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4 Tips For Millennial On Accumulating Wealth
For many millennials striving for success in their careers, starting their own family and seeking to build up a nest egg for a comfortable retirement, the journey of wealth accumulation can often be fraught with challenges and pitfalls.

Many think that wealth accumulation is just having lots of money. In fact, “having money” and “wealth accumulation” are two different things.

Having money allows you to pay for your expenses but it is typically spent shortly after it comes in. The latter goes a step further – it is taking disciplined steps over a period of time to achieve wealth accumulation. Here are some tips for the millennial on how they can accumulate wealth.

Saving, Saving, Saving!

For wealth accumulation, you need cashflow. The very first step is to set a financial goal and stick to it! Once you are clear about your objective, the next step is to be disciplined enough to achieve your money goal.

A good suggestion is to use “automation”. Automation adds built-in discipline to your financial life and reduces the likelihood that you will forget your objective or spend money on things you do not need.

You can set up automatic deductions from your paycheck bank account to send money directly to another savings account, unit trust or investment account. By automating these payments, you are making sure that you are paying yourself first.

Cut Expenses

Cutting unnecessary expenses is the key to living below your means, so you can reach your financial dreams. Challenge yourself by resisting expenses that are most tempting. For example, you might:
- Cook at home every day for a month instead of eating out;
- Refrain yourself from buying any new clothes or handbags for six months;
- Avoid window shopping as that will cause unnecessary spending;
- Say no to cinema and other entertainment places for six months; and
- Cancel or delay your annual trip to another year.
Imagine how much money you could save if you are successful in overcoming the above challenges. You could easily have an additional RM10,000 to RM20,000 to add up to your savings.

Multiple Streams of Income

You need cashflow to build wealth, and the best way to generate that extra cashflow is to earn more money. In Robert Kiyosaki’s book ‘Rich Dad, Poor Dad’, he mentions four types of income streams: Employee, Self-employed, Business Owner and Investor.

For the first three sources of income, you are exchanging your time for money. It is a form of active income whereby you need to be “actively” working for money. However, please do not underestimate these sources of income, as it can be useful when you want to utilise this as a leverage power to accumulate your wealth.

You may buy your first property with this financial leverage. And if your investment is a positive cashflow, you would probably end up owning the property for free as your rental income is able to pay down your mortgage loan.

The last source of income – Investor – is the status that people most closely associate with wealth. This is where “money works for you”. As an investor, you earn the best kind of income possible – passive income by investing in assets such as stocks and properties.

Why is it the best? Because you earn money while you were sleeping! If you can generate enough passive income, you may never need to work again in your life. In short, you can retire early.

Get Rid of Your Bad Debt

In the journey of wealth accumulation, we also want to identify the obstacles preventing us from achieving our financial goals. One big obstacle could be having too much debt. However, not all debts are bad – there are good debts and bad debts.

Good debt is money you borrow at a low interest, with which you could make a higher rate of return, such as your mortgage rate. Bad debt, in contrast, is consumer debt. For example, money you borrow at a high interest rate to buy things that do not produce income or grow in value such as cars, electrical appliances, furniture and even luxury trips.

The price of bad debt is the impact of compounding rates of return working against you instead of for you. If you have credit cards or bank loans costing you 18% or more a year, that’s 18% compounding against your retirement.

The Bottom Line

In summary, wealth accumulation does not happen overnight, it is a gradual and a disciplined process that requires proper planning and execution.

Nevertheless, It is always good to have a licensed financial planner to guide you in setting up a blue print for your financial journey. They are generally able to help you to make better investment decisions and make sure your money is being deployed in the best manner.

About the Author

Pauline Yong is the CEO of Sigma Wealth Sdn Bhd. She is a CFP® (Certified Financial Planner), a licensed financial planner with a Securities Commission license (CMSRL) and a Financial Advisor Representative (FAR) licensed by Bank Negara.

She has published five investment and financial planning books and writes regularly for various publications. Pauline is also a regular commentator on stock market outlook for City Plus FM radio station.
May 25, 2022
Retirement Planning, Why It Is Important From An Islamic Point Of View

Malaysia is a country whose most professed religion is Islam. As of the latest statistics, there were approximately 19.5 million Muslims or 61.3% of the total Malaysian population.

From another perspective, in 2019, it was estimated that the Malaysian population aged over 65 years stood at 6.7 percent. Malaysia is currently facing the prospect of an aging population, and the latest statistical data predicted this to be happening as soon as in 2030.

In a simplification, Muslims are the majority in Malaysia, and we are looking at the more significant rate of retirees as the year goes.

However, are we truly ready for it? According to a recent survey by the Credit Counselling and Debt Management Agency (AKPK), more than 50% of Malaysians may not be financially ready for retirement. While the figure alone is already scary, what been happening, in reality, is even worse.

We start to see the senior citizens who now need to continue working despite their retirement and against their suitability due to financial constraints and weak to no financial planning. Those with completely empty retirement savings within not even a few years without accomplishing anything contributing toward financial freedom – to name a few.

Why Islam Encourages Us To Plan Their Lives In All Aspects?

Islam encourages Muslims to plan their lives economically and financially to achieve the objectives of Shariah (Maqasid al-Shariah). As Islam governs all aspects of life, it takes full cognizance of how Muslims gain and spend their money, including wealth.

Even though the child should look after their parents, especially when the recipient becomes too old and incapable of sustaining themselves, however, with a good understanding by the parent that their children are responsible for their own families, too.

The need to plan one’s retirement becomes more evident as the years pass. Retirement planning becomes more significant as the financial impact and demands of modern society take their toll on the grown children’s lives. Then once the cost of living increases, the ability of the children to care for other people other than their immediate families will become increasingly difficult.

Hence, one should consider the Islamic retirement planning tools and processes as one’s preparation to be independent financially when one is old or retires from one’s job.

Aspects Of Islamic Retirement Planning

Retirement planning is one of the elements of Islamic financial planning and wealth management. Retirement planning is a process that includes a comprehensive review and analysis of retirement income, retirement goals, and investment strategy.

