, especially Muslims. The Movement Control Order (MCO) caused many people to contemplate having proper and structured emergency funds – prompting them to undertake financial planning.
Technology – Emergent Requirement
Technology is everywhere and evolving rapidly. Whether we are financial planners or consumers, it will become harder to thrive and survive without technology in constructing holistic financial planning solutions. According to McKinsey Global Survey, consumers have moved dramatically towards technology during the pandemic. The survey results confirm the rapid shift toward interacting with customers through digital channels.
A piece of automated advice on financial planning solutions and applications is no longer (by right) a threat to financial planners, but rather an enabler for the industry to be competitive. The well-informed clients call for a wide selection of economical and practical financial planning solutions, whether online or through a mobile platform. Responding to this type of consumers, it is imperative to adopt financial technology as a channel for distribution.
Technology is an agnostic tool that can significantly change the financial planning industry. By using technology, financial management’s efficiency and effectiveness will increase, making it easier for customers to deal with financial institutions through various activities and financial products.
On the other hand, technology in the context of Islamic financial planning must be seen in compliance with Shariah guidelines.
The Role Of Technology In Islamic Financial Planning Solutions
It is essential to understand that financial planning solutions is not simply limited to the distribution of inheritance upon death, buying family takaful or investing in unit trusts. Developing a comprehensive financial plan is a personal journey for a true Muslim, and an excellent Islamic financial planner plays a critical role in this process.
The client needs to have confidence that financial planners are up-to-date on the current financial planning landscape and current Shariah-compliant financial technology (fintech), diversification of halal investment selections via digital platforms, and other latest solutions to be considered.
As technology advances, we have been able to automate parts of financial planning services, with vast improvements in the tracking of documents and records of advice. Access to information and keeping clients well-informed regarding their investments are part and parcel of technology’s role. However, without technology to complement, one might find things a little hard going as we drift deeper into the 4th Industrial Revolution.
To overcome the industry’s technology disruption, financial planners must be nimbler to apprehend new technologies and employ them for innovation on existing solutions that are in great demand.
For example, a few years back, the emergence of robo-advisor was regarded as a threat in the financial services sector. A robo-advisor is an automated platform running with a computer algorithm functioning to manage assets in investment. During that time, people were uncertain about the role future human advisors would fulfil as usage of robo-advisors gained traction.
Threat Or Enabler?
The COVID-19 pandemic is the most significant catalyst for digital transformation, and this change will lead to exciting insights into Islamic financial planning that will reshape its approaches. Technology can never entirely replace a human’s touch and skills.
In years to come, both humans and technology are vital to serve clients better and modernise our financial planning profession. Technology exists to support, simplify, and create efficiency, instead of threatening the industry. Technology allows financial planners and clients to have a more engaging and meaningful advice conversations.
A more robust framework of competency and consistent efforts for Islamic financial planners, including technical knowledge on the latest technology, would develop a more agile professional, who will safeguard the public’s interest, uphold the industry’s professionalism, and ultimately receive the rewards in the Hereafter.
About the Author
Dr Haji Shahizan Haji Md Noh is a licensed Islamic Financial Advisor (IFAR) for ASWA Advisory. He obtained his Doctor of Philosophy in Economics and Muamalat Administration from Universiti Sains Islam Malaysia (USIM). He also holds a Certified Qualification in Islamic Finance (CQIF) from IBFIM and Islamic Financial Planner (IFP) from the Financial Planning Association of Malaysia (FPAM). As an experienced practitioner, he has served numerous institutions in different aspects.
With the rise of inflation and higher interest rates, it presents a challenge to investors all over the world. It is also challenging to find good investments these days.
Smart Investor spoke to Datuk Wira Ismitz Matthew De Alwis, Executive Director & Chief Executive Officer, Kenanga Investors Berhad to find out more about the challenging global equity markets as well as his thoughts on alternative investments.
Navigating The Challenging Global Equity Markets
Smart Investor: What are the challenges that you and the investors are currently facing, now that we are witnessing the rise of inflation and higher interest rates?
Datuk Wira Ismitz Matthew De Alwis: Global equity markets have been particularly challenging in recent times, due to rising inflation, monetary tightening and geopolitical conflicts. As the post pandemic re-opening has progressed across the globe in 2022, many have felt the effects of higher infl ation due to the clash between a rebound in demand and supply shortages.
