On the topic of retirement planning, there are a lot of things that comes into mind. Savings, investment and retirement funds are just some of the issues that we need to face. How much do we need to save every month? Where to invest? Is RM1 million enough to retire?
Smart Investor spoke to Ismitz Matthew De Alwis, executive director & chief executive officer, Kenanga Investors Berhad to get more insights on this issue.
Ismitz Matthew De Alwis
Smart Investor: It is reported that 75% of Malaysians don’t even have savings of RM1,000. Why do you think most of us are not able to save?
Ismitz Matthew De Alwis: With rising inflation and poor personal financial habits, most Malaysians would not be able to survive for more than three months if they were to unexpectedly lose their main source of income. Although the Employees Provident Fund (EPF) and Private Retirement Schemes (PRS) withdrawal policies were relaxed to assist those significantly impacted by recent events, this has led to many depleting their retirement savings faster than planned.
I believe that it all eventually boils down to their personal finance fundamentals. Many forget that the process of building up sufficient retirement funds is not brief, but a lifelong journey.
Everyone seems to be talking about that magic RM1 million. It is achievable and will it be enough to retire comfortably?
Everyone begins their journey from a different starting line and the decisions we make along the way will affect our destination in the end. RM1 million may seem a big amount for some, but a drop in the pool for others.
Investors should focus on saving for a sufficient amount that is achievable and enough to retire (according to their desired lifestyle) without worry. The major factor is to plan early for their retirement.
6.1 million EPF members have less than RM10,000 in their savings, it doesn’t look too good. What can these people do to ensure they can retire well and not continue working until old age?
Make it a habit to review and evaluate your financial portfolio periodically and make the necessary changes when needed. This can reduce the chances of panicking and making rash decisions when difficult situations present themselves. I tend to link retirement planning towards building a well-rounded ship.
By actively evaluating their portfolios, they can ensure that their ship is well-fuelled and constructed with high-quality materials, to protect their growing cargo from rough waters and strong winds.
The younger generation these days seems to like working as a freelancer, running their own small business or becoming an e-hailing driver but with no EPF, how can they start planning for their retirement?
Proper research and planning are required before diving into any form of investment as there exists many products and options which all serve the same purpose: providing additional income. They can then set aside this additional income and park it under voluntary long-term saving schemes.
For example, here in Kenanga Investors, we offer OnePRS by Kenanga as a voluntary retirement scheme to assist investors to supplement their current savings for their golden years. With an increasing life expectancy and the rising costs of living, many are finding that their retirement funds are not enough to solve any potential financial difficulties during their retirement.
What are some of the investment vehicles that you would suggest for retirement planning?
There are usually two main factors when it comes to discussing preference, an investor’s investment horizon and risk tolerance. When planning for retirement, investors can opt for short, mid or long-term investment periods, while their risk tolerance depends on the person itself. Investors who are willing to take on higher amounts of risk to achieve higher returns or growth are categorised as growth or aggressive investors.
Moderate risk investors are those that are in-between and are willing to take some percentage of losses to achieve a steady growth rate. Also, low-risk or conservative investors are those that do not participate in high-risk investments, they often seek a steady stream of income with very low risk.
There is no one-size-fits-all option for retirement planning, as there exists a wide variety of investment products in the market that cater to various risk tolerance and investment goals. Some examples of these are unit trusts, real estate, bonds, deposits, stock trading, and exchange-traded funds. In short, be sure to first determine your risk tolerance and retirement goal before committing to any investment vehicles.
Malaysia’s mandatory retirement age is now at 60 years old. It can either be a good thing or worrying, depending on whether a proper planning has been done prior to retirement.
For most of us, the main savings for retirement would be our contributions to the Employee’s Provident Fund (EPF) or other equivalent retirement fund. But as statistics have shown, it is inadequate to maintain the quality of life we were used to before retirement.
Many would take a step further and seek advice from a Financial Planner to see how they can enhance their planning by growing their wealth through investments. With so many options available in the market, many have been blind-sided about one particular issue.
Retirement planning is more than just saving enough money to generate a passive income that covers your post-retirement living expenses and healthcare.
Regardless of how you save or how much you save; you need to think about a situation where you or your family members may not be able to access your savings. What if you are comatose or is suffering from dementia, and are not able to take care of yourself during old age? Or perhaps another pandemic like COVID-19 happens?
You may have a family to take care of, but they will need access to your savings. They would not be able to do so if they are not authorised to operate your account.
Planning for retirement is not just about making sure you have enough to live, but also about providing for contingencies that can happen.
A well-planned retirement covers planning in many aspects, from financial to healthcare arrangements to estate planning and even bereavement care. Proper planning could save your family from a lot of heartaches and financial pitfalls. Rather than just merely saving for retirement, you can further enhance your retirement planning by using a Trust.
A trust is like a water tank that you have installed in your house. Your house’s water supply come from the main pipe. Although the supply is supposed to be continuous, it is only a matter of time before a shortage can happen. This is where your water tank comes into use by continuing your water needs in such an emergency.
This is how an investment or insurance trust from Rockwills can help in your retirement planning.
This type of trust provides liquidity in times of need during your retirement. In the trust structure provided, you need not transfer the asset yet until the events that were predetermined by you happens. Such events could be Total Permanent Disability (TPD) such as being comatose for a period of time, critical illness, and mental disability.
Rockwills as your appointed Trustee will then utilise the trust funds to take care of your financial needs, such as medical expenses and even your living expenses while you are under nursing care. This is very useful especially for those whose children have migrated overseas and are no longer around to help.
In summary, you need to build a safe where you can keep piling up your life treasures; and when the need arises, your dependants are able to access it. You will then need someone who can act as your trustee with a backup key to access your funds and carry out the distribution instructions. By setting up a trust, you will be protected in case of unforeseen events and that will only mean a safer future for you and your family.
Rockwills can help you plan to ensure that your retirement planning objectives can be achieved. Established in 1995, Rockwills is the specialist in providing comprehensive Will Writing, Will Custody & Trust services. We are one of the largest estate planning groups in the region, having written more than 280,000 Wills, 12,000 Trusts and holding over RM25 billion assets under Trust.
There will be an increase of senior citizens in Malaysia as the life expectancy of Malaysians increases. Undoubtedly, decreasing fertility rates and increasing life expectancy is fast forwarding Malaysia to the status of an ageing society.
