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10 Common Financial Traps Millennials Fall Into
Money doesn’t disappear overnight but often it’s the case of losing one dollar at a time. It may not seem like a big deal when you order a Mocha Frappuccino, have a dessert in a nice cafe or subscribing for a long-waited movie, but every little item adds up in the long run.

Being a millennial as well as a licensed financial planner, there are many financial traps I’ve also succumbed to, and now would like to remind myself (and you too) to stay away from.

1. Instagrammable Lifestyle

A cup of RM20 Coffee, a plate of RM30 Big Breakfast, a slice of RM20 cake, these are perfect elements to form a likeable photo, but these are also killing our bank accounts. When we chase a materialistic lifestyle, we might lose control of our finances.

2. Crazy Shopping When There Is A Sale

Looking for SALE is an easy job in this e-commerce era. You might wonder why buying things on sale is an issue? This is because no matter how great the bargain, if you purchased something you aren’t going to use, you’re just throwing away your money!

Ask yourself, “Do I really need this and will be using this frequently?” or “I’m just buying it because it’s on sale?”

3. Subscription Trap

The most common marketing strategy nowadays is to encourage consumers to sign up for a “free” trial. You only need to activate the trial by putting in your credit card details to enjoy the service.

The companies are hoping that people will forget to cancel, and then the monthly payments will just get charged to our account. And way too often, that’s exactly what happens. This happened to me before, and probably has to you as well.

The effective way to avoid this is to ask ourselves: do we truly need things like movie subscription, music services or fancy gym memberships that keep us paying for months? Reconsider to see if there are cheaper ways of doing the same thing and if the subscriptions are necessary for you.

4. Full Allocation Of Salary While Planning To ‘Save Later’

RM300 for the latest flagship handphone, RM100 for a mobile plan, RM200 for a gym membership, RM1,000 for the dream car… who says millennials don’t plan for their finances? We have our monthly salary “100% well-allocated” into different expenses. However, we might just be forgetful about one thing: Savings.

The more we earn, the more we save? Unfortunately, it’s usually not the case. The first time I received my salary, I told myself to save up at least 10% every month. One year passed, I was still saving the same amount even though my salary was up more than 10%. I thought it’s due to the market inflation, so I couldn’t save more.

In the end, I realised it’s due to my own “Lifestyle Inflation”.

5. Using Credit Cards For Daily Expenses

Don’t you feel it’s cool to just swipe a card/scan a code and get what you want? While we are living in an era where cashless payments are unavoidable, but the credit card is not our only choice.

When you use your credit cards to cover the shortfalls in your spending, you can eventually run up a huge amount of debt. Besides, people tend to spend more when they are paying with credit cards. Don’t forget, you still have your debit card!

6. Making Financial Choices Out Of FOMO

Another common trap I face is to make a financial decision out of the fear of missing out (FOMO). When we are afraid, we might not consider all of the options available, and might end up making a costly mistake. Besides, millennials tend to have peer pressure to take a big financial step, from buying a new car to purchasing a home to getting married or having a child.

Just stop! Take a deep breath and think whether you are ready for these moves. Rushing to accomplish these might not benefit you financially.

7. Simply Investing And Chasing Quick Gains

We are lucky as we have easy access to investment information compared to our parents. However, simply investing without knowledge, time and discipline can be a financial killer of our hard-earned money. I have seen some of my friends chase after quick huge gains from investments without paying attention to the risks involved.

It would be folly for us to buy a stock or a property and just pray that it would “go up” without careful analysis. If you have no time to do this, it’s advisable to engage experts to help you instead.

8. Thinking We Will Be Forever Young

Many young Malaysians don’t even think about retirement:
- In our 20s, we think retirement is far away, YOLO!
- In our 30s, we enter a different life stage, buying a house, getting married, etc, and often we lack funds to save for the future.
- In our 40s, we need to provide more for the family, e.g. children’s education fund.
Commonly but sadly, people only recognise their retirement needs in their 50s, which is probably already too late. A warm reminder: the youngest millennials are already 24 years old now, and the eldest are already 39 years old.

Another major misconception many of us have is that we choose not to buy insurance in order to save money. But this isn’t a wise financial decision. What makes a millennial so confident to think we are risk-proof from medical conditions or personal accidents?

9. Travel Plans Are Done! How About Your Financial Plan?

Image from icharts.net

Planning for travel is always in our top bucket list, but how about our own financial plan? We spend countless hours scrolling through social media feeds, spend thousands of ringgit on getting the latest gadgets, but setting aside two hours to engage with a professional on planning our finances is rarely in the plan.

We need this “financial waze” to lead us towards our financial goals in life. Without a financial plan, our financial future is unsecured as we are uncertain what is going on right now and where are we heading to.

10. We Don’t Ask For Help And Choose To Ignore

I don’t mean you should borrow money from your friends or relatives. However, most of us will be facing financial problems that we can’t handle well, for example budgeting problems or major financial decisions to make. Don’t try to adopt an “ostrich policy” and pray the problems would resolved by itself.

Many of us get trapped because we don’t pay much attention to our finances. Every month we receive our pay cheque, pay the bills, and then spend what’s left over (if there’s anything). I understand that money is a taboo subject and we feel ashamed when we’re struggling. But there is so much help out there! Tell someone you trust or talk to a licensed financial planner to let them guide you.

It is important to have an informed financial plan that can help us millennials achieve financial success. Remember, managing your finance is managing your life.