The purpose of retirement planning is to coordinate the financial resources available so an individual can plan for a financially secure retirement or reduce financial risk during retirement.

Role Of A Financial Planner

To build a retirement planning is not an uneasy task. That is due to while everybody has an opinion on how to plan their financial needs, the truth is, a wholistic plan from a financial planner point of view, it should start with assessing the future income needs of an individual.

Followed by financial objectives need to be established so that the retirement plan would have a clear target on how much future come to need to be achieved. Also, the retirement plan must align with the projected future income.

The most crucial part for the Muslims here is to ensure that shariah compliance must be taken into account. It is essential to make sure the retirement plan is free from prohibited elements, especially riba.

Even if one claims that they are ready for retirement period and have a clear set of financial and lifestyle visions and goals, it is always encouraged for them to seek advice from experts such as Licensed Financial Planner.

That because only a financial planner specializing in that area, to giving any pieces of advice or a financial planner, can be aware of several common missteps that many fall victim to, even those with a plan.

Retirement Hazard

Many fields might fail to notice by one person when it comes to retirement planning. The most common mistakes made when we talked about retirement planning are lack of preparation of finances related to the impact on one’s health, misjudging how long one or one’s spouse will live, presuming a longer working life. Many take lightly how to prepare for and live in retirement.

To conclude, the retires worker’s situation is different from his previous situation during the working time with a specific income. Hence, everyone must prepare for their retirement by planning. In other words, planning one’s retirement is similar to planning against the risk of premature death.

The preparation should be holistic from the financial planning overview. It should be avoided element that is prohibited in Islam such as riba, gambling, gharar, etc. The planning should also prepare for the religious obligation that, as Muslims, we need to perform hajj, payment of zakat, and the recommended donations, helping the poor and needy.

About the Author

Nuraishah Hanani Abdul Ghani is a Certified Islamic Financial Planner with a demonstrated history of working in the banking industry.She has a strong finance professional background with a focus in Islamic finance and is a graduate from Universiti Islam Antarabangsa Sultan Abdul Halim Mu’adzam Shah (UniSHAMS) in Ba (Hons) Islamic Finance and Banking, Master in Chartered Islamic Finance Professional (CIFP) from INCEIF and Certified Islamic Financial Planner (IFP) from IBFIM.

We at Smart Investor and Wealth Vantage is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxWealthVantage

May 25, 2022
Unit Trusts, The ‘Safest’ Investments For Beginners In Malaysia?
Are you new to investing? Well, a lot of choices out there that can be used as your investment platform. But in this article, we will look more into one of the investments offered in Malaysia which is unit trusts.

Do you know what unit trust is? Maybe we heard it before but do we know how unit trust works? Is it better than any other investment scheme or is unit trust the safest investments for beginners?

Maybe this article will help you to understand more about this product, unit trust. Be advised that investment goals vary for each one of us. It also depends on our investment goals to decide on which type of product or platform suit us well.

What Are Unit Trusts?

Unit trusts can be simply said as mutual funds that will be invested in various places. It holds assets that will turn into profits which will be given to the investors. It pools money from various investors to invest in assets such as bonds and equities. Fund managers will manage the investments for you. All you need to do is just relax and enjoy your daily life.

But hey! You should understand that investing has its own risk. Your investment may be profitable or you may face some losses.

It’s good that we know and understand a few basic things in unit trusts.
1. Unit Trust
  Have you heard about Amanah Saham Bumiputera (ASB)? The concept is about the same. ASB is one of the funds in unit trust but it’s only for the Bumiputera. ASB will give you bonuses and dividends as your profit while you will gain profit from unit trusts via dividends and the increment of the funds’ price per unit.
2. Unit Trust Management Company (UTMC)
  Malaysia Security Commission (SC) monitored UTMC. For UTMC to operate in Malaysia, it will need approval from the Central Bank of Malaysia and the Ministry of Finance. Based on the report by SC, there are 39 approved unit trust management companies in Malaysia as of March 2022.
3. Fund
  Based on the same report from SC, there are 761 authorized funds and 279 of them are shariah-compliant funds.
Is It Safe To Invest In Unit Trusts?

As what being said before, any investment will have its own risks. Depending on our risk appetite, we can choose our investment that can cater to our needs in investment. Unit trusts make it easy to diversify our portfolio but different funds will have different risks and rewards. I’m sure that you’ve heard this before, but a high-risk investment will provide you with a high return. Be in mind that not only you’ll be served by a high return but there’s a chance your investment might not work well and prepare for your losses (most probably with high losses too!).

What Are The Fees Incurred In Unit Trusts Investment?

Unit trusts investment use fund managers to manage our pool of money to invest. There are fees that need to be paid even if the investment are not profitable.
1. Management Fee
  Charged once a year
2. Trustee Fee
  Charged once a year
3. Switching Fee
  Charged when switched to another fund
4. Redemption Fee
  Charged when unit sold
5. Sales Charge
  Charged for each ‘buy’ transaction
Safest Investment For Beginners?

Have you understood what unit trust is now? At least, you get a rough idea of what and how unit trusts work.

Do you think that unit trusts are the safest investment for beginners? Well, the answers are yes and no. Each one of us has a different risk appetite. Before you make any investment decision, make sure that you’ve studied and understand on how things work.

Don’t rush and jump into something that you’re not well of. Investment is a journey. It’s not some kind of Skim Cepat Kaya.
May 24, 2022
Selecting The Right Investment Funds For Your Retirement Portfolio

Investing for retirement is undoubtedly an investor’s biggest goal. After all, a successful retirement is not a birthright but something one must earn through hard work and proper – if not cautious – planning.

However, those approaching retirement have found themselves in a unique position today, with the Covid-19 pandemic giving way to market volatility. Businesses across almost all industries are affected, as are share prices, and the concern about losing money is one that equity investors know better than to take lightly.

Upping Your Nest Egg Game Plan

“By not investing, you are losing your purchasing power by almost 1% each year,” Alpine Advisory director Gor Sheau Shuenn tells Smart Investor.