Based on the Department of Statistics Malaysia, the total population of the country was recorded at 32.4 million in 2020, with a total 2.2 million of the population or 7.4% aged 65 years old and above. The World Bank defines a country as ‘ageing’ when the percentage of people aged 65+ is above 7%, thus, categorising Malaysia as one of the ‘ageing’ nations.
The 2020 report by the World Bank, titled: A Silver Lining: Productive and Inclusive Aging for Malaysia, estimated that Malaysia will be an ‘aged’ nation by 2044 and ‘super-aged’ nation by 2056 with at least 14% and 20% of the population aged 65 and above respectively.
Whether it is for ourselves or for our parents, are we prepared for aged care?
Dr Carol Yip
Responding to Smart Investor, Aged Care Group Sdn Bhd (ACG) chief executive officer, Dr Carol Yip says that many are still struggling and worry if there will be enough money to retire, especially when medical costs continue to rise.
“Have you ever spoken to your parents or your family members about this? Most of us have not talked about or planned on retirement with our parents or families,” Dr Carol points out.
She notes that it will be difficult when adults in their 40s and 50s need to take care of their aged parents’ medical and living expenses, in addition to what they may have to spend on their own medical and living expenses. The situation may worsen with sibling rivalry and unwillingness to share the financial burden of caring for aged parents.
Increasing Needs for Aged Care Service
Group chief executive officer of Seterra Group of Companies, Rashidi Yahaya said that more and more people are now looking for aged care for their parents. Seterra is a Syariah-compliant aged care company located in Bukit Damansara, with the goal to revolutionise the standard of Islamic aged care in Malaysia by setting a new world class standards in aged healthcare facilities.
“Inevitably parents will grow old. When they are no longer mobile or become bedridden, their children will find themselves inadequately ready to provide the necessary care,” he informs.
He explains that there is also a shift in the thinking of the elder community today. They do not want to burden their children when they grow old, and can accept living out their older age in a place that can fulfill both their medical/physical and spiritual needs.
Society at large has moved away from traditional family values where the elderly are mostly at home under the care of their family members, shares Angela Francis, a project coordinator for Ipoh-based Ozanam Retirement Village (ORV).
“Hence, it is becoming more necessary for people nowadays to start planning on how to secure and support themselves in their twilight years,” she says.
ORV provides an essential community living environment for seniors. It is an initiative by The National Society of St Vincent De Paul (SSVP) and the Titular Roman Catholic Bishop of Penang where Angela is the vice president of SSVP.
There are some critical perspectives regarding retirement living and aged care. In the old days, the responsibility to care for the parents lies on the children. Even today, some are still stuck with this perspective.
“You are not neglecting your duty as a son or daughter by sending your mother or father to a home as these homes could perhaps take even better care of them for you,” Rashidi explains. “We still have a duty to provide emotional, physical and spiritual support to the best of our ability.”
“For Muslims especially, there are special considerations and concerns. These concerns need to be balanced with providing the best aged care for our parents according to our means and the seeking of Husnul Khotimah, of finding peace and contentment in their final years,” he points out.
Are There Enough?
As Malaysia moves closer towards becoming a ‘super-aged’ country in less than 35 years, are there enough aged care facilities that can cope with the demands?
“Elderly people have multi-types of illness and will need a qualified multi-disciplinary team of trained staff.”
“We don’t have enough purpose-built licensed aged care facilities with professional managers and trained staff to provide quality care according to the define-specific old age illness like dementia, Parkinson’s disease, stroke, kidney failure, cancer, heart problems and frailty – just to name the common problems,” says Dr Carol.
Rashidi agrees with Dr Carol that the facilities for aged care needs are not enough, noting that the aged care sector is very under-served, especially for Muslims. That is why Seterra is pioneering a structured approach to retirement and elderly care for Muslims.
Rashidi Yahaya
“We sincerely hope there will be more Muslim players in the industry. New standards of caregiving and infrastructure, nutritious halal food and food for the spirit are needed to ensure a dignified ageing experience, and adequate medical care are just some of the factors that needs to be put in place,” he says.
In Malaysia, developers are already noticing the potential of this market segment and have invested in building retirement villages to cater to the anticipated growing market. In the last ten years, residential property developers have begun developing aged people-friendly residences. However, this is still not enough.
Current townships have more residential apartments, commercial buildings and shopping malls as compared to aged care related facilities which is not the main attraction for buyers. But the awareness is increasing. Will an aged care friendly ecosystem in the residential building be a game-changer?
“There’s no statistic to back the claim that it will be a game-changer. But I’ve worked with developers to build aged care facilities in their township development. It’s satisfying to see that most residents can easily get the help they need anytime as the aged care operates 24/7 in such development,” Dr Carol informs.
According to her, in Singapore, every township development or common area is required to have childcare and senior citizen centers among other community facilities. It is for the convenience of those who are staying in that particular housing area.
She strongly recommends that the elderly live their old age in a neighbourhood familiar to them. Even better if it is within the same neighbourhood that is within a 5 to 10 km radius, and there is a licensed aged care facility for them.
“We need to start engaging the stakeholders that are building smart cities for sustainable living. It would be to encourage them to include aged care support infrastructure, facilities and support services.
“The government has access to all the data and surveys from MyCensus; as well as health and medical conditions of Malaysians via public hospitals and clinics from the Ministry of Health. They should be able to predict the ageing needs based on that data. That’s where all the data comes in for a better projection, planning and execution,” she notes.
Lack of professional caregivers, affordable care, elderly-friendly accommodation and other related problems would require urgent attention before the silver tsunami overwhelms the country.
Is Aged Care Exclusive?
Who has access to aged care? Is aged care only exclusive to those in the wealth hierarchy (aka the one who can afford it)? Dr Carol insists that aged care should be inclusive to help those, and all in need.
“We have low-cost airlines, low-cost hotels, so the same should go for aged care. We need low-cost aged care facilities with proper care for the elderly. There is a need for more affordable aged care that people in need can access,” Dr Carol explains.
Aged care should be inclusive but are they affordable especially to those in B40 or M40?
“Today, I don’t think that the B40 segment can afford aged care, while the M40 can only afford to provide aged care amongst the family if the family comes together to take care of each other and their aged parents,” Dr Carol shares.