The global equity market was further weakened by the Russia-Ukraine geopolitical conflict. In response, central banks have tightened monetary policy in an effort to control the rise in inflation. These factors have negatively affected asset prices, as liquidity is drained from the system and the cost of capital increases.
Globally, companies have been affected by high inflation rates through both rising cost and lower demand as consumers scale back on discretionary spending. Local companies were also impacted, especially those companies with export-based revenue and those that have imported raw materials. Additionally, rising risk aversion also dampens fund flows and general investor sentiment.
Generally, we have adopted a defensive portfolio stance in light of the challenging global equity market, with over-weights on sectors that have pricing power, resilient demand and will also benefit from higher interest rates. These include selected companies in the financials, consumer and industrials weakness as an opportunity to deploy capital to companies where long-term fundamentals still remain solid such as the technology sector.
SI: Is it still a good time to invest in stocks or unit trusts, despite the challenging global equity market? How to select the good ones to invest for long term?
IMDA: Unit trust funds remain an excellent choice of investment as it has a low entry point, provides diversification at a reasonable cost, and is usually expertly managed by licensed professionals. There is also an abundance of choice when it comes to unit trusts as investors can select their pick based on their risk tolerance and investment objectives.
More recently, due to the surge in interest towards impact investing, investors have also begun to divert their attention towards businesses that aim to generate specific beneficial social or environmental effects in addition to just financial gains.
Aside from that, factors such as fund strategy, asset allocation, and sector allocation will also come into play during the investment decision process. Ultimately, investors should perform their own due diligence on all the variables laid out in front of them, and make an informed decision to pick the investment tool that would best suit their own personal objectives.
SI: Why would anyone be interested to invest in alternative investment such as P2P, ECF and crypto?
IMDA: Alternative investments can offer investors several traits that are not commonly found in traditional investments such as equities or bonds. These typically include one or more of the following attributes: long term, high risk, or illiquid investments that are associated with higher returns; low correlation with traditional assets to deliver diversification benefits; inflation-hedging benefits; and scalability.
Alternatives will be able to encompass a wide range of asset classes, including private equity real estate and private equity infrastructure funds, secondary funds, and private debt funds. Just like the traditional counterparts, alternative investments also differ from each other from its volatility, risk, and returns.
Cryptocurrency is the current trending topic no matter the age group from millennials to experienced investors. It is especially popular due to its nature (low fees, unaffected by fluctuating interest rates and a global market place without geographical restrictions) and the rise of popular tech culture in the media. Its rising popularity can also be attributed to its innovative blockchain technology, which promotes extreme security for its users and offers unrivalled transparency in the case of its fully auditable and accurate ledger of transactions.
On the other hand, it is also widely famous for its outrageous volatility, as seen in the recent meltdown of TerraUSD (one of the world’s largest stable coins) which is seen as the less volatile variant of cryptocurrencies**.
My most repeated advice to anyone wanting to dive into any forms of investment is to always conduct their own research regardless of experience level, as it is their own money and their sole responsibility to know where it is being invested into. Tune out the noise in the market and focus on reputable news to formulate your own conclusions. Consistent self-education is one of the most powerful tools anyone can practice as it enables us to not solely rely on third-party information which may or may not provide us with a false sense of the market.
SI: What does Kenanga Investors have to offer in terms of alternative investments? Is this something that the company has yet to explore?
IMDA: As the alternative investments pioneer within the Malaysian market, we are able to offer sophisticated and diversified investment instruments for the modern-day investor. From the conservative to the more dynamic investor profile, our alternative instruments are an additional source of uncorrelated returns, the key to success being a delicate balance of the right manager and the right strategy in line with one’s investment profile.
For Kenanga Investors’ Alternative Investments, we do look at various opportunities and asset classes. E.g. private equity (direct investments into private companies), wholesale funds (launch of Kenanga Sustainability Series, with the most recent being the Kenanga Sustainability Series: High Yield Bond Fund, the Kenanga Global Unicorn Series and the Kenanga Global Multi Asset Fund) and asset-backed high-yielding notes.
From investment advice to bespoke alternative investment portfolio management, our expertise lies in alternative strategies with varying degrees of liquidity to complement or bolster an investor’s existing portfolio.
We are confident that our growing presence within the alternative space has added depth to the products and services offered to our investors, enabling both retail and institutional investors to capture market opportunities in a volatile environment.
SI: With so many legitimate investment schemes out there, why do you think people still fall for scams?
