Nowadays, the words “health” and “healthy” are very important. While the pandemic has taught many people different lessons, one of the most central ones is that it’s important for us to be healthy. Without good health, all other things may not take place, or be sustainable.
The concept of being healthy isn’t just limited to medicines or the fitness industry – it’s also widely used in the financial industry. These days, there are plenty of marketing messages that have the phrase “Financial Health” or “Financial Health Check” in a big, hard-to-miss font!
At a glance, it seems that we can get free financial health checks from different companies that offer different kinds of products. Life insurance companies offer this, banks may also offer this service, and in social media, we can see many different individuals, or product companies offering this, for free!
As a curious person, I tend to try out new things. And the most memorable one, I’d say, is one by a reputable insurance company offering a financial health check. I logged in to the portal to do mine; a few questions were asked about my age, marital status and whether I have children. It then asked me to rate a few scenarios that “concerns me”:
Hospitalisation
In the event I’m diagnosed with critical illness
In the event I’m disabled
In the event I meet with an accident
If I’m concern about money for my children’s education
After these questions, the next segment asked me to indicate how much insurance I have in respect to the areas mentioned above, followed by a question of how much of my current income goes to insurance premiums.
Boom, the results came out and I was eager to see if I’m considered financially healthy! The results show me, based on the coverage amount I keyed earlier, compared to people like me at this insurance company, whether I had higher or lower coverage for the respective areas. It even comes with a recommendation of what I “need”. You get it – according to this financial health check, I need more insurance products!
Just like this, am I supposed to say I’m financially healthier than most just because I have higher coverage on death and total permanent disability? Am I supposed to feel concerned just because “people like me” at this insurance company have a RM20,000 paid savings plan, but I have RM0; does that make me a bad father?
Comparing our situation to “people like me” as defined by a company, isn’t a good way to assess if we’re financially healthy. If this is a good approach, we should start comparing our situation to people in other countries, societies, and at other offices. But what is a fitting benchmark for this?
If this is considered a good approach, then if “people like me” in this country have a high amount of debt, should I start going all out and accumulating debt? I’m not sure how this makes any sense. It may make sense to some, but I’m still looking for a good explanation!
Comparison is the root of all evil and how we lose the clarity we need to live our own life. It also helps in feeding insecurity, jealousy, greed and other emotions that don’t empower us to be a better version of ourselves.
I think that if we want to understand if we’re financially healthy, it’s because we want to know if we have a good financial foundation. It’s like a table with four legs; we want to know if these four legs are strong enough, or whether it’s unstable and at risk of collapsing. We need this information because we care about maintaining the table and want it to continue being stable so that what’s on the table will be sustained and maintained.
In life, what’s on my table will be what’s important to me. For me, this includes my family, what kind of difference I can bring to the society, whether I’m making a difference, and helping people be better than they were the day before. But, without those four legs supporting my table top, these three items may not be around for long.
In the context of money and life, we can start from these four legs to find out if we’re financially healthy.
What are these four legs?
Emergency savings
For a start, I’d suggest looking at your emergency savings. If your savings can support you during sudden spikes in unexpected expenses, or ensure you go through challenging times when you lose your main income without having to lose sleep, your leg is quite stable and strong.
Are you saving enough?
Assess if you’re saving part of your income. A person spending all their income today will probably have to always look for money. The day their income stops, they’ll have issues maintaining the lifestyle they lead. On the contrary, a person who saves too much of their income today may not be able to enjoy life at all. Striking a balance seems to be important since none of us know if we’ll get the chance to enjoy our savings 20 years later.
Debt and commitments
Take a look at your debt situation. Do you have a habit of carrying outstanding debts forward month to month? How much of your take-home pay are you using to pay off loan instalments? If this amount takes up most of your income, it means you probably have less freedom and flexibility to try something new, since there are weights dragging this leg down. This means you may not be able to put on more weight to your table top.
Life goals
Finally, how well have you been preparing to achieve your life goals? For instance, my family is important to me, and if I were to leave them too soon, how long can they continue with minimal disruption? Have I done anything to ensure my frozen estate can reach them as quickly as possible with minimal costs? Am I on-track to provide my child with the kind of education I want?
By looking at your financial progress from this perspective, the benchmark you’ll use isn’t public, but rather what you want, and compared to where you are now. This allows you to fairly review the legs of your table. It’ll help you stay on-track and compare your current situation to your ideal goals instead of other people’s.