According to her, it has to be a shared effort and shared financial responsibility depending on how each adult child plans their retirement. If the M40 does not have family, they will need help from the community such as friends and neighbours.
She emphasises on the government’s role in providing support and incentives to make aged care affordable by categorising the population data by area or township, enforcing and implementing a continuum of care services that are easily accessible.
Non-Governmental Organisations (NGOs) have been playing an active role in many segments, especially in helping those in need.
Angela Francis
“As part of an NGO that serves the weakest and marginalised within society, we regularly encounter many of the elderlies who are abandoned and left to fend for themselves,” Angela says.
She adds that the growing need to provide care, better living standards and security to this vulnerable group in society has inspired and driven them towards the development and management of ORV.
“We want an eco-friendly environment. Hence ORV is being built in Taiping, Perak – a land surrounded by lush green foliage to harness the tranquility and peacefulness from nature,” she says.
“We would also want to ensure that we are giving the opportunity to the right target group, namely the elderly, to reside in the retirement village,” Angela explains adding that the majority of those using their services are in their 60s and 70s.
Islamic Aged Care
Aged care is needed across the board. It should be inclusive without any label, be it from a religious point of view or race.
“Out of the 1,400 aged care homes in Malaysia, none are registered as an ‘Islamic Aged Care’ home,” Rashidi informs.
On the hesitance of aged care in Malaysia especially for the Muslim community, Rashidi comments: “If one cannot take care of one’s parents because they are bedridden or seriously ill, it is the children’s responsibility to seek solutions to care for them. Letting others take care of their parents does not mean they are neglecting their duty. They are still providing for them to the best of their ability.”
The Muslim mindset about aged care or retirement homes needs to change. They must see that it is a natural progression of their own life and of their parents to undergo a new phase – to seek spiritual fulfillment, to handle all worldly issues and to have a dignified and peaceful ending with the best of care.
With the world evolving, aged care is not as typical as we think. The way we view things needs to change and come from different perspectives.
Placing your parents in an aged care facility does not mean you are abandoning your elderly parents. However, it must be followed by strict compliance as enshrined in the Quran and the Hadiths. “You still owe a very heavy duty to them and keeping your parents happy and fulfilled is still your responsibility which you cannot abdicate to a Rumah Orang Tua,” he emphasises.
Never Too Late to Start
Have we planned on how to survive our golden years? If you are to retire, how much money do you need? Would it be sufficient to cover for the rainy days?
RM2,500 per month looks to be sufficient for retirement. But depending on one’s lifestyle during retirement, it may not be enough. “With rising inflation, this amount will not be sufficient,” says Angela.
Sadly, according to the Employees Provident Funds (EPF), around 6.1 million contributors aged below 55 or 50% of total contributors only have RM10,000 or less, which means this group of contributors may only have RM42 per month to live for another 20 years after retirement.
“It is estimated that 39.2% of our population have ZERO savings for aged care (World Bank calculations based on the Department of Statistics Malaysia, EPF and KWAP). In addition to that, almost 50% of the ageing population in Malaysia falls into the B40 category. At Seterra, it is our objective to cater to all walks of society regardless of their faith, beliefs and ethnicity,” Rashidi informs.
According to a survey on ageing conducted by Ipsos in 2018: when asked what’s the worst thing about growing old is, globally 30% of those polled responded that they personally worry about not having enough money to live on in their later years,
So, how can we prepare for our ageing needs? It is never too late to start planning for your retirement. The rising cost of living, medical expenses and inflation should be factored into our retirement planning.
“Age is just a number. Choosing to work part-time during retirement can maintain a good mental health and earn an income,” says Dr Carol.
She also suggests the need to increase the retirement age to 65 and beyond, so that people can continue working for as long as they can. “It’s not that bad. It helps you to be physically, mentally and socially active.”
As for the younger generation, here’s a piece of advice from Dr Carol.
“Save more money than what is required by EPF. This is because when you retire, you may need your savings to help your aged parents, especially when your parents’ retirement income is insufficient to take care of their health and medical care. Get ready before the storm,” she advises.
Most of us wish to retire early before we hit 60, which is the retirement age in Malaysia. But not the living legend, the Father of Modern Malaysia.
Born on 20 of December 1925, Tun Dr Mahathir Mohamad holds the record of being the oldest prime minister in the world when he was in office. This was when he became the prime minister of Malaysia once again on 10 of May 2018 when he was 92 years and 141 days old.
Smart Investor’s team with Tun Dr Mahathir Mohamad
Smart Investor recently had the honour and opportunity to speak with Dr Mahathir in person. He spoke to us about his philosophy around work and retirement, what he has invested in and how he keeps his mind sharp at his age.
Trust in Our Malaysian Doctors
A well-known story about Dr Mahathir during his first premier was that he put his faith in local Malaysian doctors for his heart surgery. The surgery was led by a local doctor, Dr Yahya Awang with his team in 1989.
Dr Yahya Awang with Tun Dr Mahathir – Photo : MHTC
He was then 64 and 82 years old when he went for his first and second major surgery, respectively.
“Basically, I’m quite healthy in the sense that I don’t have any debilitating diseases. What I had was a blockage in one of the heart arteries. The doctors are very good and I recovered. Once I recovered, I was free from the disease and I naturally came back to normal,” Dr Mahathir shared.
Today, at 96 years old, he is still standing strong and working tirelessly for the betterment of our country.
You need to live a moderate life. Don’t eat too much because that could affect your health. You should also have enough sleep and don’t get too excited over things.
Tun Dr Mahathir
Dr Mahathir added that one has to try and stay as calm as possible.
“Mainly, I don’t smoke, I don’t drink and I think this also contributes to my good health,” Dr Mahathir emphasized.
He said that he eats almost anything but keeps his portions small. He also shared that he practiced his mother’s advice when it comes to diets:
“When the food taste nice, stop eating.”
Until today, Dr Mahathir’s memory is still intact. What is his secret?
“If people ask me questions on matters that I am interested in, it is easy for me to remember what information I have. But if you ask me something that I know nothing about, of course, I cannot answer. The main thing is to always do a lot of reading, discuss frequently with others and debate with people,” he responded.
These are the tips he shared on keeping your mind active.
The mind is like the body. If you don’t use it, it begins to retrogress.