As a result, most of the soon-to-be-retirees hesitate to retire and suffer from the ‘one-more-year’ syndrome, which sees them staying in the current job for one more year before they retire.

“For those who do not have the luxury of delaying their retirement, they will worry for their slowly-depleting life savings and thus, defeating the objective of retiring in the first place, which is to have a rewarding and worry-free life,” he adds.

Gor’s suggestion for those whose retirement is on the horizon?

“Start looking into your personal finances. You will need to understand how your retirement life is going to look like, and what are the possible hurdles and hassles that may affect your nest egg.

“Most of the time, retirees do not actually deplete their money by spending it on themselves but rather, to sponsor their children’s dreams or their parents’ medical expenses, or even dealing with the aftermath of a wrong investment decision.”

Therefore, he continues, every pre-retiree should have their financial plan on the table at least five years before they plan to retire. This enables them to adjust to their lifestyle, settle unwanted loan commitments and prepare adequate funds to sponsor their loved ones’ dreams, which will then prevent any premature withdrawals from their retirement fund.

Where To Put Your Money?

In general, as a person approaches their retirement (say less than three years), the less risk they are able to take.

“Given that today’s investment environment can be said to be uncertain with interest rates at a multi-year low, stock market valuation above their long-run fair valuation and an economic outlook that remains weak, it is only prudent to err on the side of caution,” Maybank Asset Management Sdn Bhd Head of Investments, Unit Trust Chen Fan Fai explains.

Having said this, the main chunk of a person’s capital should be allocated to low-risk assets like fixed income so that the income generated from coupons can at least match their minimum cashflow requirements without having to dip into capital.

Balancing the need for yield in these low-interest rates environment and the possibility of rates moving higher in the coming years, a duration of five to seven years may be considered.

“Should there be a surplus capital after the exercise, the balance can be invested into higher-risk assets such as REITs, equities and precious metals depending on one’s appetite for risk and desire for capital growth,” Chen adds.

Rethinking Financial And Retirement Strategies

The current market conditions and the pandemic should force you to rethink your financial and investment strategy for retirement.

“Again, time to retirement is an important factor to take into account,” Chen opines, adding that in situations where the time to retirement is relatively short, uncertainties like an on-going pandemic take on added importance.

“However, assuming that time to retirement is far longer – 10 to 20 years, for instance – then it may not be that critical and investors should place more emphasis on an asset with long-term return to enable them to achieve their retirement nest egg.

“In this case, we are talking about a riskier asset with higher long-term return potential.”

The underlying assumption made here, says Chen, is that all asset classes undergo periods of under- and over-performance as they go through different economic cycles and event risks. “However, when given enough time, they will revert to their long-run returns.”

For Alpine Advisory’s Gor, the investment objective during retirement would primarily be capital preservation while your retirement income strategy would encompass the timeline and the amount that you would receive in dividend income, fixed deposit, and/or business dividend pay-out, etc.

As such, a full roadmap of a retiree’s or soon-to-be-retiree’s monthly cashflow statement (which includes large annual expenses such as insurance premiums, car insurance renewals, road tax renewals and assessment tax, for example) is crucial.

At the same time, they will also need to consider incoming cashflows from multiple investment portfolios that will continue to generate passive investment income, and also the capital appreciation to generate enough income to fund the living expenses as laid out in their financial plan.

“Despite retiring soon, you shouldn’t forget that you could possibly live on for another 20 to 30 years, and should therefore diversify your investment into different time horizons – short, medium and long term.

“The advantages of having separate portfolios is to serve as an indicator as to how disciplined a retiree is in terms of his expenditure during retirement.

“This way, you wouldn’t have to panic sell during an economic downturn (if the underlying investment asset is solid) and become stressed out when there is no monthly income credited to your bank account in the first few months of your retirement,” Gor explains.

Building A Resilient Retirement Portfolio

One of the most important factors to take into consideration when building a resilient and growing retirement portfolio is diversification, says Maybank Asset Management’s Chen.

This is in addition to time to retirement, the required rate of return to reach retirement sum, the ability to take on risk and the long-run return and risk of different asset classes.

“We are talking about diversification of not just asset class but also investment style or diversification of fund managers as history has shown time and again that even the best plan can go wrong,” he explains.

With a plethora of investment products in the market with different characteristics that investors can consider, Chen further points out there are many ways to invest for one’s retirement, and everyone has their own personal circumstances.

That being said, there is no standard solution, and the important thing is to keep in mind the aforesaid factors as you go about planning for your retirement.

“One seemingly obvious solution is to buy a fund (or a few of these funds to diversify across fund managers) that are specifically tailored for retirement needs. These funds are commonly known as lifestyle or life cycle funds and they will normally specify the year when retirement is expected.

“An investor will then choose the fund that matches their retirement year. Essentially what the fund does is gradually rebalance the investor’s asset mix to reduce risk as the retirement year edges closer. However, the results have been mixed,” he reveals.

The second option is to construct a portfolio of funds yourself or with your financial advisers taking into consideration the previously-mentioned factors.

“To do this well, you and/or your financial adviser will need to have a good understanding of the financial markets. In general, I find mixed asset funds and absolute return funds to be very useful building blocks for a retirement plan,” says Chen.

Helping Clients Achieve Their Retirement Goals

Before deciding on any form of investment, Alpine Advisory director Gor Sheau Shuenn believes one must have a clear understanding of their current financial position. And based on that, the next thing that needs to be done is to determine the gap between what one has now and their retirement goal.

Why is this important?

“Look at it this way. You see a doctor for pain in one of your knees, telling the doctor, ‘My knee hurts’ and stopping at that. What do you think the doctor will do? Surely, he will ask ‘Which knee, what kind of pain, when did it start, was it a result from a fall?’

“The doctor will then proceed to examine your knee to determine whether there is a fracture or is the knee just inflamed. Only then will the doctor prescribe the necessary medication.