Starting by monitoring all the seemingly small expenses. Think carefully before adding new debt, keep in mind that being able to make a payment (swiping your credit card) isn’t the same as being able to afford the purchase. Don’t fulfill your current desire by sacrificing your future funds.

If you make saving a monthly priority and get the help from a licensed financial planner to work out your plan, you are more likely to enjoy life more abundantly.

If you’ve spent time to finish reading this, take charge of your life by taking charge of your finances now. Have your personalised financial plan today!

About the Author

Ocean Pon is a Licensed Financial Planner with Finwealth Management Sdn Bhd.

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 18, 2022
What Is Halal Investing And Why Is It Important?
Halal investing, in simple terms, means investing in permissible businesses according to the Islamic ethico-legal system or Shariah. There are two main screening levels for halal or Shariah-compliant investments.

Firstly, a business screening is undertaken to review a company’s business practices, products sold, and revenue sources. A company is prohibited from generating returns from the selling or producing of alcohol, pork, products, weaponry, gambling, adult entertainment, or riba (interest). Other considerations include the prohibition of hazard or uncertainty (gharar) such as speculation and the prohibition of investment in forbidden assets (haram).

Secondly, a financial screening is done to ensure that companies have better control on their business and excessive risk taking is avoided. The screening lays out three broad pre-defined ratios, as formulated by AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) standards:
1. Conventional debt / Total market capitalization < 30%
2. (Cash + Interest-bearing deposits) / Total market capitalization < 30%
3. (Total interest + income from Shariah non-compliant activities) / Revenue < 5%
Investments are considered halal if a company passes both the business and financial screenings set out by AAOIFI or by the local Shariah body of scholars. In Malaysia, the Shariah Advisory Council of the Securities Commission Malaysia is the central authority responsible for determining the application of Shariah principles in the local Islamic capital markets.

Why Halal Investing Matter?

Asian Muslim families celebrate Eid together while enjoying a meal

For Muslim investors, the option to invest in a halal manner enables them to generate wealth in line with their faith. The interpretation of Shariah law as applied to business activities is nuanced. Since different standards exists, Muslim investors rely on guidance from Islamic scholars to help in the determination if an investment is halal. This allows the Islamic finance industry to thrive as halal solutions are becoming increasingly available in the capital markets.

For non-Muslim investors, investing according to Islamic principles still offer many benefits. Halal investing brings a sense of responsibility on how investments generate returns by preserving a concern for ethics and values. It encourages a disciplined investment process that promotes in-depth research and monitoring to better understand the business.

The financial screening standards also facilitate a conservative approach that appeals to risk-averse investors without compromising on returns.

How To Invest In A Halal Manner?

In this age of digitalization, halal investing has been democratized by the emergence of many options such as digital brokers, online providers of unit trust funds and robo-advisory platforms. This means investors with little financial knowledge may still be able to participate in the Islamic capital markets and learn the ropes on investing from a younger age as the barrier to entry becomes lower each day.

The financial inclusion of the younger and underserved demographics is vital in ensuring that the overall economy continues to grow and remains sustainable.

What Is A Robo-Advisor And Why Should You Care?

Artificial intelligence AI research of robot and cyborg development for future of people living. Digital data mining and machine learning technology design for computer brain communication.

Robo-advisors are automated financial advisors. They are an online tool that assists investors in picking an optimal investment portfolio according to their risk tolerance profile. Typically, robo-advisors start by asking investors questions to understand their risk appetite and allocate investments based on certain algorithms.

Once investors agree to the investment allocation, they can start funding their account and the robo-advisors will purchase the underlying securities and manage their portfolio by rebalancing it periodically. Robo-advisors have emerged as favorites to younger demographics due to their low account minimums, low fees, digital-only service and overall, a more efficient and timesaving offering.

About Wahed Invest

Wahed Invest (“Wahed”) is one of Malaysia’s robo-advisors (or digital investment management company) that focuses on halal investing. Wahed was licensed by the Securities Commission Malaysia in August 2019 and launched in October 2019. Since then, Wahed has been offering Malaysians diversified Shariah-compliant investment portfolios that provide exposure to foreign and local equities (via exchange-traded funds or ETF), local Islamic fixed income (via sukuk funds) and gold (via ETF). Further information regarding Wahed’s services can be found at wahedinvest.com, and the Wahed Invest robo-advisory application can be downloaded from the iOS App Store or Google Play Store.
May 17, 2022
Are You The Real King And Queen Of Your Family’s Wealth Kingdom?

As the head of your family and business venture, you are being looked up to as the leader of your family and also the companies you are managing. As a business leader, planning well for the future is something that is expected of you and your management team. As the head of your family, you are expected to exercise the same standard when you plan for your personal wealth transfer as well as your business succession.

When we talk about business estate planning, there is a popular Chinese saying that you may have heard before. It says that a family’s wealth will not last beyond three generations!

Interestingly, the Americans also have a similar expression, “Shirtsleeves to shirtsleeves in three generations”.

Backed By Research

A ground-breaking study conducted by a wealth consultancy firm The Williams Group which involves 3,200 families over a 20-year period, found that 70% of the families tend to lose their fortune by the second generation, while nine in ten families lose it by the third generation!

The popular explanation behind this phenomenon is that, the first generation works hard to accumulate the wealth. The second generation while growing up, sees their parents’ struggles and have a good understanding of the value of sacrifice and hard work. They appreciate the frugal aspects of their lives growing up and will more likely hold on to their parents’ wealth.

However, the third generation do not appreciate the struggles and sacrifices of the previous generations. Therefore, they are more carefree and more likely to spend the wealth easily and may end up squandering the inherited wealth.