Tun Dr Mahathir
Stress and Heart Attacks
Recent findings by the Department of Statistics Malaysia (DOSM) found that ischemic heart disease remained the principal cause of death in Malaysia, contributing to 17% of 109,155 medically certified deaths in 2020. People tend to think that heart attacks will only occur to those in the retirement age, but surprisingly we can see that men and women are now having heart attacks as early as in their 20s.
He thought that people nowadays are very emotional and get easily upset over things. This will affect the part of the body where the heart beats more than normal which can put a strain on the heart.
“No smoking. That’s very important. Beyond that, don’t go through too much stress. Try not to get excited and angry much,” he advised.
Severe road congestion, the rise in living costs and many other factors seem to make everyone so stressed these days. What are the ways we can overcome stress?
“We have to accept that things cannot always be right. Today, we are facing a pandemic that prevents people from working and they cannot earn money to buy food. Of course, this worries them and it’s very difficult not to worry,” he said.
Health is Wealth
When the word retirement planning comes into mind, everyone is focused on building their wealth but not their health.
Health is very important. It’s no good having billions of Ringgits if you can’t even move or talk or behave normally. So, it’s better to have less money, but stay healthy. You enjoy life better.
Tun Dr Mahathir
Younger generations tend to get involved in the gig economy, freelancing and running their own business. In 2020, the DOSM shared that almost four million people are working in the gig economy in Malaysia. This includes ride-hailing, food deliveries and managing holiday rentals via an online platform or an application accessible through smartphones.
Unfortunately, most of those who are involved in this line of work did not contribute to the Employees Provident Fund (EPF). How can they start planning for their retirement?
“When you’re healthy and able to work, you can do whatever you like. But when you grow old, you need a pension and some income. If you have done well in your business and you have contributed to EPF or you have saved money, then when you’re old, you don’t have to worry too much about finance. But if you work where there is no pension and you don’t save and don’t contribute to EPF, when you grow old you’re going to have problems,” Dr Mahathir shared.
On the Rise of Inflation
Bank Negara Malaysia (BNM) projected the headline inflation of the country to be between 2.2% – 3.2% in 2022. This is not only happening to Malaysia but countries around the world which are affected due to the pandemic and Ukraine-Russia war.
How can Malaysians weather the storm?
“Interest rates are a cost to doing business. The higher it is, the more costly the business. This will result in production services being more costly and when it is more costly, of course it is not sellable,” he shared.
Dr Mahathir further explains that low interest rates will encourage people to invest and some of them would fail. But for the government, the lack of investments will reduce the creation of wealth.
“We need people to invest money in order to create wealth. Because when they make a profit, they are actually creating wealth, then they will pay taxes to the government,” he added.
Investment is one of the tools to hedge against inflation. However, the number of scams is now running into billions of Ringgits, despite there being a lot of legitimate investments. Why are people still falling for scams?
Dr Mahathir opined that people want to get rich quickly and they easily believe the pitch when people tell them that there are easier and faster ways to earn money.
“There is no such thing as easy money. Money comes through hard work and intelligent work. If you believe that putting up a few dollars somehow will multiply to a big amount of money you earn, then you’re going to be cheated,” he explained.
We then asked him what his investment portfolio was like.
I don’t own any shares except for 200 shares of Malayan Tobacco which I bought long ago before I became a minister. That’s all my investment.
Tun Dr Mahathir
Dr Mahathir further added that he also had to invest in PNB and took up some shares worth RM1,000 or RM2,000 because he had to show that investment matters and is good for the people during that time.
He clarified that he only depends on his salary which is quite a lot for him and more than what he needs.
“I used to be a private practitioner, earning maybe RM2,000 a month. But when I was a prime minister, I earned RM20,000 a month. I can’t spend the money. Besides, the government pays for my house, electricity, water supply, cars and even aeroplanes. I keep my money,” he shared.
As a smart investor, you can have all the money in the world. But all that money will mean nothing if you do not have good health to go along with it.
When it comes to retirement planning, investment is one of the tools that can help us to achieve our goals. The famous quote by Benjamin Franklin rings true;
If you fail to plan, you are planning to fail!
Recently Smart Investor spoke to Isnaliyah Sarwadi, director, business development of PMB Analytics Sdn Bhd (PMBA) which is a subsidiary of Pelaburan Mara Berhad, to get her views on the topic at hand.
According to her, there are many investment vehicles to support our retirement planning, but the two vehicles that she believes could warrant the achievement of the goal are through unit trust and property investment.
Unit Trust and Property
Unit trust investment is one of the most common investment vehicles in Malaysia. It is easily accessible by everyone and it also has a very low entry barrier. You can start investing in unit trust from as low as RM100, which makes it affordable for everyone. It can also be used as a tool to invest regularly each month.
One must emphasize asset allocation and diversification strategies to benefit the most from unit trust investment. With just a small amount of money, you can already be exposed to global markets such as the United States, ASEAN, China and the rest of the world. Just ensure that it matches your investment objectives, investment horizon and risk tolerance level.
Secondly, there is property investment. With the right selection of property especially the right location, it can save you time and money to access to your work place. On top of that, price of a good property will always grow over a long period of time. When it appreciates in value, instead of selling it to buy bigger property (an upgrade of lifestyle), one may lower or maintain the lifestyle by buying two properties to accommodate two purposes (accommodation and investment).
Hopefully, when you combine these two investment vehicles, you will enjoy strong financial standing when you retire. These investments can also be liquidated and used for other purposes such as for your children’s education or to start off a new business.
Another tip by her is the new age comes with the latest technology. You must equip yourself with new skills as well. If you start saving early, over time, you will have money to start great things in life as the savings will enable you to start small businesses (become an entrepreneur). Immediately, the money will provide you with working capital or a deposit to buy machinery or vehicles for transportation to start the business. In addition, it will provide you money for upskilling since you will need to attend courses of your preference, for example, culinary, bakery, saloon, sewing, massage technique, writing technique, etc.
Why Aren’t We Able to Retire Well?
The reason that some of us are not able to retire well is caused by the low awareness of personal financial planning. We tend to spend more than what we earn, which then causes us to borrow in order to carry on with our lives.
The credit card debt trap which can be a very vicious cycle. Once you are trapped as you are only able to pay the minimum amount each month, it will be very difficult to get out of it. It can snowball to a huge amount over a period of time.
It all boils down into a mismatch of lifestyle against income. Ever heard of the quote, “We buy things we don’t need with money we don’t have to impress people we don’t like.”