“Investment is like that. In order for you to decide how and where to invest, you need to have a clear idea of how much you have, how much you need and how much time you have to achieve it.

“Investing without a purpose is like sailing out into the seas without a sail, rudder and compass – you will most probably get swept away by the undercurrent, or worse still, capsize during a storm,” he explains.

Once you have determined all these, the next step is to allocate the right proportion into bank saving accounts, fixed deposits, bonds, shares, mutual funds, properties, lands, antiques and other alternative investment products.

Your investment journey is not about finding the best product to invest in but about finding the right product that meets and suits your retirement needs, he adds.

“The most important thing you need to remember is to never invest in something you do not understand, especially when it comes to how the product is managed. Cliched as it is, when something sounds too good to be true, it normally is,” says Gor.

May 24, 2022
Housing Loan In Malaysia: What Is Debt Service Ratio (DSR) And How To Calculate DSR?

Most of us are now more concerned about the rising of housing prices in Malaysia. Sometimes, we fear that with the rise in the housing price Malaysia will affect our dream to own a house.

Well, are you thinking of applying for a housing loan in Malaysia to buy the property you dream of? But, did you know whether your application will most likely be approved or not? It’s easy. You don’t have to worry. Before applying for a housing loan, you can do some self-checking of your loan eligibility based on the Debt Service Ratio.

What Is Debt Service Ratio (DSR)?

Simply put, DSR is a calculation made based on your income and your commitments. From here, the banks will calculate your DSR and see whether you can afford the loan you are applying for. It has its own formula and keeps in mind that each banks vary its DSR limit.

In terms of a housing loan in Malaysia, this formula helps the bank to get to know your commitments which then will be considered whether you’re eligible for the loan you’re applying for.

It’s based on your monthly net income and the total commitments that you have to pay every month. For instance, your car loan, student loan, personal loan, and any other loan that you need to commit monthly for payment. The bank will see and decide whether the loan you’re taking is within your financial limit.

At the end of the day, the bank has to be very selective and careful. They’re not doing some charity work but a profitable institution. DSR is one of the main factors that banks use to determine your borrowing power.

Your DSR is then compared to the bank’s maximum DSR limit. If your DSR is within the limit, then you’re one step closer to get your housing loan approval.

Remember! Every bank has its own DSR limit. DSR is not the only criteria for a housing loan to be approved but it is one of the main factors that banks consider.

How To Calculate DSR For A Housing Loan?

As explained above, DSR is calculated based on an individual’s net income. Whatever income that you gained after the deduction of income tax and EPF, then it will be divided by your total monthly commitments such as car loan, personal loan, PTPTN (student loans), credit card bills, and the housing loan that you’re applying for. From there, it will be multiplied by 100 to obtain Debt Service Ratio in percentage.

The formula is,

DSR = (Debt / Net Income) x 100

It’s very useful for you to calculate your DSR before applying for a housing loan in Malaysia. This will help you consider whether or not you’re pursuing a housing loan application.

For a better picture, let’s take RM7,000 as your net income. Your monthly commitment in total is RM3,000 while you’re now applying for a housing loan with a monthly payment of RM1,200. Both will sum up to RM4,200.

Divide the figure (RM4,200) by RM7,000, then multiply that by 100 and your DSR is 60%. Most of the banks in Malaysia has DSR limit at 60% to 75%.

May 23, 2022
Embracing Creativity While Breaking Norms With Unconventional Methods

Non fungible tokens or NFTs is a debatable subject having come into existence since 2014. However, marketing agency Jumix Sdn Bhd is determined to grab the bull by the horns and turn the buzz into more than just a fad with BeUtopia – a universe where characters called BeU live in.

“We believe that this approach (NFTs) will change how brands and businesses work in the future. First, we need to get brands familiar with the concept and then offer to help them from end to end in campaign launches,” said Sanz Teoh, Chief Executive Officer and Founder of Jumix.

Introducing the firm’s project BeU, Teoh explains that Jumix’s initiative is for anyone who feels misplaced in society for the sole reason of choosing to be different, or out of the norm. The BeU are inspired by Matryoshka dolls known for their representation of a mother carrying a child inside her.

“Prints on prints, inner-wear worn as outerwear, tattoos and piercings as a sign of expression rather than representation; this is why our NFTs are unconventional looking. Our community aims to include all walks of life, including the creative people but most importantly, we want to create a safe space where everyone can embrace their strengths and weaknesses and just be themselves in BeU,” he adds.

Citing many NFT campaigns that have failed because it was seen as fad, Jumix is committed to change this perception. Renowned brands like Adidas, NIKE, Gucci and FMCG brands are starting to invest in NFTs and the interest is expected to flourish.

Acknowledging possible resistance to the new marketing approach, Teoh said: “We cannot change the adaptation rate in Malaysia but we are looking at brands who no longer believe in fax machines, mobile phones with a physical keypad and opting for things that are digital because it is more sustainable, convenient and beneficial.”

An NFT is constructed with the same type of programming as cryptocurrency but it is a digital asset that represents objects like art, videos, music, or in-game items. Each NFT bears a digital signature or a unique identifying code. They exist on a blockchain – a public ledger that records transactions.

Globally, the use of NFTs is spiking, and in 2021 it developed into a US$40 billion market. Research hub Finder released a survey indicating that the Southeast Asian (SEA) market will take the limelight in 2022 as the region’s interest is growing and has the highest adoption rates, worldwide.

The online survey consisting a polling pool of 28,000 from 20 countries ranked the Philippines first with 32% ownership, while Thailand scored second with 27% and Malaysia (24%) at third position. The rankings prove that SEA may be driving the international NFT ownership for the near future.

Calling out to brands that are willing and ready to join the evolution of marketing with NFTs, Jumix commits itself to bridging the gaps and to help propel businesses and technology into the future to reap what it has to offer.

“We will not use the word guarantee for success in a campaign, especially in the world of marketing, but we want to help our clients greatly improve their chances at success without losing out on costs, time and manpower coupled with a big amount of risks.