Learn From Example

Credit Photo: Ikea

There is a shining example that comes to mind when we talk about planning for your business succession and holding on to your accumulated wealth to benefit the future generations. He is IKEA’s founder, Ingvar Kamprad. When this highly respected business leader died in 2018 at the age of 91, he was ranked No. 8 on the Bloomberg Billionaires Index.

This is thanks to his control of IKEA’s global retail empire that was valued at US$58.7 billion. Interestingly, his wealth will not be dissipated because of a carefully designed and well-thought through wealth preservation strategy that he had put in place to secure the longterm survival of the IKEA business empire.

According to a media report, most IKEA stores are owned by the Stichting Ingka Foundation, a Dutch entity with the purpose of
donating to charity and supporting innovation in design, according to its founding statute. Meanwhile IKEA’s trademarks, brand and concept were placed under the ultimate control of Vaduz, a Liechtenstein-based Interogo Foundation whose subsidiary, Inter
Ikea, is the global IKEA franchisor. “Interogo Foundation is managed by a Foundation Council, consisting of at least two members and a Supervisory Council, as a principle consisting of seven members.”

This was disclosed by Anders Bylund, Interogo’s head of communications. He was also quoted as saying, “The Kamprad family members in the supervisory councils have been and shall always be in minority.”

Meanwhile, Stichting Ingka Foundation, is only partly philanthropic. Its statutes allow for profits to be reinvested in the company, according to Per Heggenes, the chief executive of the IKEA Foundation.

This smartly designed strategy put in place by Kamprad was designed to ensure that IKEA, is not in the hands of his family members, and thus would long outlive its founder. Trust experts say that the set-up ensures IKEA’s business continuity by making it impossible for any individual, whether a manager or heir, to assume control after Kamprad’s death.

It Can Be Done

You can also be the real king or queen of your family’s wealth kingdom just like Ingvar Kamprad, once you have come up with your very own comprehensive personal and business estate planning.

With an intelligently designed estate plan, your wealth can be fortified with a “legal castle” to shield your wealth from all creditors and vultures, as well as to avoid the probable ugly family feuds and disputes, which will tear up and destroy your family’s wealth kingdom. Your legal fort can be watertight against all types of claims and risks, including director’s or professional liabilities.

By utilising well established and advanced legal means and structures to hold the ownership of the bulk of your wealth, you will be able to perpetuate your family’s wealth kingdom, and escape the curse of family wealth being dissipated by the third generation!

You will also be able to protect the interest and well-beings of your beneficiaries and descendants. You get to enjoy serenity and inner peace knowing that when the time comes, your family’s wealth kingdom is intact and it serves the needs of your loved ones.

Let them thrive from the blessings of your wealth kingdom, rather than suffer from the curse of inadequate planning. Your descendants will come to admire and respect your vision and the decisiveness in getting a comprehensive family’s wealth
succession plan, just like the late Mr Ingvar Kamprad.

About the Author

Lee Khee Chuan holds a B.A. from National University of Singapore and a chartered financial consultant (ChFC), chartered life underwriter (CLU), CFP professional, and Fellow, Life Management Institute (FLMI) USA. He is also a licensed financial adviser representative with more than 25 years’ experience in estate planning. He shares a lot more valuable insights at www.estateplanningmalaysia.com

May 17, 2022
Benefitting From RCEP: While Growing Their Businesses, SMEs Should Look At Avenues For Future Growth

SMEs should take advantage of the benefits and vast investment opportunities under the mega-trade agreement of the Regional Comprehensive Economic Partnership (RCEP).

This free trade agreement involves 15 countries – Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand and Vietnam. It is made up of 2.2 billion people and accounts for almost a third of global GDP.

Among Southeast Asian countries, Malaysia is expected to be the largest beneficiary of the China-backed RCEP in terms of export gains, with a projected increase of US$200 million. It is anticipated that RCEP may remove up to 90% to 93% of trade barriers, and together with lower preferential tariffs. SMEs trading in this new big, open market should gear up for more intense competition.

However, many SMEs are still not aware of RCEP, the world’s largest free trade agreement (FTA) which came into effect in Malaysia on March 18, 2022. Of the 3,000 members in the Small and Medium Enterprises Association (SAMENTA), more than 50% are aware but at different levels of understanding.

“Many may have heard about RCEP but have not understood how they can improve market access and the harmonised rules to exploit the lower tariffs. “They should seek the help of the Ministry of International Trade and Industry (MITI) to build capacity with technical support from the more developed countries like Japan, China, South Korea and Australia,’’ said SAMENTA honorary national secretary Yeoh Seng Hooi.

Other advantages of RCEP include further liberalisation of trade, removal of non-trade barriers, increased trade facilitation, improved government procurement practices, e-commerce and others.

Ernst & Young Tax Consultants Sdn Bhd Malaysia Private Client Services Leader and Partner, Bernard Yap highlighted that SMEs should be provided with information on doing business in other countries and how they can build their businesses beyond
Malaysian borders.

“This knowledge can help them avoid unwanted situations such as inadvertently misunderstanding the rules, which can negatively impact them from a business and reputational perspective,’’ said Yap.

Among them, SMEs should understand the concept of regional value content to benefit from the components or raw materials coming from RCEP countries that will fulfil the rules of origin; changes in tariff classification so that the products are considered originating products. Tariff reduction rates are different for each country; SMEs should check from the MITI website under RCEP, and study the schedule of tariff commitments for the countries they wish to export to.