We also tend to fall prey to “ponzi” schemes and scammers out there. We are easily blinded by the promise of getting rich instantly and receiving extraordinary monthly returns.
Tackling the Rising Inflation and Interest Rates
Finally, we have to deal with the issue of rising inflation and interest rates. Here are some tips that Isnaliyah is kind enough to share with us. To help us weather the storm, we should do the following:
Prudent management of cash flows and personal budgeting requires you to choose wisely between needs and wants
Structure your retirement portfolio well. The investment horizon is for the long term and should the market tumble, don’t panic and don’t abruptly restructure your existing portfolio.
Invest in upskilling so that you can look for additional income streams if the need arises.
Retirement planning is something that we should not take for granted. As the years pass so quickly, especially these days, we will be staring at the day we retire very soon.
If we do not take action, we may have to work until our golden age. So do not delay; start to plan for your retirement now.
“Fintech for inclusion” seems to be on everyone’s lips and countless articles have been written on advancing the benefits of fintech for the underbanked and underserved segments. Undeniably, many of us, to a certain extent, may have already benefited from the adoption of fintech, from payment to data-driven investment in consultancy services.
With more intense competition between the major players, it would translate into better services at a lower cost.
However, the term “customer loyalty” and “customer satisfaction” may no longer apply in this era of digitalisation. Customers may not be loyal although they are satisfied with a particular service provider.
Seamless easy experience remains the utmost important factor for customers in their selection of a service provider. In other words, a service provider may face the risk of losing its customers at just the slightest inconveniences from technical glitches in their platforms.
This explains why fintech providers are so obsessed in improving customer experience particularly in the area of digital on-boarding in their services. Palatable decent services is no longer good enough but services that intrigue and keep customers delighted may help to retain them.
Investing With Fintech
On the investment front, customers may be inclined to prioritise investment returns over convenience. Thus for investment platforms, they may stop utilising the platform if it fails to generate enough returns according to the users’ risk profile or risk appetite. Conversely, they may still utilise the platform, even if it is complicated, as long as the provider could deliver some ‘magic figures’ for their investment returns.
So, with a myriad of fintech systems that can help us to save, borrow, plan, trade, invest and automate our portfolios along with alternative investments and in emerging asset classes such as Decentralised Finance (DeFi) – cryptocurrencies and Non-Fungible Token (NFT), could we invest better with fintech? Could we make more profitable returns compared to our predecessors or to those who are reluctant to embrace the technology?
Studies have shown that humans are not always rational especially when it comes to investing. Digital assisted investment tools can help us invest with less emotions and make better fact-based decisions. For instance, with the advancement of fintech applications with Artificial intelligence (AI), we could preserve the value of assets with the right risk-management techniques. Market sentiments for a particular asset or asset types could be gauged with the help of fintech applications in analysing and interpreting into human language by looking into their preferences, their opinions, what they say, likes or dislikes.
However, whether the tools can be harnessed for better investment decisions depends on how smart we are in utilising it. The increased amount of available information together with fake news daily, may result in ‘illusion of control’ over our investment abilities or ‘illusion of knowledge’ over the capacity of fintech platforms for investing.
Such psychological biases could lead to excessive financial risk-taking that inadvertently results in less than optimal investment decisions when we underreact or overreact to information. Overreaction and under-reaction to information are due to our brain’s tendency to use shortcuts when processing large amount of information as detailed in the psychological literature.
Trying to avoid the ‘falling out of herd’ mentality is another type of bias commonly experienced when making investment decisions. This can then lead to domino effects of ‘false consensus’ and ‘momentum bias’ when making decisions.
‘Investing is most intelligent when it is most business like’ and ‘Be fearful when others are greedy’ are perhaps the famous quotes by Warren Buffet that we have to remember when investing. We can only consistently beat the market and earn a return only if we are smarter than the market. Hence, by just emulating the trading strategies of others or adopting their software could make us as smart or as silly but not necessarily smarter than others.
No matter how sophisticated or data-driven the fintech platform is, the ability to discern real from fake news is also critical. We are essentially living in a big machine under digital surveillance daily, with tons of information produced daily from the moment we use electronic devices.
With increased competition, major players may be heading for more partnerships and initiatives such as Open-Banking, to share and leverage our data in providing a more customised application and solution for us.
After all, fintech is also a tool that feeds on data. The right investment action for better investment outcome could not be possibly extracted from a large amount of garbage.
Yet, being not digitally exposed may also mean becoming more digitally vulnerable to financial scams. Thus, it is important to invest in oneself by acquiring knowledge and skills, while undertaking finance and non-finance related risks that are brought about by rising fintech development.
In short, too much of something is never a good thing; just like consuming too much vitamins or supplements may be bad for our health. There is no perfect formula or system for investing in this world.
We should not forget that many market crashes like Black Monday in 1987 and the liquidity crunch in August 2007 are in part due to mechanical glitches.
About the Author
Dr Audrey Lim Li Chin is a lecturer and a researcher at Multimedia University (MMU) Melaka. She teaches International Finance and Derivatives. She is particularly interested in retirement planning, mental health, fintech especially in blockchain and data analytics. She is also a Certified Financial Planner, (CFP) and is currently pursuing Chartered Financial Analyst (CFA) certification. She is also the external educational advisor to Max Wealth Education Sdn Bhd.
This article is in collaboration with Max Wealth Education Sdn Bhd, an approved Education Provider for the CFP Certification Program.
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Shariah investing is a very popular buzzword and Malaysia is the world’s leader in Islamic finance industry.
Smart Investor spoke to Ruzi Rani Ajith, chief executive officer of CGS-CIMB Securities Sdn Bhd to find out more about Shariah investing and the inaugural CGS-CIMB Regional Shariah Investing Symposium 2022 which was held in Singapore recently.
Themed Sustainability & Shariah: Investing for a Brighter Future, the symposium brings together experts from across Malaysia, Singapore and Indonesia to discuss the latest developments in Islamic Finance and Shariah Investment. Top management from leading Shariah-compliant companies listed on Bursa Malaysia, the Singapore Exchange and the Indonesia Stock Exchange were present to share their future strategies and growth plans post-pandemic.
Smart Investor: Hi Ruzi Rani Ajith, thanks for taking the time to have this interview with Smart Investor. Perhaps we can begin with a brief introduction about yourself?