The points above are the four basic areas I think we should review if we want to understand our financial health. Of course, there are more areas such as if assets are optimised or liquid enough, ways to legally reduce taxes, or reducing the fees and cost we pay when we grow our wealth, etc. But this is a good starting point.
When was the last time you did a financial health check? By being part of the Money Warriors Community, you can learn how to make improvements to the four basic areas – save more, spend with peace of mind, reduce your debt, and be brave when you think of money.
About the author
Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my.
During these turbulent economic times, people may be tempted into taking drastic action with their investment portfolio. For example, if a RM100,000 investment is reduced to RM80,000, that may trigger various reactions towards that RM20,000 loss, such as selling all or some portion of the investment, buying more of that investment, or even doing nothing at all.
These possible reactions from different individuals can provide some important insights into risk profiling. With the current volatile market conditions, understanding investment risk and implementing a systematic investment plan would assist investors to meet their long-term financial goals. Investors might typically ask “What are the risks involved in portfolio investment? What is a safe investment portfolio? How much risk should I take?”
1. Volatility, market information and noise traders
Proper research prior to investing is crucial as it’s important to understand the types of risk associated with each investment. However, investors tend to be confused between the concepts of ‘risk’ and ‘volatility’. In financial terminology, risk refers to the probability of losing an investment capital based on the expected return on any particular investment. Meanwhile, volatility measures price fluctuations in a security, portfolio or market segment. Typically, market news, such as changes in the company’s management team or an announcement about share dividend payouts, can result in stock price volatility.
There’s a growing number of information channels now serving the market, to the point that investors aren’t able to monitor every piece of information released. In fact, many investment decisions are influenced by emotions rather than rationality, which makes them difficult to manage. This is because emotional investment reactions cause short-term volatility. For example, positive news usually gives happiness to the investor, while negative news can lead to excessive reactions.
Emotional investments are usually revealed through the distinction between informed and uninformed investors (noise traders) and how they interpret market information. Meanwhile, noise traders refers to investors who trade based on what they falsely believe to be special information or their misinterpretation of useful information regarding the future price or payouts of a risky asset.
One of the factors of noise trading is the need for liquidity. To be specific, investors may liquidate an investment in order to reduce the risk factors. They tend to buy and sell on market reaction. This is an impulsive action based on irrational exuberance or emotions, such as fear or greed, without any major consideration on the long-term returns.
2. Making informed investment decisions
In reality, investors become highly emotional upon experiencing losses to the point of even selling off their investment. Therefore, frequent updates of risk profiling are essential in order to match the investment portfolio with the investor’s risk appetite. By performing risk profiling, investment advisers would be able to identify the investor’s level of required returns and their risk appetite in terms of capacity and tolerance. As a result, their investment objectives could be better achieved.
Risk profiling involves three types of risk measurement: risk capacity, risk required and risk tolerance. Risk capacity is a mathematical measure of the maximum level of risk that the investor could manage before it affects his/her financial goals. Therefore, this should be determined in the early phase of the risk profiling process, and act as a reference for the investment portfolio risk. Furthermore, risk capacity could be used during risk analysis to help determine the choice of appropriate risk responses. Moreover, it would also help manage financial risk shifts in the long term. This is also influenced by the investor’s financial factors, such as promotion or job loss, new-born child, or health issue that could lead to unpredictable medical bills.
While the risk capacity indicates the maximum level of risk that an investor can manage, the risk required refers to the optimal level of risk managed by the investor to achieve the desired level of investment return. Reaching this level is essential to fulfil the investor’s investment objectives and it also shows the direct correlation of the required risk with the investor’s required level of return.
3. Systematic investing
There are two concepts to be considered by investors in systematic investing, namely diversification and dollar-cost averaging. Based on classical finance theory, an investor’s risk-averse traits will determine the proportion of allocation between a number of risky and less risky assets.
Asset allocation refers to a strategy used by individuals to divide their investment portfolio between diverse categories to minimise their investment risks. This strategy is in line with the saying ‘do not put all your eggs in one basket’. Moreover, investors can choose to invest in the money market, fixed income and equity market. The asset allocation in the investment portfolio will reflect the investor’s need for growth, income and liquidity. Therefore, the allocation should cover the investment horizons, risk-free rates and expected returns on risky assets.
The dollar-cost averaging (DCA) strategy implements a regular and periodic purchasing of an investment. DCA gained popularity among financial advisers and individual investors after the recession throughout the mid-1960s. Furthermore, it encourages the investment of the same amount of money rather than the same number of shares each period. As a result, investors can purchase more shares at a lower price compared to when the shares are priced higher.