“Jumix has had our own humble experience at this ourselves. Our NFT journey was not easy but when you know what you are doing, have done it yourself, had good data and evaluation of it, it will help reduce risks and increase the chances for success and that’s why Jumix should be the choice for brands who want to explore NFTs,” Teoh adds.

Some 10,000 BeU collectibles will be available for sale from mid-May, and hosted on the Polygon blockchain, where collectors can mint without paying for hefty gas fee (the transaction fee on blockchain). There will be different stages to the project, each to involve and engage with the community.

“Upon selling 2,000 collectibles (20%) we will organise a donation to a charity organisation that will be decided upon by our community. Upon reaching 40%, we will create an AR filter for our users then at 60% we will launch merchandise for the owners of BeU.

“At achieving 80% sales, we will create an actual 3D life-size doll for 30 of our BeU owners and upon reaching 100%, we are looking to create a game for our community. There are many other plans that we have in the pipeline but ultimately we want the people and our clients to know that Jumix is ready to help them grow from start to finish with NFTs,” Teoh adds.

About Jumix

Jumix is a creative marketing agency, focusing on branding, web design, and digital marketing. Jumix served clients from Malaysia, Singapore, Australia, United Kingdom, Japan, Taiwan, Hong Kong, United States, New Zealand and China.

May 23, 2022
What Are Initial Exchange Offerings (IEOs) And Should I Invest In Them?

Earlier this year in March, the Securities Commission of Malaysia (SC) announced the approval of two operators to conduct Initial Exchange Offerings (IEO). This is an exciting and consequential development because IEOs create a whole asset class for investors with new financial instruments.

Just as SC became the first to regulate equity crowd funding (ECF) in Southeast Asia in 2015,[1] IEOs are poised to launch our local capital markets into the digital asset age.

However, public interest seems subdued. The public is largely unaware of what IEO is, without much investor education or media attention out there. Some just think this is another ECF clone.

Or maybe the news got overshadowed by the digital banks announcement that came weeks later. Furthermore, since IEOs are digital assets which are similar to cryptocurrencies, there is a certain stigma to overcome.

This three-part article series aim to explain IEOs from the perspectives of (1) the investor who buys these assets, (2) the issuer who sells these assets, and (3) the operator who runs the platform that brings investors and issuers together. Hopefully this can simplify, in ordinary business language, some of the technical concepts related to IEO investments.

It also presents some of the challenges and limitations of IEO in its current state which smart investors like you may consider before coming onboard.

What Are Initial Exchange Offerings?

Basically put, these are privately issued assets in the form of digital tokens. Privately held businesses, which must be tech-related and can be of different maturity stages, can issue these tokens and sell to the investor public for the purpose of fundraising of up to RM100 million. This activity can be only performed through the IEO operators within a regulated setting.

You’d be surprised that the IEO name itself is somewhat misleading as there is no exchange involved. None of the digital asset exchanges (DAX) in Malaysia are allowed to place out IEOs. The commonly used name is Initial Coin Offering (ICO), but this has a negative connotation as it conjures memories of scams back in the day.

For ease of understanding, an IEO works like an Initial Public Offering (IPO) – where a company that wants to go public will issue and float its shares in the open market. In the context of an IEO, digital tokens are used instead of shares.

Wait, Digital Tokens Are Not Shares?

Our domestic law makes it very clear that digital tokens are neither shares (equity) nor debentures (debt).[2] It should also not be confused with unit trusts. In other words, please don’t expect to get payouts in the form of dividend or interest when you invest in these tokens. You also don’t get to have voting rights or attend annual general meetings like normal shareholders do.

Since this is not debt, you are generally not considered a creditor to the company that issued the tokens to you. And assuming that your tokens are not secured to assets of the company, you won’t know what your priority of repayment is if the company goes under. Therefore, it is important to ascertain the exact nature of your rights before you invest.

If digital tokens are not shares, what are they? That’s a good question.

They are prescribed as securities, which are defined in the Capital Markets and Services Act (CMSA) 2007 as shares, debentures or unit trusts, or “any right, option or interest in respect there of”. The latter sentence will presumably take on an expansive meaning depending on how creatively structured the tokens are.

One thing to remember: It is always sensible to approach and analyse these tokens like an investment contract. What underlying asset is your money going into, what is being represented and promised to you, and what are the downside risks including the worst-case scenario?

Are These Investment Products Legitimate?

Being legitimate is not necessarily the same as being legal. Digital tokens have the legitimacy as a regulated financial instrument, and they are handled by recognised market operators (RMO) with the oversight of SC. The legal certainty of it, however, is another matter.

Digital tokens are not legal tender, and each token offering is different based on its own set of facts. As and when disputes arise, they will have to be brought before the judicial courts to decide on the legal merits.

According to the landmark case Luno Pte Ltd & Another v Robert Ong Thien Cheng, it was decided (and affirmed on appeal) that digital assets like bitcoin can be used as consideration to seal a contract between parties. There is value attached to digital assets in the same way as value is attached to shares.[3]

Nevertheless, there are questions with respect to how digital tokens, which use ‘smart contract’ code, can effect legally binding signatures between two parties. It is also important to note that the rights in contract differ significantly from the rights in property which are more complex. Whether digital assets can represent legal and beneficial interests in real property have not been ascertained yet.

In fact, courts around the world are ruling on whether digital assets, in their intangible or incorporeal form, can be rightfully considered ‘property’. There is no legislation in Malaysia to recognise them as such. There is also an insufficient body of precedents here and in other Common Law jurisdictions to make a conclusion at this stage.

Ultimately it depends on the financial engineering of the tokens, for example, whether the tokens represent ownership of property assets, or are backed by them as collateral, or are merely claims. You will need to read the fine print carefully.

Who Are the Target Investors?

While retail investors can participate in these offerings, they are limited to RM2000 per issuer and a grand total of RM20,000 within a 12-month period. If Alice picks Company X, she can only invest a maximum of RM2000 in its tokens. If Alice has more cash to spare, she will have to spread it to other companies.