Ruzi Rani Ajith: Hi, thank you for having me. It is my pleasure to be here with Smart Investor. Sure, my name is Ruzi Rani Ajith. I am the chief executive officer at CGS-CIMB Securities Malaysia and group head of shariah services at CGS-CIMB Securities.
Prior to my appointment, I served as the head of equities in CIMB Investment Bank, where I have worked with the organisation in various capacities over the past 23 years. Before joining CIMB, I was with Affin Investment Bank for three years as a fund manager.
SI: Why do you think Shariah investing is important, and is it only limited to Muslims?
RRA: Shariah investing is not limited the Muslims. Shariah investing is for all. It is another approach to investing where Shariah compliance is to be adhered to. Shariah investing among others avoid prohibitive elements in shariah such as riba (interest), gharar (ambiguity) and maysir (gambling). In its process to uphold Maqasid (objective) Shariah, Shariah investing has always been closely linked to Social Responsible Investment (SRI) and Environmental, Social And Governance (ESG).
Shariah investing is a subset of SRI and also complementary to ESG. Due to its overlap with ESG and SRI, it is becoming increasingly popular and important for investors, with an increase in take-up on Shariah investing.
SI: What are the market trends should investors look out for in the near future?
RRA: The trend is the focus on Shariah and ESG investing. Global investors are increasingly aware of the synergy between ESG investments and Islamic finance. This contributes to the growing demand for Shariah-compliant investments as investors seek greater portfolio diversification and an alternative to investing traditional ESG. Shariah-compliant and ESG investing are complementary investment approaches that have important points in common, such as being a good steward of society and the environment. “According to research by Refintiv, Shariah compliance screening can do much to improve ESG performance. There is a direct correlation between Shariah compliance and higher ESG scores, and combining the two could improve overall risk-adjusted returns”.
We should see an increase in new Shariah or ESG product offerings to cater for various market segments.
Another trend that is taking centre stage is the green and renewable energy space as the world is gearing towards a net zero carbon by 2050. This is where the transition into green and renewable energy comes into play. Hence, funding this transition has created the demand for sustainability and green sukuk which has resulted in exponential growth.
SI: With the rise of inflation and interest rates, what should an investor do?
RRA: Never put all your eggs in one basket. Portfolio diversification can help to balance the risk and reward in your investment portfolio.
Also, investors can consider investing in ESG and Shariah-compliant products to reduce the risk in an uncertain market. To also take into consideration to invest in defensive and high-yield stocks.
SI: Tell me more about CGS-CIMB’s involvement with Shariah investing?
RRA: CGS-CIMB started its Shariah business in Malaysia office where Shariah investing is further enhanced with various innovative products that are in the pipeline and will be launched soon. Confident with the prospect of Shariah businesses, we have also extended our Shariah services to our Singapore and Indonesia offices.
In Malaysia, CGS-CIMB offers a range of Shariah-compliant products and services from Shariah compliant trading accounts; with access to thousands of Shariah-compliant securities, margin facilities. We are the first broker to launch Islamic Cross Border Trading, as well as setting the framework for Islamic Securities Selling and Buying (ISSBNT).
The responses have been very positive. Over the past two years, we have managed to triple the number of Islamic trading accounts. We aim to continue to launch innovative Shariah Compliant products such as Shariah-compliant Discretionary Trading and Shariah-compliant Futures.
We are happy to have Singapore and Indonesia embarking on this journey, launching their first Shariah-compliant products and services at this Shariah Symposium. Moving forward, we will continue to expand our product and services in the region.
SI: Congratulations on the inaugural CGS-CIMB Regional Shariah Investing Symposium 2022 which was recently held, care to share more about this event?
RRA: Thank you.
The CGS-CIMB Regional Shariah Investing Symposium (RSIS) will be organized annually.
The RSIS sets as a platform to bring together exchanges, corporate leaders, industry experts and investors to explore economic and market trends within the Shariah Investment landscape.
RSIS aims to bring awareness and educate investors and public on Shariah investments, especially in Singapore and Indonesia.
The symposium showcases CGS-CIMB’s contribution to Islamic Finance industry in creating awareness on the subjects and its focus on Islamic businesses in the region.
CGS-CIMB’s aspiration is to become the regional leader within the Islamic Broking space. On the long run, this annual symposium is aimed to further provide deep awareness to the growing trend for Islamic Finance and Shariah Investment across the region.
The support from three exchanges namely Bursa Malaysia, Singapore Stock Exchange and Indonesia Exchange shows a positive sign to create awareness of Shariah investment around the region and encourages Shariah investments as a choice and an alternative to conventional investments.
SI: What are some of your plans for the future that you can share with us?
RRA: Our goal is to be a leader in Islamic Finance in countries with CGS-CIMB presence.
We hope to use our experience in Malaysia to lead the Islamic initiatives in countries where CGS-CIMB has a presence starting with Singapore and Indonesia which has the most potential.
In Malaysia, our focus will be on operational efficiency as well as continue to improve our Sariah product offerings. We will be launching two new products namely Shariah Discretionary Trading and the first in the world Shariah-compliant Futures this year.
A market downturn can be scary. In the past few months, we have seen one of the most volatile swings in stock market history that can unnerve even the steeliest investor. But many forget that we have been through this before.
Whether it is selective memory or a case of financial amnesia, many investors might give in to their worst instincts which often leads to poor investment decisions. Here are five common investing mistakes to avoid that could set you back even further in a downturn.
1. Panic Sell
It can be painful to see a sea of red in your portfolio. But giving in to fear and panic selling would only crystallise your losses and making them permanent. Instead, take a long-term view of your portfolio by realising that markets move in cycles and that downturns are temporary.
History shows that each bull cycle tends to end higher than the previous top. For example, during the 2008 crisis, global markets plummeted as the subprime meltdown spread carnage around risk assets. However, the markets found its bottom in March 2009 and eventually recovered to former levels and goes even higher.
More recently in March 2020, stock markets cratered as the COVID pandemic shuttered the global economy with the MSCI World Index plunging by 34% in a span of 6 weeks. However, the recovery was equally swift with benchmark gauges retracing back their losses in April and notching new highs since then.
2. Trying to Time the Market
Another common mistake is that investors may attempt to time the bottom by selling entirely and then piling back in when markets start to rebound. Unfortunately, investors even professional ones rarely get both the timing right and ended up in a far worse position than they were before.