IMDA: Some people still fall for financial or investment scams regardless of the amount of legitimate investment schemes due to one crucial factor, lack of patience. They are often discouraged by the slow process of capital gains or accumulation of returns in legitimate investment schemes.
Therefore, when a get-rich-quick scheme presents itself, they often fall to temptation and suffer high amounts of losses to their valuable savings. These scams often exploit the human weakness of instant gratification where they promise quick and higher returns.
SI: What are some of your plans in the near future?
IMDA: Since 2021, we have steadily been releasing a series of funds that follows Kenanga Investors’ sustainable and socially-responsible investing roadmap such as the Kenanga Waqf Al-Ihsan Fund and our suite of multiasset products, Kenanga Sustainability Series. The Series was conceptualised in wake of the ever-growing demand for ESG adoption among companies by investors, especially post pandemic.
We are excited for the future as we will be introducing fresh new funds in the KSS line-up which will further provide our investors with a more robust portfolio stemming from ESG analytics which captures new opportunities aside from standard qualitative and quantitative metrics. In respect of this, we are also looking to enhance our Shariah-compliant investment experience by adding value-added products and services to stimulate the local impact investing landscape.
Alongside our intention to have more ESG products in our lineup, we will also be looking at converting existing selected funds (both global and domestic) to meet the threshold required to qualify as ESG relevant.
With multiple successful product launches, a dedicated team of professionals in deal sourcing and idea generation, and an intricate network of relationships with expert alternative partners all over the world, we have achieved what we set out to do, bridging the gap between retail investors and more sophisticated forms of products which were previously only available to institutional or accredited investors.
The following story is based on an actual series of events with some names and circumstances fictionalised and any similarity to the name, character or history of any person is entirely coincidental and unintentional. We will be looking at how a family foundation can help when trust crumbles within a family.
Uncle Tan was shaken. It had just been revealed to him that something was not right in the books of the family’s hardware business.
“It can’t be!” Uncle Tan was in denial even though San, the third of five children, showed him the books where the numbers didn’t add up. What was unbelievable to Uncle Tan was not the books but the accusation that Da Ge, his eldest son, has been putting his hand in the till.
Business Runs In The Family
Patriarch Tan has been happy and contented with Da Ge ably stepping into his shoes. As what one steeped in traditions would want, his number one offspring fitted to a ‘T’ the role of running the family business so that the 72-year-old founder could take a back seat and enjoy his golden years.
Seeing how Da Ge has taken the bull by the horns in steering the company through some hiccups in business, Uncle Tan’s confidence in Da Ge grew over time and he showed his pleasure by giving his trusted son a free rein in the operations of the business.
He was also contemplating on rewarding Da Ge with the largest share of the equity of the company and the rest, equally among the other son and three daughters. This, he felt, would sort of make up for the lack of attention for his first-born who grew up with scant fatherly love and attention.
As one not attuned to showing affection, he neglected Da Ge and just focused on building up his business in his younger days. To him, his affection could be shown later by rightfully transferring his significant wealth to the eldest male offspring.
And as Da Ge won his father’s heart with his business acumen, it blindsided Uncle Tan to his wayward ways. Easy success and access to cash from business transactions got to Da Ge and he became a spendthrift, splashing his money on wine, women and song and ego-tripping with his growing popularity and following by his cohorts of fan-friends.
Tackling The Root Cause
San got wind of the missing cash from his former classmate, who was keeping books for the company. After trying to talk to his brother but to no avail, he decided to bring the matter to his father.
Knowing that his father would be in disbelief that his trustworthy son would be capable of endangering the financial health of the business, San thought it was best to go to his father with a solution rather than just the problem.
He knew his father would be more receptive to a proposition for the betterment of the business rather than be presented with the problem that stemmed from his ‘trustworthy’ son.
He could see that his father, when troubled that the foundation of trust had crumbled, welcomed his proposition that offered a solution. The older Tan was eager to meet San’s estate-planner friend to find out more about Family Foundation which would better resolve matters with Da Ge. He finally agreed to establish his own Family Foundation with a set of values and rules that ensured continuity and protection of capital.
A Family Foundation can be established to hold and manage assets for the benefit of your family. It offers the benefits of a Trust and the structure of an independent company with protection of assets not available in others.