4. Periodic review
It’s highly recommended that investors should regularly review their investment portfolio to make sure that their investment performance is in line with their expected returns and investment objectives. In the current volatile market, some investments may present good performance at times, while there are times when their performances won’t be as good, and vice versa. If this isn’t done, an investment with poor performance could significantly affect the whole portfolio’s returns, especially if it constitutes a big part of the portfolio.
By reviewing the investment portfolio, investors would be able to separate their emotions and tactical decisions from their pure investment processes. However, the key question is when investors should review their investment. In general, a review of investment portfolios should be done with their financial advisers on a yearly basis, but additional reviews should also be done when investors go through different stages of life.
To illustrate this point, during the early stages of an investor’s career, he or she would usually need a combination of liquidity and growth in their portfolio. Throughout their employment period, their risk and return preferences will reflect that they have stable incomes and they may experience an increase in their commitments and goals. Following that, as they approach retirement, the investment portfolio should primarily reflect their need for income, including several stages of growth to manage the effects of inflation.
Conclusion
Investor anxiety over a decrease in investment value by more than 30% is inevitable. In fact, when the market faces extreme volatility, some investors choose to rely on their instinct to make investment decisions instead of data and trends. While there may be a few extraordinary individuals who may make the right calls, most individuals end up making huge mistakes.
Essentially, risk is a natural component of investment. However, greater knowledge regarding the risks associated with investment and the practice of risk profiling would assist investors in determining their comfort level and building their portfolios and expectations accordingly.
About the author
Joe Tiong, CFP, Investment and Financial Planning Unit at UOB Kay Hian Wealth Advisors Sdn. Bhd. Her expertise is focused on financial planning and wealth management across an investor’s life cycle. She is also responsible for equipping financial advisors with the right skillset and materials in conducting business. She can be contacted at joe.tiong@uobkayhian.com
Squint eye or strabismus can be found in both children and adults, with each of the categories developing it due to a variety of reasons. With squint eye, the key is early detection and treatment, for the benefit of vision as well as the self-esteem of the patient. Dr Norazah Abdul Rahman, a Consultant Ophthalmologist and Paediatric Ophthalmologist & Strabismus at ParkCity Medical Centre, shines the light on the importance of early treatment of strabismus, especially for children.
By Esvaren Sekar
Strabismus is the medical term for the condition where the eyes point in different directions, resulting in misalignment of the eyes. There are few different types of squint: convergent squint (esotropia) when one eye turns inward, divergent squint (exotropia) when it turns outward, and vertical squint if the eye turns up or down. These types of squint could always be present or only appear intermittently at certain times.
Squint Eye in Children
“Squint eye usually appears in children before five years old, but it can also appear later. And it is not limited to children either, as adults can develop strabismus too. Though the main reason for strabismus is unknown, children with disorders that affect the brain such as cerebral palsy, Down syndrome, hydrocephalus, and brain tumour have higher chances of developing strabismus,” says Dr Norazah.
In Malaysia, one of the most common cases of strabismus is intermittent exotropia, a condition which allows patients to have straight, aligned eyes when they’re focused, but an eye will begin drifting away intermittently when they are ill, tired or daydream. Once they focus again, the eye will immediately go back to the normal position. Accounting for up to 30 per cent of all ocular misalignment in early childhood, intermittent exotropia starts to develop in a child between one and four years old.
In addition, another common case is undiagnosed refractive error among children causing acquired squint. For example, when a young child suffers from long-sightedness and has problem focusing on items that are near, they will start forcing their eyes, causing the eye to squint inwards.
“With children, it is very important for parents to keep an eye out for these signs. Children can be born with squint (known as congenital or infantile squint) and we can detect it as early as four months after being born. Most squints in children need to be evaluated as soon as possible to ensure the vision is protected and to improve the chances of successful treatment. Treatment is to improve eye alignment, and may involve glasses, eye exercises, prism, and eye muscle surgery. If your child has a lazy eye, they may even need to wear an eye patch to improve vision in the affected eye.
Squint Eye in Adults
Dr Norazah Abdul Rahman
For adults, squint eye could either be caused by issues that occur later in life or due to hidden squint eye during childhood that was left untreated.
“In younger population, we often find decompensated squint, which happens when an adult has squint at an early stage of life, but they managed to control it. So, the squint becomes masked. However, throughout their life, these adults might encounter any events and the squint becomes decompensated causing it to develop again. Most of the time it is trauma related, such as a motor vehicle accident,” explains Dr Norazah.