Instead, practice dollar-cost averaging by continuously investing in fixed sums through regular intervals. This helps lower the purchase price of your investments over time by taking advantage of market dips as well as reducing the risk of bad timing or investing according to one’s emotions.
3. Did Not Rebalance
Investors are advised to rebalance their asset allocation at least twice a month to correct portfolio drifts back to its target allocation. However, a major market movement such as a downturn could also throw it off balance.
In a downturn, the returns from an equity portfolio would tend to fall much more than the target allocation as global stocks are down. Jittery investors may neglect to rebalance it back and increase their exposure in equities because they are worried of the volatility in the markets. After all, it sounds counterintuitive to invest when market conditions are shaky.
However, it is important to do so in order to stay on track towards achieving your long-term goals. Rebalancing is also important to ensure that you are taking the desired level of risk that you have set out in your investment plan.
4. Cutting Your Winners and Hanging on to Your Losers
An important investment maxim is to ‘ride your winners and cut your losers’ from your portfolio. It sounds logical, but during a downturn, investors tend to do the opposite as they attempt to stem losses. Thus, they lock-in gains from their winners in order to compensate for losses in other areas of the portfolio.
But this only digs a deeper hole for the investor who could be worse-off in the future by hanging on to the portfolio’s losers. Instead, establish clear parameters for corrective action where needed in your investment plan to avoid mistakes such as these.
5. Monitoring and Doing Too Much
In a downturn, investors are often plugged-in to news alerts and social media to keep up-to-date with what is going on with the markets. This could prompt investors to buy, sell and sometimes even take advice from unscrupulous ‘financial gurus’ with a hidden agenda.
Looking at your portfolio 24/7 and tinkering with it too much does not usually end well for the investor. Financial anxieties kick-in and you start to lose sight of your goals which includes why you have decided to invest in the first place.
Learn to filter out the noise and take every sensational headline with a pinch of salt. Media outlets rely on eyeballs for advertising revenues and clickbait articles are their go-to tactic.
Instead, stick to your investment plan through regular contributions and practice diversification. Ensure that your portfolio is geared towards it stated purpose with an asset allocation that matches your risk tolerance.
Keeping Perspective
The first rule in any market downturn is to stay calm. We may not always be in control of any given situation, but we can control how we respond to it.
This is especially true for investing where success has little to do with how much you know, but rather how you behave. Thankfully, it mostly involves inaction, staying the course and lots of patience.
About the Author
Lee Sheung Un is a communications officer at Affin Hwang Asset Management. A millennial, he is still finding that balance between wealth, freedom and purpose. Views expressed are his own.
Going for regular medical check-ups goes a long way in maintaining your health. A medical condition or onset of disease can actually be slowed down or even averted if discovered on time, particularly if there are no symptoms.
Smart Investor talks to Dr Hilwani Kaharuddin of Ara Damansara Medical Centre on why timely intervention can make all the difference.
SI: What is the purpose of Health Screening?
Dr Hilwani Kaharuddin (Dr HK): Many diseases are “silent” meaning they have no symptoms or the symptoms are very vague. For example, you may have hypertension (high blood pressure) and not know it unless you specifically
check your blood pressure. Many people associate hypertension with headaches. However, hypertension only causes headaches when the blood pressure is severely high. You may have had hypertension for years without knowing and all the while the constant high pressure is damaging your kidneys, heart, eyes and so on.
Another example is diabetes. People with diabetes will usually feel thirsty all the time and pass urine more frequently than normal. However, these symptoms may come on so gradually that the person does not notice the change.
Many patients have told me, “I drink a lot of water, so of course I go to the toilet often”. It sounds logical, but these are actually symptoms of diabetes. So, unless you test for diabetes, you will not know.
The idea of health screening is to detect problems or diseases early, when treatment is usually easier with a higher success rate as complications of the disease have not yet arisen.
SI: What Tests does one need to Do and When?
Dr HK: It is never too early for a health screening. I have diagnosed diabetes, hypertension and cancer in young people. Talk to your health care provider. Based on your lifestyle, family history and symptoms (if any), he/she will advise the necessary screening tests. Of course there is basic general screening, but it is best to get one that is tailored to you.
For example, someone who has a family history of Thalassemia may need to be tested for that. A young 30-year-old female with no health concerns but is sexually active may be advised to have a PAP smear.
SI: In Malaysia, what is the prevalent disease? Is it Diabetes? Or High Blood Pressure? Or something else?
Dr HK: We are seeing an increasing number of non- communicable diseases in Malaysia. This is largely due to our stressful and unhealthy lifestyle. It is difficult to estimate prevalence of a disease because many are not reported. It is estimated that one in three Malaysians above 30 years has hypertension.
For diabetes, the figure is estimated to be one in 6.5. More importantly, according to the Global Burden of Disease Study, the top five diseases leading to disability or death are:
Top 5 Deadly Diseases
Coronary artery disease
Road traffic accident (which is not a disease but included here due to its significant impact)
Cerebrovascular disease (stroke)
Lower respiratory tract infection
Diabetes mellitus
We need to be cognizant of the fact that both coronary artery and cerebrovascular diseases share the same risk factors, that is hypertension, diabetes, dyslipidemia (high cholesterol), cigarette smoking and so on. These risk factors are easily picked up and addressed with health screening.
SI: Can you give an example where early detection has saved someone’s life?
Dr HK: I don’t know about saving lives, but we do frequently pick up things that need further evaluation. I was attending to a young man once who came in with a heart attack. He was unusually tall and had some physical features which suggest a certain genetic disorder.
He had never noticed he was any different from others because he has always looked like this since young. Then his brothers came in and I noticed they ALL had the same features. Therefore, we arranged for screening and all turned out to have this genetic disorder, which although there is no cure, there are things we can do to reduce their risk of complications.
There are also young people with abdominal pain who eventually turn out to have colon cancer, or an overweight young man who we diagnose with diabetes and so on.
SI: What is Pre-employment Health Screening and why is it important?
Dr HK: Pre-employment health screening is used to evaluate a person’s fitness to perform the duties he/she will be employed to do and that he/she will not put other colleagues at any health risk.
SI: What will happen if the employee fails the test? Does it mean he cannot be employed?