This way, Alice can limit her exposure to Company X and stop-loss at RM2000. But it also means she cannot meaningfully participate in the upside of Company X if its tokens eventually grow by leaps and bounds.

The objective of this regulatory limit is to protect ordinary folks like mom-and-pops from putting too much money on these investments which are intrinsically risky. On the other hand, accredited investors and those with high net worth have no such limits imposed on them.

Can I Sell and Trade Digital Tokens?

At this point, IEOs are offered only at the primary market level, that is, between the issuer and the end investor. There are no guidelines from SC to open up the secondary market yet for trading among investors.

In other words, Alice cannot transfer her tokens to Bob. Eventually this will be facilitated by the four registered digital asset exchanges (DAX), which will need to comply with the admission rules for listing IEO tokens.

Given that IEO platforms have not even started operating, and have been given nine months to prepare, you will not see the trading of tokens in the immediate future. Which means that investors will not have the options to exit freely in the open market yet.

In a sense, investing in an IEO can be less liquid than investing in a close-ended fund (CEF). There are no new tokens issued and no new investors onboarded once the offering closes. Investors can neither redeem their tokens from the issuer nor expect repurchase or buyback.

Even if the tokens are listed, there is also the question whether the secondary market and price discovery process will be vibrant enough to make it worth their while.

In the next two articles, we will dive into how tech businesses can capitalise on IEOs, the benefits compared to conventional funding strategies, and the potential problems. While IEOs can democratise venture capital (VC) investing for ordinary investors and change the way entrepreneurs raise funds, the Malaysian context is quite unique from global practice and needs to be taken into account.

About the Author

Edmund Yong is the managing partner of Celebrus Advisory and appointed by MDEC as part of its Talent Expert Network (formerly known as Digital Expert Panel) for blockchain technology. He is also the resident consultant for GLT Law, a multi-award-winning legal practice with specialisation in digital assets. All opinions expressed are the author’s own.

Resource:

[1] https://www.sc.com.my/resources/media/media-release/sc-introduces-regulatory-framework-to-facilitate-peer-to-peer-financing

[2] Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019.

[3] Robert Ong Thien Cheng v Luno Pte & Another (Civil Appeal No. 12BNCVC-91-10-2018), Shah Alam High Court.

May 23, 2022
8 Healthy Financial Habits To Build Your Financial Freedom Fund
As our lives gradually regain some normalcy after years of restrictions, many businesses too are starting to get back on their feet and (hopefully) make up for lost time.

Most of us, whether salaried employees or business owners, were likely to have our income streams affected to a certain extent during the Movement Control Order (MCO) period of limited operation and closures.

At the same time, we are also concerned with the state of our financial situation especially if we have dependents, fixed commitments and stacks of bills to pay at the end of every month.

During trying times like these it is natural for us to imagine a future where we do not have to deal with the daily stress and pressure of depending on continuous monthly income just to ensure that household expenses are covered.

If only we could be free of financial burdens, then our lives could be better spent with our loved ones, sans the worries and sleepless nights thinking of bills and more bills.

Many may wonder how would it be remotely possible to one day achieve financial freedom when there are countless other pressing financial issues on the table that need to be dealt with, particularly in the aftermath of the MCO.

One thing is for sure; financial freedom is not an overnight transformation, neither is it going to happen by chance such as striking a winning lottery ticket.

We Will Bounce Back Stronger

It will take time and there are no guarantees that the process is going to be a bed of roses without sacrifices along the way. But with the right mindset and attitude, financial freedom is an attainable goal for more people than you would imagine.

However, before you attempt to dive headlong into it and say “Tell me the 5 things I need to do to achieve financial freedom”, I have to be upfront that there is no standard magical formula because financial freedom means different things to different people.

Therefore, you need to first understand what financial freedom means to YOU, then and only then can you chart your financial path towards that goal by implementing good long-term financial habits.

While financial freedom may have varied definitions for every individual, there are a few common ones that many of us share, such as:

1. Having sufficient assets or income to support your expenses and financial goals

2. Having assets that generate sufficient income to cover expenses

3. Not being dependent on active income generation

4. Doing what you love (for passion) rather than working for money

You may find that more than one definition of financial freedom relates to you which you wish to achieve, and that is perfectly fine as these goals are not mutually exclusive. Many individuals have a combination of financial freedom goals to aspire towards, sometimes at different stages in their lives.

Having identified what your financial freedom goals are, the next critical step is to determine your financial freedom number. This refers to your targeted financial freedom fund amount that you require in order to achieve your set goals.

Knowing what number is right for you and why it is so is important because the number is, by all accounts, a goal in itself and should be one that is specific, measurable, achievable, realistic and time-bound (SMART).

The way to go about determining your financial freedom number is by asking yourself these few questions:

a) What kind of retirement lifestyle do you aspire to have?

While typical idyllic responses tend to be “travel the world”, “play golf daily” or “look forward to grandchildren”, don’t forget the potential scenarios that are closer to home such as:
- Any outstanding loan commitments? You may want to replace your executive sedan with a more fuel-efficient vehicle, so don’t forget to factor in a car loan if any.
- Will your children have completed their university education by then and be able to start working? Best be prepared that fresh graduates may not be able to find a suitable job immediately and you may be required to help support them for a little while longer.
- Any plans for home renovations or modifications to make it more senior friendly?
- Additional health-related expenses that you may not be spending on now but are likely to do so in future, such as comprehensive medical check-ups or procedures that may crop up eventually like cataract operations or joint replacements.
b) What is the cost of that retirement lifestyle in today’s value?

c) What will it cost in the future, after factoring in inflation?

Once you have a financial freedom number with a big red bullseye painted on which may be cause for concern because as far as you are aware, all they money you currently have in your savings, EPF, insurance and retirement fund is not even close to that amount.

But you still have an advantage in terms of time which is why the sooner one determines his/her financial freedom goal, the better.

With more time ahead of you, funding your financial freedom is doable and the best part is that you will be in better control of how you want to achieve it. You will not have to subscribe to any “Secret tips for financial freedom” by a glorified money guru telling you to invest X amount in this, buy Y worth of that, etc.