The Importance Of Family Foundation
For the Tan family, the Family Foundation offered an immediate resolution of the delicate situation rather than leaving the decision making on family business matters solely in the hands of Da Ker.
The Founder of the family business, in this case Uncle Tan, can assume the role of Chairman of a Council to be set up under the Family Foundation. His five children can be appointed as members of the Council, who will be charged with managing the Family Foundation.
Decision Making
The Council assumes the task of decision making for the family business through the Council members’ vote of resolutions tabled for their consideration. This effectively makes it a collective decision-making involving relevant members of the family including the Founder instead of resting it in the hands of a sole family member.
Family Governance
Family governance is possible with the crafting of a Family Charter and the formation of a Family Council as it effectively becomes a platform or a forum for Family Council Members to voice their views, thus avoiding miscommunication or misunderstanding pertaining to the family business. It also facilitates the establishment of common rules and procedures to follow to minimise any possible disputes.
Ring Fencing Family Wealth
The Family Foundation serves as an essential instrument to safeguard business succession only among family members. This is achieved through ring fencing that keeps out outsiders and unwelcomed parties. This preserves the family business for the multi-generation of family members.
Wealth Distribution
Through deliberation and consultation, the Council can agree to a mutually beneficial wealth distribution formula. This pre-determined formula of shareholding in the family business based on identified scenarios will avert any possible future family squabbles that can break up the family.
With Uncle Tan having his say and expressing his wish on succession and wealth distribution, his children being part of the decision-making process will see the distribution as fair.
Comprehensive estate planning solutions such as the above can be achieved by consulting an experienced estate planner working with an established company such as Rockwills.
About Rockwills International Group
Rockwills International Group, now in its 27th year, pioneered professional will writing in 1995 and has since evolved into the leading estate planning specialist in the country. It is today the largest provider of solutions and support services in the areas of trusts, succession, management and distribution of wealth. It has shareholders’ funds exceeding RM50 million. It has done over 280,000 wills and 15,000 trusts and hold more than RM25 billion in assets under trust.
Inflation literally makes us all poorer by eroding the value of our money. The problems we have been facing in the two-and-a-half years due to the pandemic has made matters worse, as we have find ways to deal with inflation.
As the cost of living continue to rise, what should we prioritize when it comes to our monetary budget? Will we have to retire later? Do we have to change our children’s tertiary education plans?
In a Facebook livestream on 7 September 2022, conducted in conjunction with World Financial Planning Day 2022 (WFPD2022) by SmartFinance (SmartFinance.my) with the support of the Financial Planning Association of Malaysia (FPAM), Rajen Devadason, a licensed financial planner, offers some strategies we can use to deal with inflation.
Here is his tips on how to deal with inflation:
1. If You Don’t Have A Budget, Please Create One
If a budget only exists in your head, you are strongly urged to have it written down, whether on paper or as lined items on a spreadsheet. Getting the tactile sensation of writing things down will get you more invested in the numbers and provide you with a road map of your finances.
2. Prioritize Nourishment
When it comes to budgeting for yourself and your family, do not compromise on nutrition. Make sure nutritious food that meets caloric content is taken care of and no one goes hungry. Everything else can be set aside.
3. If It Possible To Accelerate The Repayment Of Debt, You Are Advised To Do So
Many of us have debt that flow. So, when interest rates rise, the cost of our borrowings will go up. One way to deal with inflation is to pay down debt you can, as fast as you possibly can.
Each time you get rid of a liability to your name, the monthly repayment disappears for life (unless you take on an equivalent loan). This will clear up additional cash flow, give you a breathing room and let you do more with your money in an inflationary environment.
4. Exercise Delayed Gratification
Used to changing cars every 5 years or going on two overseas vacation a year? Don’t be too quick to spend your earning on the things you want.
You are likely to have surplus money to save up if you can cut back on some luxuries, until your financial goals are met. Delayed gratification is another way to deal with inflation.
5. Work Harder, Work Longer, Bring In More Money, And Tighten Your Belt Like You Have Never Done Before
Unless you wish to stay poor, you cannot stay static. Most of us can only improve on our situation by working harder, and then by working smarter. If you are not earning enough, get a second or third stream of income. One of the saving graces is internet connection is now better than 5 years ago, which enables anyone with online access to participate in the gig economy and earn a side income.
For those who are under the age of 35 and in good health, you’ve got more energy; your youth, stamina and vigor will give you the ability to work beyond your normal 40-hour work week, if you are willing to pay the price.