Apart from that, stroke also plays a part in squint eye in adults, as the nerve that controls the movement of the eyes in the brain becomes affected. A sign of squint eye in adults is also the appearance of double vision.
“Most adults who grow up with squint eye due to a lack of awareness. Adults with strabismus may have lack depth vision (3D) or stereopsis, which limits career opportunities. Furthermore, growing up with squint eye may cause the child to be bullied, resulting in low self-esteem as an adult,” says Dr Norazah.
Treating Squint Eye
Squint eye in children must be corrected early. “When a child has squint, we first look at non-surgical options for squint correction. For example, if they have refractive error, we give them glasses. A lot of children have good outcomes with glasses and the squint disappears. Some still have squint with glasses but decreases significantly, and we try to correct residual squint with surgery. In some cases, corrective surgery may be undertaken to correct double vision or, in young children, for the two eyes to work together to achieve depth vision,” explains Dr Norazah.
Meanwhile, adults with squint eye may receive glasses with prism if the angle of their squint is small. Nonetheless if they suffer from headaches or double vision, surgery is the go-to step.
“It is important for parents to not be afraid of sending their child for surgery if it is needed to treat squint eye. Not only is it very safe, but it will also help the child grow up to their full potential,” assures Dr Norazah.
Legacy planning. Estate planning. Succession planning.
What do all these phrases mean? Am I too young or is it too early to consider such plans?
Life as we know it, does not always go according to plan. For example, an unexpected pandemic may have forced a career change on you. Suddenly, you need to dip into your retirement fund for some emergency funds – which would leave you with a depleted income when you reach the age of retirement.
What is more worrying is that when your business encounters financial trouble, it leads to more money being pumped from your retirement fund into the business. Would your retirement plan that was created a decade ago still be sufficient? Would you still be able to leave a legacy for your family and protect them from uncertainties in life? Unlikely.
It is common for us to think of investment and insurance after settling down, but what about legacy creation and why is it important?
Legacy planning
Legacy planning takes on many meanings for different people. However, the focus remains – will I have a lasting and positive impact on the lives of my loved ones? While some have given some consideration to their legacy, most have never put it in writing, and even fewer have established a plan of action.
As a doting provider, you would want your family to inherit the fruits of your labour and ensure that they will always be well looked after especially in later years. With legacy planning, it allows you to pass on what is most important to your loved ones without compromising your current and future lifestyle.
With adequate legacy planning, you will be able to increase your estate, enjoy greater liquidity and ensure fair distribution should any unforeseen circumstances occur while benefiting from financial freedom in your golden years.
Estate equalisation and succession planning
For those who own a family business, one of the challenges is figuring out how to pass on the business to the next generation, especially when one child participates in the business and the other does not.
While you want to leave a good legacy for your family, you would also like to ensure that the inheritance is fairly distributed to maintain the peace and harmony of the family. With fair distribution it can help to mitigate family problems which may arise when the distribution of an estate appears unevenly allocated.
If your wealth changes your life for the better, you are successful. If your wealth changes others’ lives for the better, you have created a legacy. What legacy will you leave behind? When is the right time for such commitment? The answer is now or the sooner the better. However, there are a few things to be considered such as:
1. How much do you want to invest?
Are you looking to invest a lump sum, or set aside a regular monthly amount? And how much money do you – make available for investment? Is this your emergency fund? You are advised not to use your emergency funds for investment.
2. How long do you want to invest?
Certain investment products run for a fixed period, so if you have a specific date in mind as to when you need access to your funds, then some product types might not be necessarily right for you.
3. What is your risk profile?
How do you feel about investment risk? As the saying goes: the higher the risk, the higher the potential returns. Imagine if you incur losses on your investment; what is your risk appetite and how much loss can you stomach?
4. How much flexibility do you need?
It is important to note that when you invest your money, it can get tied up and is no longer easily accessible. But, if you have a sudden need for cash, how quickly and easily can you liquidate your asset? And what is the penalty for doing this?
It is always a good idea to consult an appropriate professional or financial adviser on the particular investment in relation to your own circumstances.
Alternatively, you could consider Affin Maximiser, an investment-linked plan with flexible investment options to help you gain more. You can choose to invest into different investment funds across both local and regional markets to diversify and balance the risks of your investment portfolio. Top-up your investment for more potential returns and get rewarded with loyalty bonus and extra allocation as you invest.