A viable way to fund your financial freedom is by adopting the following 8 healthy financial habits and values that have been tried and tested:

#1. Automate your savings and invest in diversified investments instead of going for the ‘hot’ market investment ideas;

#2. Aim to increase your savings rate every year to correspond with your salary increment;

#3. Be mindful of personal lifestyle inflation where there is a tendency to upgrade your lifestyle at the expense of savings which should be the priority;

#4. Avoid falling for the herd mentality when societal and peer pressure influence your spending decisions. Financial matters are personal and should not be a reason to keep up with the Joneses due to fear of missing out;

#5. Pay attention to good debt vs bad debt when making investments to identify which has the potential to appreciate, for example taking a car loan vs an education loan to upgrade your skills;

#6. Diversify your income streams so that you do not become over reliant on any single source;

#7. Optimise your time well to maximise productivity. This means consider monetising your free time whilst in pursuit of your interest. For example, if you love to paint as a hobby, why not put your works of art up for sale?

#8. Leverage on the expertise of others. If you find yourself too busy or lacking sufficient technical know-how to manage your financial affairs, it is good to seek advice from the professionals. Just make sure that you select the right person to speak to, one who is knowledgeable, trustworthy and reliable.

The key to achieving your target financial freedom fund (which also translates into meeting your financial freedom goals) is to start by incorporating the right behavioural changes when it comes to making financial decisions. You will soon see that it is not an impossible dream to achieve that target number after all.

In fact, you may even discover that by consistently practicing these 8 healthy financial values in the long run, the finish line of your financial freedom marathon can be nearer than you think.

About the Author:

Felix Neoh CFP ^{CERT TM} is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth
May 20, 2022
What Happens To Your Body When You Stop Exercising?

Exercise encourages your brain to work at optimum capacity by causing your nerve cells to multiply, strengthening their interconnections, and protecting them from damage. There are multiple mechanisms at play here, but some are becoming more understood than others.

The rejuvenating role of brain-derived neurotrophic factor (BDNF) is one of them. BDNF activates brain stem cells to convert into new neurons. It also triggers numerous other chemicals that promote neural health.

Promote Intelligence And Better Mood With Just 20 Minutes A Day

A number of neurotransmitters, such as endorphins, serotonin, dopamine, glutamate, and GABA, are also triggered by exercise. Some of these are well known for their role in mood control. Exercise, in fact, is one of the most effective prevention and treatment strategies for depression.

BDNF and endorphins are two of the primary factors triggered by exercise that help boost your mood, make you feel good, and sharpen your cognition. So, how much do you have to exercise in order to maintain a sunnier disposition and better memory long-term?

According to a 2012 study published in the journal Neuroscience, the ‘secret’ to increased productivity and happiness on any given day is a long-term investment in regular exercise. And a little each day appears to go further than a lot once or twice a week.

Here’s What Happens When You Stop Exercising

You probably expect that your muscle tone will take a beating once your workouts stop, but less expected changes will occur throughout your body. One of the first places to experience the repercussions may actually be your brain.

Research published in the journal Frontier in Aging Neuroscience revealed that endurance runners who skipped exercise for 10 days had reductions in blood flow to their brain’s hippocampus, which is a region associated with memories and emotions.

After about two weeks, meanwhile, your endurance may suffer, which means you may find yourself slightly more winded if you need to quickly climb a few flights of stairs. This is because of changes to your VO2 max (also known as maximal oxygen intake).

VO2 max is defined as the maximum volume of oxygen you can utilise in one minute of maximal or exhaustive exercise, and it’s used as a measure of endurance.

If your workouts take an even longer hiatus, you can expect increasingly noticeable changes to your body, both physically and aesthetically. You may start to notice your strength slipping after about two or four weeks with no activity. And after about six to eight weeks, you may start to gain weight.

There Are Times When You Should Skip A Workout

Skipping workouts generally isn’t recommended – unless you have one of these five valid reasons for not working out.

You’re sick – If you have a slight cold and you’re not overly tired, a quick workout can be beneficial in that it raises your body temperature and might help to fight off viruses;

You’re injured – Regular exercise can help you to prevent many injuries, however you’ll want to avoid exercising an injured area of your body. If you have a shoulder injury, you may still be able to work out your lower body (or vice versa), so long as you don’t aggravate the injured area. Avoid activities that cause pain and, if the injury is going to take a long time to heal, work with a physical therapist who can provide you with a safe exercise plan that promotes healing;

You’re exhausted – If you’ve had a poor night’s sleep, you may be better off sleeping in than getting up early for your morning workout. Like exercise, sleep is also essential for your health, and you generally don’t want to sacrifice one for the other. It’s difficult to catch up on sleep once you’re sleep-deprived, so make sleep a top priority. This isn’t an excuse to hit your snooze button daily, however;

You overdid it and you’re extremely sore – Delayed onset muscle soreness (DOMS), or the muscle soreness you’ve experienced one to two days after exercise, is caused by inflammation stemming from microscopic tears in your muscle fibres. DOMS is normal and is not typically a sign that you should skip a workout; or

You’re having a marathon day – We all have those days when our schedules are jam-packed. Trying to fit in a long workout on such a day may not be in the cards. It’s OK to skip your workout when you get too busy – once in a while. However, resist using this all-too-common excuse to not exercise too often. The truth is, most of us are quite busy, so you need to make exercise a priority.

Regular workouts will help you to stay focused, think clearer and get sick less often. So, what’s not to like? It does take time, commitment and hard work, which is why the exercise programmes that last will be those you find most enjoyable. The key word is ‘enjoy’.

The more you look forward to your workouts, the more likely you are to keep doing them. As an added bonus, most people feel great after they workout, which provides additional motivation to keep going. If you don’t feel good after your work out – for instance you feel exhausted instead of energised – this is a sign that you may be exercising too much and need to take more time for recovery.