6. Save And Invest More
Saving and investing are two different things. We save for peace of mind, knowing we will be able to deal with emergencies. Meanwhile, we choose to invest to try – though without guarantees – to beat taxes and inflation. If you have been successful, you have grown your money faster than taxes eats into it and faster also than inflation.
With so much going on in the world; the pandemic, geopolitical conflict, economic crisis etc, there is tremendous volatility, especially for the riskier investment spaces. Nevertheless, volatility is the friend of the long-term, life-long, consistent investor and saver.
As such, those who are wise enough to work harder, rework their budget, build up their surpluses, pay down debt, exercise delayed gratification, and try to save even though it’s very tough. Rajen’s advice is to take advantage of dollar cost averaging.
To stand to benefit in the long-term, invest in a manner that meets five specific criteria:
Invest in an asset of high quality (that are good hedges against inflation)
That asset should fluctuate in price
Invest in equal amounts
Invest at regular intervals
Invest regardless of market conditions
Finally, never put all your eggs in one basket. Diversify your investment across three distinct dimensions: diversify across different asset classes, different geographic regions, and over a very long timeline.
6 Ways To Deal With Inflation
There you go with 6 ways to deal with inflation that you can start implementing in your daily life. It might not be easy, but it will be worth it in the end.
59.7 million results when I searched on Google on ‘multiple streams of income’ on the day this article in written. This is a massive result. With the recent pandemic, many sectors are impacted, and many individuals suffered as a result from loss of their major of source income.
In this article, I am going to share with you some general big ideas on how to increase your source of income.
1. Investment Portfolio
Investment provides you with capital growth or income. Capital growth means the appreciation asset value or difference between the realization value and cost of investment. Income refers to the dividend, rental income or other incomes received by investing in the investment assets.
There are many investment options to increase your source of income these days. We have Exchange Traded Fund (ETF), Equity Crowdfunding (ECF) and Peer-to-Peer Lending (P2P) apart from traditional investment classes like property or stocks.
With new innovative products, you don’t need huge investment to kickstart your investment journey. Some can start from as low as RM100 or you can have a diversify investment portfolio with traditional assets and new investment asset classes.
Below are some of questions that you can use as guide to ask yourself as follows:
What are your financial goals?
What is your investment horizon? Is it for Income or Capital Growth?
Does the asset class suit my investment profile?
What is the amount that I can allocate to start with? Lumpsum or Regular Savings Plan?
Can I do it myself or do I need assistance from Licensed Financial Planner or other professionals?
What is the purpose of building an investment portfolio? Different portfolios are to cater for different needs, for example cash/money market is to cater for emergency and or short-term needs.
Whereas for medium-term goals could be for holiday, buying house, for marriage and or starting a new family. For the longer-term goals, it is for replacement of active income and or for retirement. That’s how you build up an investment portfolio as a way to increase your source of income.
There are several types of business income for you to consider like online food business, selling things at online platforms that can earn you additional income. Yes, many businesses are affected due to the pandemic, but you can still increase your source of income via a business income.
There was 7.5% increase in new businesses being registered in Malaysia year 2020 as compared to prior year based on the information available from Company Commission of Malaysia. Due to many who had lost their jobs or income; therefore, many self-employed or small entrepreneurs have either started their own freelancing or contract services and some had started selling at online social media platforms like Facebook, Instagram and or TikTok.
Gig economy which meaning temporary and flexible jobs have been on the rise and there are close to 4 million freelance workers in Malaysia.
3. Leverage On Your Existing Skills To Teach Or Share With Others
If you have certain skills or experience that you are good at which you can use it, teach or share with other individuals, that will allow you to earn additional income. For example, if you good in singing or master certain language, therefore you can create a course to teach others how to sing virtually either in a group setting or individually, as a way to increase your source of income.
It may include creating videos or posting photos with are beneficial to certain market segments may land you opportunity either to be involved as key opinion leaders or in the affiliate marketing. It may be teaching others how to cook food or bake a cake or maybe just a hobby of how to grow certain plants via the online platform.
What if these additional sources of income allow you to provide yourself and family with better lifestyle and provide you security in the event of uncertainty, would you think that sacrifices that you make now by building your new sources income worth your effort?
You are the only person is responsible to for your own future rather that relying on others. I would like to end it with a quote from Jeff Bezos, “I knew that if I failed, I wouldn’t regret that, but I knew the one thing I might regret.” Now that you know some of the ways to increase your source of income, which one do you prefer?