AFFIN Maximiser
Your investment objectives may change over time, and Affin Maximiser gives you greater flexibility to reallocate your investment funds or change your selection of funds without any switching fee. As you may have different financial needs at different life stages, this plan allows you to withdraw your investment funds in part to accommodate your financial needs at any time.
Being more than just an investment tool, this plan also provides insurance protection of up to four times in the event of death or total permanent disability.
From now till 31 July 2021, all Affin Bank customers can enjoy a fuss-free enrolment via the Maxi Easi Campaign with no medical check-up required. If you have a moderate risk appetite, are able to commit to a long-term investment and looking for protection at the same time, then this might be a suitable plan for you. Or, if you are unsure of your risk appetite, feel free to speak to our Affin Personal Banker/Relationship Manager at your nearest Affin Bank branch.
Click here to learn more about this product.
“Soo Yee, I can’t make any investments. I don’t have money left every month, how do I even invest?”
This is a common reply when I bring out the topic of investment. And no, you don’t really need a large amount of cash savings to start investing!
Did you know that you have the option to invest your EPF monies into EPF approved investments via the Member Investment Scheme (MIS)? Let me explain more below.
1. EPF Member Investment Scheme (MIS)
MIS was introduced back in November 1996 for EPF members to diversify, boost and strengthen their retirement savings.
In short, if you have enough funds in your EPF account 1, you can invest part of the funds into EPF approved investments via appointed fund management institutions (FMIs) including Unit Trust Management Companies and Asset Management Companies.
2. Advantages of MIS
a. Allows you to enhance investment returns
At the end of February 2021, EPF announced the 2020 dividend rate for Conventional accounts and Syariah accounts, paying out 5.2% and 4.9% respectively.
But what has the historical rate of EPF dividends looked like?
SK = Conventional AccountSS = Syariah AccountThe graph above is taken from the EPF website (as of 26 May 2021)
So while EPF has been paying a solid return each year, MIS provides the opportunity and potential for you to increase your investment returns and boost your retirement savings overall.
b. Enables you to increase exposure to foreign markets
Have you thought about where EPF decides to invest your money?
As at December 2020, EPF invested 67% of its investment assets in Malaysia and the remaining 33% outside Malaysia.
The numbers show that the majority of your EPF money is invested in Malaysia.
So if you’d like to have greater exposure to foreign markets, you can diversify your investments overseas via MIS.
c. Empowers you to have some control over your EPF investment
You can now choose to invest according to your risk profile.
There are EPF approved investment options for you to match your objectives and risk appetite.
3. Disadvantages of MIS
a. No guarantee of investment returns
For all its benefits, please note that any investment done via MIS doesn’t come with any guaranteed return, while EPF has a minimum guarantee of 2.5% dividend. You might get a higher or lower return compared to the EPF dividend rate, depending on your actual investment return.
You are solely responsible for the investment via MIS that you made.
b. Not entitled to EPF dividends
One of the big downsides is that the EPF money that you channel into MIS is no longer eligible for EPF dividends. Basically, you’re on your own. However, if you’re confident about your investment, this shouldn’t concern you.
c. MIS investments come with fees
Investment fees (such as sales charges, management fee and trustee fee) might eat up your investment returns. You must ensure that your investment returns (after deducting fees) will still be on par with EPF dividends at the very least.
4. How much can you invest under MIS?
You may invest up to 30% of savings in excess of basic savings in account 1 with EPF. You may continue investing via MIS every three months as long as your balance in account 1 exceeds your required basic savings and fulfills all EPF requirements.
To confirm your eligible investment amount for MIS, you may check it under the i-akaun website.
Go to i-akaun website → withdrawal tab → withdrawal eligibility → member investment scheme.
The number that appears next to the member investment scheme is the amount eligible to invest via MIS.
Alternatively, you can also do a self-calculation of how much you can invest under MIS.
The formula is as below:
(EPF account 1 value – required basic saving in account 1 based on your age) x 30%Basic Saving Table from EPF website (as of 26 May 2021)
The minimum savings benchmark set by the EPF will be updated from time to time. You may check out the latest minimum savings required on the EPF website.
Sample calculation from EPF website (as of 26 May 2021)
5. Your investment options under MIS
You may invest via EPF in approved Unit Trust Management Companies and Asset Management Companies under MIS.
epf member investment scheme mis
Difference between investing into unit trust funds compared to managed account (portfolio of unit trust)
In summary, any investment that you may choose to do via MIS comes with pros and cons. Do research and understand all the risks that you’re taking before proceeding with investing. If you have further enquiries on EPF investment via MIS, I suggest that you seek out a financial professional to discuss and design an investment plan that matches both your risk profile and investment objectives.