Priorities To Consider

SMEs should review their existing or target markets, whether they are RCEP members, to utilise RCEP benefits. Next, they should evaluate whether the products imported or exported are listed in the RCEP agreement, are eligible for the benefits under their country of origin. SMEs should also look into their current resources to find out if they are able to meet the demand under RCEP.

To achieve economies of scale, as they are now catering to a larger market, they should review their manufacturing businesses and costs. Besides enjoying a larger sales market, the supply chain needs to be re-evaluated. New suppliers from RCEP countries and reduction in trade barriers, will potentially lead to lower production costs.

“Post-pandemic, this mega-trade deal is a key enabler for Malaysia to revitalise domestic and international business activities, especially for SMEs that utilise the RCEP,’’ said Deloitte Tax Services Sdn Bhd executive director Tan Eng Yew.

However, he noted that lack of financing may be an obstacle to be a member of RCEP. A springboard for future growth In addition, SMEs should consider strategic industrial clusters that can serve as a springboard for future growth. Acquisitions, mergers or joint-ventures may be required to build the necessary mass and knowledge for international expansion.

SMEs can take advantage of the double deduction on interest expenses or loans taken to fund mergers and acquisitions, and the stamp duty exemptions on mergers and acquisitions instruments, said Yap.

Other strategies include having an R&D department to regularly assess market positioning, product differentiation and relative cost leadership, as well as investing in productivity improvement processes and automation. Digitalisation, artificial intelligence and machine learning can help businesses get ahead of the curve.

“This will help them to strategise, build capacity and access the supply chains of developed countries within RCEP, and ultimately improve their overall performance,’’ added Yap.

Areas Of Competition For SMEs

Countries such as South Korea, Japan and China are well-equipped with the latest technologies, enabling them to offer more advanced products to consumers. SMEs in Malaysia are arguably lagging behind their market competitors in technological capability and expertise, especially in the electronics and electrical (E&E) sector.

“This ultimately boosts the overall competitiveness of SMEs in those countries compared to SMEs in Malaysia, especially in the E&E sector,’’ said Yap.

SMEs in Malaysia would also have to compete with more advanced supply chain management, with countries such as Japan, South Korea, Singapore and China maximising their supply chains within RCEP. Having said that, SMEs can leverage on their strengths and collaboration with Japan, China and Australia to service their multinational customers in the ASEAN region. Still, RCEP offers them a chance to be more competitive with the tariff reductions.

“Otherwise, we would have been disadvantaged against Thailand and Vietnam which ratified earlier,’’ said Yeoh.

Both Thailand and Vietnam had ratified the RCEP in October last year. With the opening of markets, competition will come especially in terms of product and service quality, costs and efficiency.

SMEs would need to embrace new technologies and consider investing in simple digital platforms, online training infrastructure and automation, artificial intelligence and machine learning.

The workforce also needs to be upskilled. According to the Budget 2022, the government will provide upskilling and reskilling programs to help employees embrace technology advancement and increase digital adoption.

To develop future business leaders, several agencies have been tasked to impart business and leadership skills through on-the-job training, mentoring and entrepreneurship programs.

Enhancing Competitiveness

Despite various initiatives to help SMEs enhance their competitiveness, there is still room for improvement. Currently, initiatives to help SMEs are managed by various agencies, making it a challenge to evaluate the effectiveness of these funds/grants disbursed by the public sector.

Also lacking are clear guidelines and transparency of the application process, as well as clarity to the SME community on which agency they should approach. Ideally, a dedicated one-stop center will help to make all incentives, grants and funding easily accessible to SMEs. New initiatives and opportunities will be quickly and clearly communicated, while the streamlining of the
application process and guidelines for these initiatives will ensure efficiency and ease of monitoring.

“The one-stop center should have helplines and online channels which can be used to obtain advice and information,’’ proposed Yap.

To ensure that we are on the right track, there are still lot of preparations ahead to reap the full benefits of RCEP. With a healthy partnership between the private and public sectors, the growth and success of SMEs locally and regionally will require further strategic collaboration between them.

Many areas of co-operation listed under Article 14.3 of the Schedule of Tariff Commitments are beneficial to SMEs in ASEAN countries that are on board the RCEP.

“The issue is how fast and responsive our public agencies are in working with trade associations like SAMENTA to leverage on this co-operation,’’ said Yeoh.

For example, the exchange of experiences, best practices, adoption of technology and innovation or promotion of e-commerce, are areas that can benefit SMEs. Thailand and Vietnam already enjoyed first-mover advantage with the earlier ratification, Malaysia should accelerate its pace to plug into the opportunities offered by RCEP.

May 13, 2022
Understanding What We Can Control Will Help Boost Our Health
The past few years saw many unprecedented events, including a sudden change of government and a total shift in how we work, live, and interact with each other. Some have helplessly seen their rice bowls snatched away, while others have suffered losses of loved ones to Covid-19.

Coupled with volatile stock markets, movement control orders, elections and re-elections, and working from home, it is safe to say that no one quite anticipated a year like this. While we are not sure when Covid-19 will be defeated, the one certainty is that if we are so wrapped up in our problems, we may be overlooking things in our life that we can control.

Here are three areas where you can take some purposeful steps to remind of who is ultimately in charge of your family’s “Return on Life”:

1. Your Mental Health

Diseases and health threats are nothing new, with people passing away daily even before Covid-19. The difference this time is it made us realise that none of us can control how long we have when it comes to life. In addition to very real health concerns this year, there has also been plenty of news of job cuts and losses, people going through financial struggles and more.