About the Author

This article was brought to you by Dr Mercola, a New York Times bestselling author. For more helpful articles, please visit Mercola.com

May 19, 2022
Retiring Early Thanks to Financial Independence, Have You Heard Of The FIRE Movement?

If you were to ask the average millennial about how early they would be able to retire, chances are you would get varied responses. However, it is unlikely that any of them would be aiming to retire before the age of 50.

That is where the concept of FIRE comes in.

What Is FIRE Movement?

It stands for “financial independence, retire early” and is a growing movement worldwide. In short, proponents of the movement aim to save a large portion of their income (up to 70% or even more!) and aggressively invest in order to hit a set number they feel comfortable with for retirement.

The aim is to hit this number far earlier than traditional work structures after which they become financially independent and can “retire” or pursue work or projects they are passionate about.

Proponents of this movement suggest the “4% rule” as a guideline – the goal is to accumulate 25 years’ worth of annual living expenses through various investments, and withdrawing 4% per annum, assuming it generates at least that much in passive income.

This is unlikely to diminish the portfolio, and individuals that have reached this level can be considered financially independent, with any form of employment or work now optional instead of necessary.

4 Varieties Of FIRE Movement

Fat FIRE: This allows individuals to live a more traditional or typical lifestyle, but also requires saving more than the average retirement investor. It usually allows for luxuries like fancy meals, holidays and gadgets depending on the amount saved up.

Lean FIRE: This model requires a strict commitment to follow a minimalist lifestyle with little expenditure and extreme savings. An individual can achieve this when they have saved and invested 25 times their annual expenses while also spending less than the average person.

Barista FIRE: This form refers to devotees that do not follow a set 9-to-5 job, but do work in some capacity on a part-time basis to cover necessary expenses that would otherwise have them tap into their retirement nest egg.

Coast FIRE: This can also apply to followers that have a part-time job, but who have already saved up enough to fund their retirement and living expenses (thanks to compounding investments), allowing them to “coast” towards retirement.

Julian Ng, co-founder and CEO of robo-advisor Akru, believes that the FIRE movement is intriguing and helps people think beyond the realm of what is considered financial normalcy.

“I thought it not only had interesting financial planning principles but also life angles,” he remarks, adding that FIRE devotees did not have to stick to the concept of only being able to retire when they are older.

Ng believes followers of this movement are tired of being stuck in the rat race and want to work towards other goals that offer fulfilment. Corporate highs to be replaced by personal pursuits and leisure. The latest gadgets and cars substituted with experiences and time with their loved ones.

“I think they plainly want a life. They want to spend time on things that matter like family, friends and their passions. They also value health and emotional wellbeing. In terms of bigger life philosophies, they figured out that they do not need to have caviar and business class all the way. They are a bit minimalist in that sense, although they are also financially very comfortable.”

Early Retirement?

According to Malaysian law, the minimum age of retirement of an employee in the private sector is 60 years of age. There have been calls to raise this number to 65, meaning that the average person could potentially work for over 40 years before calling it quits – hardly a tantalising prospect to most people.

Although following the FIRE movement potentially offers a way out for weary millennials, not everyone is specifically aiming for an early retirement.

“Personally, I’m aiming for the FI part of FIRE as I don’t plan to retire early,” says Leigh, the founder of popular investing blog Dividend Magic, who aims to have a passive income of RM36,000 a year, most of which is derived from various investment dividends.

“I lived a pretty frugal lifestyle even before learning of FIRE. These habits have been instilled in me since a young age and I have actually been telling myself to spend more often, but on things that genuinely bring me joy. And it will have to be happiness that lasts,” he adds.

This is a notion shared by Lee Sheung Un, communications officer of Affin Hwang Asset Management, who describes himself as a subscriber to a milder version of FIRE.

“Early retirement is not the end goal for me, but rather achieving financial independence,” he says.

“Personally, I aim to save at least 40% of my monthly income which is not quite close to the FIRE benchmark to save at least 70%. I am sure it is possible if I really tried, but I also like spending on my own comfort to save time and avoid stressing about the small things.”

To the average person, the idea of retiring early may sound good on paper, but it is not surprising that many FIRE devotees are not just looking to coast through the rest of their life. Rather, they are aiming for the freedom and time that financial independence unlocks to be able to pursue what fulfils them.

Achieving FIRE In Malaysia?

As a concept originating in the West, the burning question for many will be whether it is possible to achieve financial independence in Malaysia.

“FIRE is not realistic for people living in countries with a wide wealth gap,” sighs Suraya Zainudin, the founder of personal finance website RinggitOhRinggit.com.

“Mathematically and statistically speaking, the structure simply does not allow the majority of people to reach their financial goals, even modest ones. Unfortunately, Malaysia is one of those countries.”

However, Leigh believes that FIRE is definitely possible but that it is not for everyone as it can be hard or too intensive to keep up with.

“We live in a world of spending and instant gratification. Getting a new phone, signing up for gym memberships all costs money. Not everyone is willing to grind all day and put a hold on spending. And a huge problem in Malaysia is that people are not investing,” he observes.

And while not everyone may be cut out for the FIRE movement, the philosophies and beliefs around it can help to cultivate a healthier understanding and relationship with money, as well as a way to escape traditional ways of thinking.

FIRE Movement: Theory And Reality

The points highlighted above shows how investment formulas are great in theory – but we know real life works out differently. Things start to fall apart when you are faced with unexpected expenses, for example.

What happens if you are suddenly responsible for another dependent – a child, or parent? Or if you lose your job or become incapacitated?

On the positive side, the financial dynamics might change because you inherit a windfall or enjoy a rapid increase in earnings. Any of these instances will alter the time it takes you to reach your desired retirement age.

Neil Walton, Head of Investment Solutions says: “We know the concept of FIRE has spurred some to consider downsizing, retiring, investing and changing their lives. But even for those who do not intend to do anything so radical, FIRE provides a useful blueprint for planning. Good investment will sit on a good financial plan, and that is inevitably about building investments over time to provide an income in the future.”

May 19, 2022