Dr HK: If a test is abnormal in the first instance, the potential employee may be advised for further tests or treatment. He/she may be asked to repeat the test at another time or after the completion of treatment. If he/she fails the test a second time, the duty of the doctor is to advice on the potential employee’s fitness to practise. It is up to the employer if they want to proceed to employ the candidate or consider a more suitable position.
SI: Are there risks involved in these tests? What are they?
Dr HK: Screening tests are generally low risk tests. They usually involve an interview with your healthcare practitioner, a physical examination, certain blood tests and may or may not include urine test, imaging such as chest X-ray or ultrasound and ECG.
SI: How long will the tests take generally?
Dr HK: A basic screening test usually does not last longer than half a day in centres where they have their own lab and imaging facilities such as ours in Ara Damansara.
SI: Are there certain things that one should not do/consume before a test?
Dr HK: For most health screenings, you are advised to fast for at least eight hours for your blood test and if you will be undergoing an abdominal ultrasound. However, you are advised to continue your usual prescription medications except diabetic medications despite fasting.
Dr Hilwani Kaharuddin is an Emergency Physician and the Head of Emergency Department at Ara Damansara Medical Centre, Ramsay Sime Darby Health Care.
There are times when one has to spend money even when there is little to go around. Arguably, there are three areas where money has to be spent. The areas are: Parents’ Allowance, Education and Giving Back to Community. Even though this may eat into existing funds, with Smart Spending Techniques and Money Allocation, the situation can be managed.
Must Spend Money
In one’s life, ‘Must Spend Money’ falls into three possible categories:
1. Parent’s Allowance
No matter how wealthy or poor the family may be, taking care of one’s parents – whether financially or physically − is part of a child’s obligation, at least in eastern culture. After all, we have enjoyed the great sacrifice, financial support and care of our parents and when we start to work, we should contribute a portion of our money to our parents as a token of appreciation.
The parent, in turn, should accept the child’s money even when it is not needed. This can help to shape the child into a more grateful and responsible human being. This, however, doesn’t mean that we should depend on our children’s financial support, if the situation allows it, we should be fully responsible for our own daily expenses.
A psychology counselor once told me that a lot of family crises arise from financial problems (or a lack thereof) caused by the husband’s failure or patial failure to fulfil his financial obligations to the wife or family. Tracking the root cause behind each case, she found that many of the individuals were not educated on the responsibility of giving money to the parents when they were single. It explains why they do not contribute to their families when they got married.
2. Learning Fund
Learning is life-long. Always allocate a portion of your money (plus time and effort) to learning, travelling and exploring as this will help you grow and acquire knowledge. If you want to have a better life and wisdom, or upgrade from your current level, you should always continue to improve your mindset, knowledge and soft and hard skills, no matter what age.
3. Community Give Back or Charity
Open your eyes and you will see so many people living far below their basic means and opportunities. When compared to them, we feel blessed about what we have and don’t have (such as bad weather, environment, natural disaster, lack of opportunity and so on). We are a part of community, enjoying its benefits and effort so never forget to lend your helping hand to give back to those who need money, effort, time and knowledge. If you agree with the concept of the power of giving, you will understand that the more you give, the more you will receive. The rich know this concept and that is why they keep on giving out and yet, still remain very rich. Warren Buffet once said he became what he is today (Super Rich) and is able to do what he wants, because he was born at the right time in the USA. His fate would have been very different if he had been born in another country.
Smart Spending
When it comes to spending wisely, how do you do that? Here are some cost-saving pointers:
Compare, Research, Make Informed Choices
Perform two to three comparisons before purchasing. Only buy when there is a promotion or large discount and only purchase necessities. Purchase items that have been re-packaged under the departmental store or supermarket label as they are usually 20 − 30% cheaper buit just as good.
Has anyone purchased their own engine oil instead of letting the car workshop decide everything for you? You might be interested in my experience about buying engine oil. A normal brand of fully synthetic engine oil can cost above RM200 (at promotional prices, it can be around RM170++). After reading many positive comments on an online forum, I purchased a departmental store brand engine oil (imported and repackaged locally) that only cost RM80-RM100 during the promotion period. I have been using this oil for several years now and it has, to date, not caused problems. You can apply the same technique too, to almost any other item to save money (but of course, you must also take the risk).
Bulk Purchasing
Let me share with you one of my uncommon practises. Normally, I will purchase another set of shoes or clothes or necessities (during offer periods) to prevent having to purchase a replacement at the normal price when the item is worn out/broken/lost.
Another way to save cost is to skip the intermediaries like a supermarket and deal directly with the factory where you can get the items at distributor’s price. Of course, some factories don’t deal with retail or the public. However, I have purchased baby diapers from the factory where I enjoyed more savings than even the supermarket promotional prices. Of course I needed to purchase 12 packs in three boxes but I knew the items would be fully utilised within nine months. I also enjoyed the free delivery that came with the bulk order.
For daily and heavy use items, you can do the same but do not over purchase until you need to keep the items in store for a few years; you will be losing your purchasing power by storing the goods over so many years.
Purchase Pre-Owned Items
Yet another way of saving is to purchase branded second hand but in good shape items. A statistical survey on self-made millionaires in the US during 80s and 90s (The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko) showed that a majority of them preferred to buy branded, high-quality but second hand cars. Their methods can be replicated, but when applying it here, add another requirement of low mileage. (Generally speaking, the second-hand car that gives the best value is aged between three to six years).
Money Allocation
Here are some money allocation techniques according to the book Secrets of the Millionaire Mind by T.Harv.Eker. It advises you to adjust according to your situation. As a rule of thumb, we should maintain 50% of our money on necessities, 10% on investment to work towards financial freedom, 10% on Long Term Savings which you can use for future big spending like house renovation, car and so on, 10% on education-life long learning, 10% on recreation, play or any self-rewarding activities and the last 10% on giving back to community or charity.
The other guideline is to maintain a healthy cash flow by making sure our monthly debts servicing ratio (DSR) for housing, car, education, personal and credit card loans over monthly income is kept below 40%, while 10% of the positive surplus is used for savings and investment in order to grow your wealth. The money spent on purchasing insurance should be within 15% of your monthly salary.
Yong Chu Eu is a Licensed Financial Advisor/ Head of Education Division of Fin Freedom Sdn Bhd (CFP, FAR, CMSRL, HRDF Certified & SIDC CPE Training Provider). He can be reached at ceyong@financialfreedom.com.my