As we fight to keep hope, the news can be demoralising. With many spending more time on social media, it actually exposes us to news that may magnify our anxiety and bounces them back to us over and over again.

If you’re not working or checking on your friends, set some daily screen time limits. Unplugging before bed can be especially beneficial if your brain is still recovering from a full day of tweets and likes. Our electronic devices and apps are designed to attract our attention. When it’s time to sleep, there’s no better mute button than a good book and a warm cup of water.

It also helps a lot if we have someone to speak to regarding what’s bothering us. People tell me that it helped just knowing that there was someone on the other side listening to what they were sharing, as well as understanding the strong emotional undercurrent during the conversation. Having someone to talk to, I personally believe is very important to maintain balance in our mental wellbeing.

2. Your Physical Health

The pandemic and new norm has created a new breed of couch potatoes. Instead of binge-watching television or Netflix, we’re in danger of putting in unnecessary overtime, all the time. The boundary between your 9-5 identity and your real identity is becoming blurred, and it can be taxing for many people.

Working from home has disrupted many of the routines that kept us active even on days when we weren’t heading to the gym. Simple things like moving around the office or walking down to nearby shops for a coffee break don’t happen as much when you are parked at your laptop at home.

The physical barriers between home and work are a little blurry right now (bosses, this is real!) but you have more control over your schedule. Break up a long day of Zoom calls with ten minutes of simple exercise. When you clear your emails, take a long walk. And when it’s time to clock out for the day, turn off your computer, get up and get moving. Even if you have to convert your living room into a gym, just do it.

Separating yourself from your WFH routine will help you get the most out of your new exercise routine. For me, I make it a point to get down to the street and jog, even it means jogging in the basement carpark. I also took a deliberate approach on what I ate for breakfast, lunch and dinner.

3. Your Financial Health

People who have never set a monthly budget are often surprised by what an empowering experience it can be. The most impactful adjustment you can make to your financial plan is to limit unnecessary spending and maximise savings while continuing to invest prudently, regardless of what’s happening in the markets or on the news. Even if it feels like the one thing we don’t have control of, it could not be further from the truth.

However, investing can make people anxious during moments of uncertainty, especially if retirement is near, or if they are used to low-risk products like fixed deposits. This is one of the reasons why we revisit the “Life Timeline” exercise with clients at least once a year.

A financial plan is only as good as your confidence in it. Since most plans are based on assumptions and what was correct at the time of planning, most financial plans may become obsolete as we move into future; we just don’t know how it could go wrong. That is why, regular check-ins and reviews of our plans are crucial to ensure we are on the right track.

One thing that is certain is that if we take a proactive approach to look at our financial matters and have an idea on how we want things to be managed, that will give us an advantage of being in control over our financial decisions. We are also able to better deal with shocks and surprises.

The Things We Can Control

Now let’s take a look at some of the things that we can control:
- Setting aside money to prepare for future goals
- Using credit cards to pay (and having the ability to make full payment of the outstanding sum when due)
- Planning our income tax bill
- Preparing a medical safety net for our family
- Paying down our debts, especially bad debts
- Withdrawing money from our EPF account 1 if the need arise
- Finding out how we are doing with our money
Being in control of your financial health, enables more flexibility in terms of how to adapt when things go wrong, resulting in less stress and better mental wellbeing. Times like this offer the best opportunity to discuss how comfortable we are with market exposure, savings goals, debt, and spending.

The earlier we work to control these, the more we can feel excited about our plans and future.

About the Author

Kevin is a NextGen Money Mentor and founder of NextGen Independent Advisors. He works with people to transform their relationship with money and be brave in their pursuit to live a meaningful life with their money. He is a CFP professional, a certified member of Financial Planning Association Malaysia (FPAM). Kevin can be contacted at www.kevinneoh.my.
May 12, 2022
Top 20 Malaysia Small Cap Companies: These Are The Jewels For 2022

RHB Research recently published the 18th edition of Top Malaysia 20 Jewels 2022. RHB Research continues to persevere and maintain unwavering commitment towards producing yet another signature compendium of 20 top small-cap investment ideas despite the extremely challenging macroeconomic environment.

The selection has been complicated by capital market volatility – buffeted by rising interest rates, high inflation, the Russia-Ukraine conflict, and draconian lockdowns in China – we see a strong rebound in economic activities, with manufacturing and retail spending recovering swiftly. Valuation for small-cap stocks have also retraced, leading to a sizeable valuation gap to the big caps, making the investment thesis more compelling.

Top Malaysia 20 Jewels 2022

Here’s the list of Top 20 Malaysia Small Cap Companies for the year 2022 by RHB Research.

1. Aemulus Holdings

2. Bonia Corporation

3. CJ Century Logistics Holdings

4. Coastal Contracts

5. Dayang Enterprise Holdings

6. Dufu Technology Corp

7. Homeritz Corporation

8. Kawan Food

9. Kumpulan Fima

10. KKB Engineering

11. Nova Wellness Group

12. Optimax Holdings

13. Samchem Holdings

14. Sedania Innovator

15. Supercomnet Technologies

16. Texchem Resources

17. Tune Protect Group

18. Unimech Group

19. VSTECS

20. YBS International

The 20 companies featured are not within RHB Research’s existing coverage. Companies from 10 different sectors with an average market cap of MYR509m have been curated into this 2022 edition. Consumer and industrial products & services sectors feature prominently, making up 45% of the picks. All but five – which are Ace Market listed – of the 20 names reside on the Main Market.