About the author
Kuah Soo Yee is a Licensed Financial Planner (CFP) who is passionate about helping people make sound financial decisions and achieve their financial goals, and recently launched her own app. Her personalised strategies and advice have helped many to gain better clarity and take firm control of their financial future. She can be contacted at soo.yee@ipp.com.myWebsiteLinkedInFacebookInstagram
Taking personal finance to another level by looking at it from a more holistic view.
How has the past year been for you? I’ve done a lot of reflection on myself and how I want to further evolve when things get a little more normal for the coming year (fingers crossed)!
One thing I personally learned is about life and recognising that money is just a tool. We must make sure we use it correctly in order to work towards financial wellness.
“People first, then money, then things.” – Suze Orman
Reflection on the path to financial wellness
The stoic path to wealth mentions that the fear of losing all our wealth is creating a monster inside us and therefore turning the chase for wealth into fear of losing it.
This eventually turns money into our master and we’re enslaved by fear until we almost lose touch with ourselves.
There is a saying “Money is the root of all evil”. But in actual fact, the full quote is “the love of money is the root of all evil.”
It’s the greed for wealth that is bad as it can corrupt minds, and the need to keep accumulating more and more is the real issue.
Money is not the end goal
Personal finance is not about the money we have or about creating more wealth. Its main purpose should be more holistic, ie. leading the life you were born to lead, no matter what your financial status is.
You’ll see money in a different light if you began your career with a student loan. Even before starting your career, you’ve already created a load of fear by accumulating a large amount of debt.
This results in your mind becoming clouded with thoughts of the repayment of loans first and pushing aside all other goals or dreams. I personally experienced it as a child; teachers kept telling me to finish school, get good grades, go to university, get a degree and get a good paying job.
As a child I thought that was the dream, but it didn’t turn out the way I imagined it would as a child.
We were repeatedly told this fairytale, and subconsciously I believed it. But now that’s not the case. How can we take a holistic approach around our personal finances and take back control of our life?
Believe me, we’re not meant to suffer through life constantly worrying about paying bills.
Reflecting on your childhood dreams
Have a goal in mind. You already knew what you wanted when you were a child. In fact, there’s a good chance you were so good at it.
Try asking your parents or other close family members what you were like when you were around the age of 9 to 12. It’ll give you some insights about your strengths and your childhood dreams.
I grew up observing how passionate my parents were and how they were willing to give their all to their career. At the end of the day, my parents still had time to spend with us and go on a little vacation once in a while. It was a nice balance.
That’s currently what I want to strive for – a balanced life between my career and family.
I’m not saying I don’t want to be rich (who doesn’t), but it’s not my main focus right now.
Between juggling two young kids, my husband works long hours because he enjoys the work he does. Even though in my opinion, he deserves to be paid better, it matters less.
There’s been a string of financial decisions we made that may be a sin in the personal finance community focused on accumulating wealth. But we needed to make those decisions to get to where we need to be in life.
Our goals were bigger than wealth accumulation.
Using my finances to find peace
We can never be free. I believe there’s no such thing as financial freedom. This is because I realised just when I thought we were “free”, something would suddenly hit us like a bomb and I would think “Here we go scrambling again”.
Getting married is expensive. Staying married is expensive. Having kids is expensive. I remind myself of my battles daily.
If my needs are covered, I am willing to forgo some of my wants. How precious and priceless is the laughter of a child?
Just do you
It‘s terribly hard to maintain a balance and I personally struggle with this on a regular basis. Turning off the work switch and being present was a difficult process.
Being frugal and being disciplined in managing our budgets has a big impact on our long term finances.
But this just makes me exhausted. There’s no point stressing about maximising my savings or the future so much that I forget to be present. The goal is not the money – it’s my life.
I’m not going to kill myself just to keep striving towards this illusion that my future will be far brighter if I continue maximising my savings and investments.
I choose to enjoy every step of the journey instead, without mentally burdening myself.
Use your wealth-building experience to create happiness for yourself and inspire others to do the same. Remember it’s not about the numbers and figures in your portfolios, but what you do with the money.
“Wealth consists not in having great possessions but in having few wants.” – Epictetus
Move from survival mode to thriving mode. Choose not to be trapped in the illusion of not having enough. You’re enough! If you’re in survival mode, you’ll trap yourself in the rat race.
Therefore, there’s no room for helping others and all you’ll think about is how to make yourself better instead of the community around you.