About the Author
Goh Chee Yong is a Licensed Financial Planner under Capital Markets Services Representative License (CMSRL) and Bank Negara approved Financial Advisor Representative (FAR). Prior to becoming a financial advisor, he spent eight years working in Big 4 audit firms and multinational corporations. He can be contacted at cygoh@imaxfinancial.com.my
On a Facebook livestream held on 31 August 2022 by SmartFinance (SmartFinance.my) in an effort to promote financial literacy on World Financial Planning Day 2022 (WFPD2022), Linnet Lee, the CEO of the Financial Planning Association of Malaysia (FPAM) shares the five steps anyone can take to achieve financial freedom or financial merdeka.
Here are the five steps in a nutshell:
Step 1 – 2:30
For the first two years you start working, set aside 20-30% of your income to invest in yourself (to buy clothes, gadgets, things you need for work etc.) From the third year onwards, start saving 30% of your gross income for retirement. EPF contributions (employer 12% and employee 11%) already make up 23%, leaving 7% left for you to start investing into retirement in other avenues (stocks, private retirement schemes etc).
Now let’s move on to the second step to achieving financial merdeka.
Step 2 – Rule of 72
Dividing 72 by the interest or dividend will give you a rather accurate estimation of how many years your money will either double up or shrink by half. Use the rule to help when managing your finances and keep an eye on inflation rate as well.
For example:
72/6% (interest/dividend) = 12 years (duration for your money to double up)
72/5% (inflation)=14 years (duration for your money to shrink by half)
Step 3 – Rule of 78
Not all loans are created equal, and this rule is a tip to keep in mind when handling your debts. Financing methods that allocate pre-calculated interest charges are meant to favor the lender over the borrower on short-term loans. The borrower would pay a greater portion of the interest rate in earlier part of the loan cycle than regular loans.
A car loan, for instance, is calculated using the Rule of 78 (the number comes from the sum of monthly term on a one-year loan, by adding the numbers 1 to 12). What that means is the lender has calculated the interest and put most of interest in first and second year of your loan. Hence, there’s no benefit to paying the loan off early because the interest has already been calculated and you have paid most of it already.
So, if you have a car loan, don’t be in a hurry to pay it off. It is better to pay on time to avoid the penalty.
This is different with a housing loan. As you pay off your housing loan, the interest will be calculated based on the outstanding amount for the beginning of that year. It therefore makes sense pay it off quickly because you will be paying less interest.
Before you do though, check with your bank if there is any penalty rate for paying off earlier.
Step 4 – Six Months Emergency Money
Have up to 6 months’ worth of monthly expenses saved up. This will buy you time you need to get back on your feet. When you tap into your emergency fund, be sure to top it up again as soon as you can.
That said, a credit card should not be treated as emergency money.
Are you ready for the final step to achieving financial merdeka?
Step 5 – RM1 Million In Retirement Fund
If you add RM500 per month to an initial sum of RM1,000, starting from the age of 25 to 61, with an interest or dividend of 7% and an inflation of 3%, you will have RM1 million in 36 years. Assuming you stay in good health, you will be able to fund 20 years in retirement. Of course, this is just a simple calculation. Over the years, you can always add to your retirement fund as you earn more.
And now we are at the end of the 5 easy steps to achieving financial merdeka.
Congrats, You Are On The Road To Financial Merdeka
If you need help working through the numbers, do not wait too long to seek the help of a licensed financial planner. To brush up on your financial literacy and connect with a financial planner, go to SmartFinance.my. Wish you all the best in your pursuit for financial merdeka.
As Malaysians recover from the COVID-19 pandemic, the topic of money is on everyone’s minds for various reasons. These range from rising inflation, which is quickly eroding our purchasing power, to concerns about retirement security as a result of a significant reduction in our savings after two years of the pandemic.
Many in our community are still struggling to replenish their savings. Those whose savings are at a critical level, have expressed concern about how they will survive when they retire, stating that they need to continue working or start small businesses in order to make ends meet in the years to come. To make matters worse, these vulnerable people are often preyed upon by unscrupulous scammers.
According to the Royal Malaysian Police (PDRM), a total of 71,833 scams were recorded between 2020 and May 2022, with losses amounting to RM5.2 billion. These include bank scams, loan scams, as well as investment scams which fall under the purview of the Securities Commission Malaysia (SC). The SC received 1,800 complaints and enquiries related to investment scams and unlicensed activities in the first nine months of this year.