Source: RHB Research Team

*All investors are advised to conduct their own independent research into individual stocks before making any decision to buy or sell. Investors are also advised that past stock performance is no guarantee of its future price.

May 12, 2022
Protecting Your Financial Needs at Different Stages of Lives
Many people do not see the importance of insurance until they need it, or until it is too late for them to do anything with it, and what’s worse, many considers it an unnecessary expense. In reality, however, insurance is more than that – it is a useful financial tool that forms part of our wealth management planning.

Starting Out

Our financial needs, income and liabilities vary at different stage of our life, as shown above. Those who are young and single who have just started their working life in their 20s are only interested in investment to grow whatever little money that they have.

Although it is good to have the desire to start accumulating wealth early, many of them are unaware that the risk of falling ill can happen any time while accumulating wealth.

Thus, at that particular age, they should also look into wealth protection. If they are still single, they should at least have healthcare planning.

What is healthcare planning? Is it just a medical card? When someone is sick and have to be admitted to the hospital, do they stay for a longer period of time, or do they recuperate at home?

For instance, a cancer patient who is undergoing treatment at the hospital might be required to stay at the hospital for a certain period of time. Even after being discharged, they will still be required to go for follow-up treatments, and all in all, the recovery period could take up to a year or more.

There is a possibility that they might not be able to work like before, and thus, their income will be affected. In cases of major illnesses, besides medical expenses, many will find themselves having to spend their money on daily sustenance, alternative therapies, supplements, and sometimes they might even require a caretaker.

A complete healthcare plan should include a medical card and critical illness coverage. Do remember that a medical card solely pays for hospital expenses while critical illness insurance pays a lump sum when one is diagnosed with any of the critical illnesses listed.

A patient can use this lumpsum amount to cover their daily needs resulting from the loss of income as well as for alternative treatments.

Having a Family

Happy cheerful Asian family dad, mom and kids having fun and using digital tablet video call on sofa at house. Self-isolation, stay at home, social distancing, quarantine for coronavirus prevention.

Thirties is the age where many people choose to start a family. At this phase of life, having children will also mean creating an education fund and protecting the family income and assets.

This is the period when you need to look into family income protection to take care of your most important responsibility – your loved ones. Should anything unfortunate happen to you, you can rest easy knowing that they will be well taken care of.

That being said, their financial needs – including their daily expenses and funds for their education – need to be calculated. The amount required might be several million ringgit, and most people in their 30s do not have such a large amount of money available.

In this instance, the cheapest tool is to purchase an insurance for the required sum, which will provide a peace of mind with the knowledge that in case of any tragedy, your loved ones will be protected.

Take this case study as an example. Mr Tan, 33, is married with two children aged two and five; his wife is a homemaker. Mr Tan, whose monthly disposable income is RM5,000, is the sole breadwinner of the family, and since this is the case, he is worried about his family’s wellbeing should anything happen to him.

He has estimated that his family needs RM60,000 a year, and wants to ensure that his family is provided for until his youngest child is 22 years old. To achieve this, he would therefore require 20 years’ worth of funds amounting to RM1.2 mil.

At 33, Mr Tan does not have that much savings. His house may be worth RM1.2 mil, but his family will still need to live in it. Therefore, having a life insurance coverage of RM1.2 mil to cover this risk would be the most effective financial tool.

Bear in mind that we should review our insurance policies every 5-10 years as our financial status and priorities change. 40-50s is the prime time where we have more assets and liabilities, as well as changes to our lifestyle as we move into our retirement years.

It is also the time when our income is more stable and we have excess funds to prepare for our golden years.

Preparing for Golden Years

We would want to enjoy our retirement days without worrying about whether there is sufficient money to tide us through the years. If we prepare well in our 40s or even earlier, we would not need to worry about risks or expenses that might take away our retirement funds.

Someone once asked, “What and how to prepare financially in order to enjoy the golden years?” Well, there are three types of expenses that we need to prepare for post-retirement, namely
- Daily living expenses (which can be from our EPF fund that many of us have accumulated during our working years);
- Maintenance or medical expenses; and
- Happy fund.
Advancements in science has led to an extended life expectancy rate, but while people are now living longer, many are still unaware that older medical plans only insure a person up to the age of 70. Medical hospitalisation is becoming very costly, and therefore, we need to ensure that our healthcare insurance plan covers us until are 80, at the very least.

Furthermore, as we age, there will be an increased risk of developing health problems such as high blood pressure, diabetes and high cholesterol. Such health conditions require daily medication which is not covered by medical cards and will eat into our retirement funds.

On top of the daily medications, there will also be other supplements and nutritional needs required to promote better health. These are the maintenance expenses that need to be taken into consideration as well.

To enjoy our retirement years to the fullest, we need to have a certain amount of money to do the ‘fun’ stuff like travelling and indulging in hobbies. We should start accumulating our lifestyle or ‘happy’ fund as early as possible by growing our wealth through unit trusts, shares and saving plans.

How we choose from the different wealth accumulation tools will depend on our risk appetite and duration of investment.

Financial planning at different stages of life is important. Insurance is one of the cheapest tools to manage risk and is only one of the many financial planning tools out there today.

In addition to protecting your wealth, there are other financial tools in the market, each with its own purpose such as accumulating and growing wealth through savings and investments; and wealth distribution though estate planning.