About the author
Nurul Yahi has a background in Business Administration majoring in Islamic Financial Planning. She’s a financial enthusiast and you can find her at dearduit.com. You can also find Nurul on Twitter, Instagram and Facebook.
Back in December 2019, the Covid-19 outbreak was triggered in Wuhan, a city located in the Hubei province of China.
The virus continued to spread and eventually escalated into a global pandemic which devastated every single corner of the world, causing radical changes in the way we live as well as social, economic, technological, and political policies.
Amidst the economic doldrum in China, there have been interruptions in exports and imports, while global supply chains have been disrupted significantly.
With a strongly connected and integrated worldwide trading relationship, the contraction in the global supply chain led to a big drop in global economic activities.
Furthermore, governments around the world have been forced to implement harsh restrictions on human activity to curb the spread of the virus.
These travel restrictions further burdened the financial markets and led to dramatic falls in global economies.
It’s been a similar situation in Malaysia, with the implementation of various Movement Control Orders (MCO) costing millions of people their jobs across varied industries, leaving many Malaysians suffering from salary reduction, furlough, or unemployment and retrenchment.
This impact has become apparent since the outbreak and many of them have turned to alternative jobs like driving Grab cars, venturing into the food and beverage industry, online vocations, or direct selling to make ends meet.
In December 2020, the Employees Provident Fund (EPF) launched a new scheme which allowed members to prematurely withdraw their EPF savings in order to aid their cash flow during the difficult economic times posed by the Covid-19 pandemic.
What are i-Sinar withdrawals?
The EPF i-Sinar initiative enables EPF members to make a partial withdrawal from their savings in EPF Account 1.
This initiative was launched by the EPF for the purpose of easing the financial burden of members who’ve been affected by the Covid-19 pandemic, helping them sustain their livelihood. The withdrawal amount will vary, depending on each member’s needs and of course their available balance.
Unfortunately, Malaysians are taking advantage of this opportunity to maximise their withdrawals and spending it on non-necessities.
In fact, without realising it, they’re withdrawing and spending their retirement savings nested in the provident fund!
According to a survey conducted by UCSI, among 809 people in Malaysia who have withdrawn from or planned to participate in the i-Sinar scheme, 47.2% of the respondents realised that the withdrawal will affect their retirement funds, 22.6% of the respondents were uncertain, while the remaining 30.2% of respondents didn’t realise the huge impact it would have on their retirement funds!
Returning to fundamentals, EPF serves as a social security organisation that primarily provides retirement benefits for the private sector and pensionable employees in Malaysia. Since 1951, it has proven to be a responsible and efficient custodian of its members’ retirement savings.
With the introduction of i-Sinar, this can potentially lead to a significant reduction in our retirement savings. The reason for this is that it leads to fewer dividends earned, missing out on the compounding interest in future.
If our savings are insufficient to sustain our retirement years, we may be compelled to delay our retirement further and continue to work, or may even be forced to downgrade our retirement lifestyle to one that is humbler or minimalist.
For individuals who’ve withdrawn their i-Sinar, what else they can do to manage the money beside spending it?
Well, upon fulfilling current needs, you’re highly encouraged to utilise the balance for better purposes such as investing. This is one of the instruments that’s able to grow our wealth through capital gain and appreciation in the value of an asset over time.
As with any savings fund, the benefit of putting money in EPF is the dividends and the compounding interest that you could accumulate over the years.
However, many EPF members have also opted to withdraw their i-Sinar and invest it into different investment vehicles which could offer potentially higher returns compared to EPF dividends.
Let’s use an example to illustrate this: Ms. Maria, aged 35 has withdrawn RM10,000 via the i-Sinar withdrawal facility and invested this into an investment vehicle that has the potential to generate 15% returns annually.
EPF DIVIDEND
ALTERNATIVE INVESTMENTS
PRINCIPAL
RM10,000
RM10,000
ESTIMATED ANNUAL RETURN
5%
15%
AGE 40
12,763
20,114
AGE 45
16,289
40,456
AGE 50
20,789
81,371
AGE 55
26,533
163,666
AGE 60
33,864
329,190
The table above explains how her i-Sinar withdrawal may grow from RM10,000 in the subsequent 25 years to RM329,190 thanks to higher returns and compound interest. If she doesn’t withdraw her i-Sinar and let it nest in EPF, she will only receive RM33,864 in the 25th year!
According to the aforementioned survey conducted by the UCSI Poll Research Centre, it shows that almost half (47.7%) of T20 income group earners who were polled said they used or would use their i-Sinar withdrawal for investment purposes.