The SC’s work extends well beyond regulating and developing the Malaysian capital market. They are also responsible for safeguarding the interests of investors, by among others, educating investors on how to make better investment decisions by providing them with key financial knowledge and tools, so they can make informed investment decisions.
They also teach the public how to identify red flags of investment scams and illegal activities in the market. Being more financial literate means that investors can take better control of their own finances and stop them from falling victim to the sweet promises of scammers.
With these considerations in mind, the SC will be hosting the InvestSmart Fest at the Kuala Lumpur Convention Centre (KLCC) from 14 to 16 October 2022. Themed ‘Silap Labur Duit Lebur’, InvestSmart® Fest is a one-stop event for all your investment needs, showcasing not only a wide array of investment opportunities, but also valuable lessons on financial planning for individuals who would like to improve their financial wellbeing.
Visitors to InvestSmart Fest can take advantage of InvestSmart®’s #Finplan4u initiative, where they gain free consultations by licensed financial planners on how to better plan their investment and retirement.
InvestSmart Fest will also be investing in the youth segment, who are regarded as key stakeholders for the long-term sustainability and success of the capital market. According to the findings of the SC’s survey titled “Youth Capital Market Survey: A Malaysian Perspective 2022”, Malaysian youth tend to prioritise emergency funds and savings to support their families and pay off debts above building wealth and investment. Therefore, it is important for younger generations to have a head start in investing and saving so they can enjoy greater financial stability in their later years.
This year, InvestSmart Fest brings together more than 40 exhibitors, showcasing some of the most cutting-edge technologies, products, services and solutions available in Malaysia’s capital market today. The 3-day event will also feature expert speakers and key opinion leaders, who will share their perspectives on various aspects of Malaysia’s capital market and how investors can stay ahead of the game and plan for the future.
For more information about the InvestSmart® Fest event, please visit www.investsmartsc.my. Additionally, if you would like to get the latest updates, you may follow their various social media channels at:
Everyone loves it when it comes to investing. Seems like we can never get enough of it, although our capital might not be that big. Here are some investment tips for beginners that you can apply for a steady growth despite the market’s uncertainties.
1. Set Your Goals
They say if you fail to plan, then you are planning to fail. The first investment tips for beginners, is begin by listing down all your financial goals such as:
Saving up for a property
Retire at age 55
Sending your child to private university
Travel the world
Everyone have their own goals in life. Be specific with what you want, and allocate the funds to each goals.
For example you need:
RM100,000 as down payment and renovation costs to purchase a property
RM5,000 per month living expenses each month when you retire
RM100,000 as tuition fees and living costs for your child when entering university
RM100,000 fund to be used to travel to Europe and United States during the summer
Graph 1: The Cost of Market Timing The Risk of Missing the Best Days in Market, 2000 – 2019. Source: Morningstar, 2020
According to a research by Morningstar, investors who stayed in the market for all 5,035 trading days achieved a compound annual return of 6.1%. However, that same investment would have returned 2.4% had it missed only the 10 best days of stock returns.
Further, missing the 50 best days would have produced a loss of 5.5%. Although the market has exhibited tremendous volatility on a daily basis, over the long term, stock investors who stayed the course were rewarded accordingly.
That’s why it is important to invest regularly either each week or each month instead of trying to find the best time to go in the market. Because even the most seasoned professional investors can’t get the timing right, what chances do we have?
Even when faced with an uncertain market, the best thing to do is keep on investing. Allocate a certain amount from your salary to invest. A good figure to start is 10%, if your salary is RM10,000 per month – make sure you invest RM1,000 each month.
3. Portfolio Diversification
“Don’t put all your eggs in one basket”
This words of wisdom can’t be much further than the truth, and is very important as one of the best investment tips for beginners. You should be diversifying your portfolio into several low-risk instruments with low returns, medium-risk instruments with medium returns, and high-risk instruments with high returns.
Still remember the RM1,000 per month investment that you are allocating each month, which is 10% of your salary?
You can split it into:
RM250 into crypto
RM250 into equity (stock market)
RM250 into REIT (property)
RM250 into fixed income (fixed deposits)
Crypto and equity are high-risk investments, REITs are medium-risk while fixed income are low-risk.