About the Author

Andrea Siew is an Approved Financial Adviser with Harveston Wealth Management Sdn Bhd.
May 12, 2022
Bank Negara Malaysia Increase Overnight Policy Rate (OPR) By 25 Basis Points To 2 Percent

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to increase the Overnight Policy Rate (OPR) by 25 basis points to 2.00 percent. The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.25 percent and 1.75 percent, respectively.

The sustained reopening of the global economy and the improvement in labour market conditions continue to support the recovery of economic activity. These have partly cushioned the impact of the military conflict in Ukraine and the strict containment measures in China. Inflationary pressures have increased sharply due to a rise in commodity prices, strained supply chains and strong demand conditions, particularly in the US. Consequently, several central banks are expected to adjust their monetary policy settings at a faster pace to reduce inflationary pressures. The global growth outlook will continue to be affected by the developments surrounding the conflict in Ukraine, COVID-19, global supply chain conditions, commodity price shocks, and financial market volatility.

For the Malaysian economy, latest indicators show that growth is on a firmer footing, driven by strengthening domestic demand amid sustained export growth. The labour market is further lifted by a lower unemployment rate, higher labour participation and better income prospects. The transition to endemicity on 1 April 2022 would strengthen economic activity, in line with further easing of restrictions and the reopening of international borders. Investment activity and prospects have also improved, underpinned by the realisation of multi-year projects and positive growth outlook. However, risks to growth remain, which include a weaker-than-expected global growth, further escalation of geopolitical conflicts, worsening supply chain disruptions, and adverse developments surrounding COVID-19.

Headline inflation is projected to average between 2.2% – 3.2% in 2022. Given the improvement in economic activity amid lingering cost pressures, underlying inflation, as measured by core inflation, is expected to trend higher to average between 2.0% – 3.0% in 2022. Nevertheless, upward pressure on prices would be partly contained by existing price controls and the continued spare capacity in the economy. The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions, as well as domestic policy measures on administered prices.

Over the course of the COVID-19 crisis, the OPR was reduced by a cumulative 125 basis points to a historic low of 1.75% to provide support to the economy. The unprecedented conditions that necessitated such actions have since abated. With the domestic growth on a firmer footing, the MPC decided to begin reducing the degree of monetary accommodation. This will be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability.

Source: Bank Negara Malaysia

May 12, 2022
Follow These 5 Steps For An Effective Asset Allocation In Your Investment

It has been a volatile few years for the global markets. Pummeled by the COVID-19 pandemic, risk assets endured a fierce selloff in the 1Q2020 as economic activities came to a grinding halt with a complete shuttering of businesses. Global equities succumbed to one of the steepest and quickest correction ever witnessed in March 2020.

However as sharp and quick as the rout began, the recovery has also been swift and ebullient. Due to unprecedented stimulus measures injected by governments and central banks, benchmark gauges have rebounded strongly driven by ample liquidity. The US stock market has even surpassed its pre-COVID-19 peak despite infections continuing to rise in the country.

To any casual market observer, the new normal investment realm can be confusing terrain to navigate as the gap between the real economy and the stock market continues to widen. This is especially as traditional macroeconomic theories no longer apply in a world of negative interest rates and unlimited quantitative easing (QE).

Whilst the markets will ebb and flow, it is far more important for investors to stay the course and practice diversification in their portfolios. Here is a 5-step guide that investors can follow to an effective asset allocation.

Step 1: Defining Your Investment Objectives

It’s the first step in the asset allocation process that often gets overlooked. But really, it is the most important part that you should invest the most time with before modelling a portfolio.

Asking yourself basic questions like “who am I?” and “what are my aspirations and expectations?” can help you define your objectives. Are you a millennial looking to build and accumulate wealth, or are you someone in your mid-50s looking to prepare for retirement and have a steady income stream?

Once you’ve established these answers, it’s crucial then to be as specific as possible and to be able to quantify your financial objectives. How much wealth do you want to build exactly? How much does your current lifestyle cost and how much do you need to sustain it?

For example, someone in their mid-50s will need to determine how much wealth they would like to accumulate by the time they reach retirement, as well as the rate of return % they need to achieve as a hedge against inflation.

All these considerations are important because it lays down the parameters of your investment objectives so that your portfolio is geared towards achieving its stated purpose.

Step 2: Gauging Your Risk-Tolerance

Determining your risk-tolerance is the next step. Understanding your risk-tolerance can also be gauged by asking yourself basic questions like your age, monthly income and expenditure and other types of commitments you have. Different psychological profiles and imprints often determine what type of person you are and if you are a risk-taker or risk-averse.

But it is critical here to separate what your risk-tolerance and risk-acceptance are, as the two gauges measure different things. For example, an investor in their mid-20s may be more inclined to take on more risk because of his youthful exuberance and more daring nature. Therefore, he has a high risk-acceptance.

But if you consider the fact that if he is already married with a child along the way, as well as parents and in-laws to take care of, his capacity to take on risk is actually limited. As such, the investor actually has a low risk-tolerance and would not be able to stomach an aggressive portfolio that is highly tilted towards riskier asset classes.

Step 3: Time Horizon and Liquidity Needs

Businessman holding an hour glass, signifies the importance of being on time

Next, an investor would need to determine their investment time horizon and liquidity constraints. Think of these two factors as the levers shifting the gears of your portfolio that will ultimately determine your capacity to invest and by how much.

For instance, an investor in their mid-20s who does not need the principal sum and returns back from the investment for the next 8 – 10 years would have a long investment horizon and hence a higher capacity to invest.

This would allow the investor to take on more risk and be more exposed towards longer-dated instruments or riskier asset classes that only show returns at a later stage. Such asset classes typically include small-caps or growth stocks that are high-risk and typically exhibit strong earnings and growth only at a later cycle. Thus, investors with a shorter investment horizon should avoid such asset classes.

Similarly, as an investor you should also assess your liquidity needs and determine how much you are willing to set aside from your wealth as investments. It’s crucial that you understand that this is a separate pool of wealth that is different from your own savings account that you use for your own daily sustenance and allowance.

Thus, as much as possible, you should avoid dipping into either pools of wealth and using your savings for investments and vice-versa.

You need to give time for your portfolio to work and to compound returns. Opting to cash-out from your portfolio can be disruptive to your investments especially at a crucial stage of the market cycle when it is starting to rebound. Thus, investors should remain disciplined and focused.

Step 4: Understanding Different Asset Classes

These are the ‘building blocks’ of your portfolio. There are 3 broad asset classes for an investor to work with, i.e. equities, fixed income and cash.

Equities are the riskiest asset class but has the potential to provide the highest returns. Common instruments include ordinary shares or equity funds that an investor can easily buy into.

Fixed income, also known as debt, is a less risky asset class that provides more stable but often lower returns. Investors may not be able to gain exposure to this asset class by investing in bonds directly or through bond funds.

Cash or cash-equivalents are the most liquid asset class and typically provide little to no returns especially in inflationary periods. But they serve its importance by being extremely liquid to quickly move in and out of a market correction as well as a buffer during an emergency.

There are also other types of asset classes including REITs, commodities, precious metals, real estate or even alternative asset classes such as private equity or debt. But more importantly, you need to really understand what it is that you are investing into and the underlying asset class of the product before deciding to include it in your portfolio.

Step 5: Constructing Your Portfolio

Finally, you are ready to construct your portfolio. There is no single method or approach in building the ‘perfect’ portfolio, as each portfolio would need to be customised according to the needs and risk-profile of the investor. But there are some model blueprints that an investor can follow as a start.

For more risk-inclined investors, they can invest in a more aggressive portfolio composed of 70% – 80% in equities and the rest in fixed-income. On the flip-side a more risk-averse investor should have a higher tilt towards fixed-income of between 70% – 80% in bonds, with minimal holdings in equity and some in cash. A risk-moderate investor could have equal exposure to both asset classes.

Underpinning all these considerations in the asset allocation process is the simple principle of diversification of not putting all your eggs in a single basket. Diversification strives to minimise risk in a portfolio by investing in a mix of different types of asset class that are not or less correlated, so that gains from one asset class can offset losses from another.

It is a risk mitigation technique that has been proven to outperform over the long-run by protecting against losses, whilst maintaining sufficient exposure to capture market growth.

Knowing is Half the Battle

Starting your investment journey can be especially daunting during such volatile market conditions. But as the saying goes, “Never let a good crisis go to waste.” Anyone can invest as long as you have a plan and a robust asset allocation to ride through the market peaks and troughs.

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.

May 11, 2022
It Is A Tough Job Taking Care Of Your Family, Let A Financial Planner Take Care Of Your Finances

My wife and I are both accountants. We have two children, one of them is a child with special needs. I’ve always known the importance of getting our family’s financial planning done, but never quite came around to it due to our busy schedule.

We were lucky to have met Pauline, our Financial Planner. She was interested in finding out our goals and how she could help us to achieve them. After taking the time to understand us, she helped us in assessing where we are now and what actions we need to do in order to achieve our goals. She helped us to come up with our financial plan.

I’m very happy that we engaged Pauline for her services. Truth be told, it is actually a tedious process to get the plan done. It requires perseverance and knowing how to go through each of the steps. Luckily, with Pauline’s help, she guided us through it and gave us the options and suggestions which helped us a lot during our financial planning journey.

Once we have completed our financial plan, we now know our financial standing, and what our spending is like. When we first saw our cash flow, we were surprised that we have been running a deficit. Within a month, Pauline helped us to identify the key areas which can be improved.

Through financial planning, we also realized that some of our insurance plans did not match with our family’s needs. Pauline was non-biased and was very objective in her advice to us. She helped us to streamline and optimize our current policies to meet our objectives. With this, we are able to save a substantial amount of money on insurance premiums alone.

Pauline also helped us with our estate planning. We initially had our Wills and Trust drawn up. After reviewing it, we realized there were many areas that were left hanging and no longer matched our needs. Pauline highlighted the areas which we never considered before and it was extremely helpful for my wife and me to consider restructuring our Will and Trust.

This was especially true for our special needs child. This area has always been a major concern for us as we want to ensure that both our children are taken care of, in the event something happens to us.

I’m glad we did our financial plan with Pauline. Once you are her client, she puts your interest first and lets you know the best way to manage your finances even if it means she’s not going to get anything out of the recommendation.

This is what I call “professional” and doing her business with “passion” and “from the heart”. She is also very detailed and tactful on how best to resolve the issues by giving us options for us to consider.

The best thing about getting my family’s financial planning, is that me and my wife are clear on what our needs are and how much we need to save to achieve our goals. We no longer need to second guess like before. After going through this process, I feel that having a financial plan is very important. Especially if you have a family to take care of, or if you are unsure whether you are saving enough for the future.

About the Author

Pauline Teoh loves to coach busy professionals to achieve their financial independence. She is a Licensed Financial Planner, Childpreneur Coach and is an expert in Risk Management, Investment Planning and Estate Planning

May 10, 2022