Either crypto or stocks, you should be looking at those with great fundamentals. For crypto, the stablecoins are the ones to invest for long term, Bitcoin, Ethereum, Binance Coin (BNB), Ripple, Solana are good choices.
Bitcoin is the grandfather of crypto, Ethereum and Solana are mostly used for NFT, BNB being used on Binance the world’s largest exchange, while Ripple are used for real-time gross settlement system, currency exchange and remittance network.
As for stocks, you can use one of the most popular fundamental analysis – 5 Magic Numbers:
Earnings Per Share (EPS)
Price-to Earnings Ratio or P/E Ratio (PE)
Return On Equity (ROE)
Net Tangible Asset (NTA)
Dividend Yield (DY)
By using the 5 Magic Numbers, you will be able to filter companies with resilient earnings, strong track record and ability to pay dividend.
5. Invest For Long Term
The final investment tips for beginners, is that I can’t emphasize enough on the importance of investing for long term. Instead of looking for short term gains, have a more longer term view when it comes to investing.
Ignore all the hypes of current investment that is making waves, instead go for the tested and tried instruments. All investments have their ups and downs, and if it can go up very fast, it can also go down in a flash.
Well there you go with some of the best investment tips for beginners that you can probably use as part of your investment strategies. Just be patient and keep on investing regularly, you should be able to reap what you sow and meeting your financial goals.
Rakuten Trade recently held an event for the media and presented their thoughts about Budget 2023 and their market outlook for the remainder of 2022. Kenny Yee, Head of Research and Thong Pak Leng, Vice President of Equity Research were on hand to explain more about their findings.
Budget 2023
A Budget for the whole spectrum of population
Payouts for the underprivileged and more surprisingly, tax cuts for theM40 should ease the burden of prevailing high prices. Though disposable income will improve from tax cuts, intention is to alleviate the impact from prospective higher interest rates environment going forward.
The potential creation of 50,000 job opportunities should lessen worries for the fresh graduates aka the Youths. SME owners should also rejoice by the 2% tax cut.
Contractors will benefit
The record high allocation for development amounting to RM95 billion emphasizes the dire need to revive the nation’s economy. As we are aware, the construction sector offers the highest multiplier effect hence once this sector commences cranking up activities, the positive impact should spread across other subsegments as its linkages are immense.
Budget impacts on five sectors
1. Automotive sector
Full exemption of import and excise duty for electric vehicles (EV) for CBU (completely-built-up) extended until 31st December 2024 (CKD exemption is still the same until 31st December 2025).
2. Construction sector
High development expenditure of RM95 billion – a 32% increase from the estimated amount in 2022.
3. Consumer sector
Though higher disposable income is positive from the cash support for M40, B40 and students which are expected to increase consumer spending on goods and services such as F&B and daily essentials. We believe the impact is minimal in view of the prevailing high prices.
4. Property sector
75% stamp duty exemption (from 50% prior) for houses worth RM500k to RM1 million for first time home buyers. The additional 25% stamp duty exemption for houses worth RM500k to RM1 million allows first-time home buyers to save an additional RM2,800 to RM7,100.
5. Technology sector
The allocation of e-money incentives for the M40 group and youths worth RM800 million and RM400 million, respectively, which will further accelerate the adoption of cashless transactions.
Market Will Remain Volatile
Performance of the local bourse has been immensely impacted by global uncertainties primarily from the US. The heightened market volatility have had created ripples across the region as well.
Commodities were not spared either as both the CPO and crude oil underwent wild gyrations. The CPO from the high of RM7,200 to now RM3,800 while the Brent crude from around USD130 to now USD98.
As for corporate earnings, we noticed a downward revision for CY22 from 4.3% to now circa. 1% mainly attributed to the cuts for Manufacturing and Utilities sectors.
Nonetheless, CY23 earnings growth should shine with 6.8% due to upgrades for Banks despite lower estimates for both Plantation and Manufacturing.
Regional volatility remains high with some above the last 2 years. Unlike the rest, Malaysia’s volatility remains below the region as the local bourse is a captive market. Nonetheless, we expect volatility to heighten in view of the anticipated “hard landing” in the United States.
Regional Currency Turmoil
Due to the incessant rate hikes by the Federal Reserves, the USD has had strengthened against all regional currencies. The USD movements has instigated most central banks to be on defensive mode to tame prevailing turmoil amongst the global currencies.