Although the hardship faced during Covid-19 pandemic didn’t affect the T20 respondents as much as the others, they still saw this as an opportunity to invest and plan better for their retirement funds!
In a nutshell, the i-Sinar withdrawal is a good initiative to ease the financial burden of Malaysians who have been affected by the Covid-19 pandemic, helping them sustain their livelihood.
Despite part of the population not being affected much by the pandemic, they still continue to think about withdrawing their i-Sinar for investment purposes so that it can potentially generate better returns for their retirement funds. So instead of spending it on unnecessary items, invest it if possible!
Edmond Tang Zhen Han is a certified financial planner that is passionate about helping people achieve financial literacy in order for them to reach financial freedom. He can be contacted at edmondtangzh@genexus.com.my
Do these statements sound familiar? This mindset is typical for many Malaysians, and their very conservative nature and trust in fiat currency often leads to them keeping most of their savings in fixed deposits (FD). Although many understand that collective investment vehicles are essential to any comprehensive financial plan, there are also many hurdles that prevent people from doing so. Here are some common problems that contribute to this mental block:
Poor investment literacy
On average, investment literacy among Malaysians is relatively low compared to other countries with a more advanced and robust economy. Many people lack basic knowledge about capital markets, as well as banking products and services. Thus, this leads to a heavy reliance on FDs, while others unfortunately get caught up in investment scams. This knowledge gap can often be the main reason for many Malaysians being reluctant to invest.
Information overload
Many often look to get involved with the stock market just by doing basic research on Google or attending stock trading courses to discover the fundamentals. However, they can quickly find themselves being overwhelmed by the large amount of complex information and contradictory advice available on the internet. Worse still, some even hire unlicensed “gurus” or end up using suspicious investment platforms.
Lack of time
Investment isn’t a random game of chance – it requires deep homework and monitoring. As most people are busy with their daily life activities, it’ll be difficult for everyone to be able to do research and monitor their investment portfolio regularly, especially if it contains exposure to equities and derivatives which can be highly volatile.
Without enough time, they may not be responsive enough to respond immediately to drastic change in financial markets, which may cause them to lose opportunities or suffer losses during market corrections. This can be compounded if investors are trading in overseas exchanges that operate in different time zones.
Limited capital
One of the biggest challenges most investors face is having limited capital available to invest, making certain financial instruments too expensive and beyond their reach. For example, the share prices of gigantic companies like Facebook, Apple, or Tesla are often much too expensive for a new investor to buy and own.
Leveraging investment through collective investment vehicles
The lack of capital can often be resolved by leveraging collective investment vehicles coupled with proper advice from financial professionals. Collective investment vehicles provide facilities for investors to participate and invest in a wide variety of investment asset classes with the help of fund management institutions.
Examples include unit trusts, private retirement schemes, and even funds available via government agencies and statutory bodies such as EPF and Tabung Haji. It also includes exchange traded real estate investment trusts (REITs) and passive management vehicles such as exchange traded funds (ETF). Collective investment vehicles can be either actively or passively managed.
Benefits of investing through collective investments
There are many advantages when investing in collective investments, namely:
Diversification
For example, an equity based unit trust fund can easily invest into 30 to hundreds of quality companies depending on the mandate. It’d be better still if investors hold a basket of different kinds of funds with a combination of various asset classes and regions. The diversified nature of collective investment vehicles actually reduces the risk and volatility of the portfolio significantly, yet benefits from the return potential of the underlying assets.
Professional management
Investing through collective investments allow you to tap into the expertise of experienced licensed fund managers where they have a wide range of resources to access crucial market information. Professional teamwork between fund managers, investment analysts and their research team ensures that the best efforts are made to safeguard investors’ interest in benefiting from market movements. Fund managers are also able to utilise sophisticated financial tools effectively, which aren’t able to be executed correctly by the average retail investor.
Low entry costs
Investors can begin buying shares or units with a relatively small amount of money. This is because investment funds can be highly cost-efficient as they make “bulk-purchases” through a huge pool of investor funds. Some funds even allow investors to invest on a regular basis with contributions as low as RM100, which means the investor is actually buying into fragments of quality companies using that small amount of money.
Flexibility
Many fund management companies administer several different funds, such as money market, fixed-income, dividend, balanced and growth funds. They allow investors to switch between funds within their fund with little or no charge. This enables investors to allocate and rebalance their portfolios as per personal needs or changes in market conditions.
Choice of sectors and regions
Investing into collective investments allows you to take advantage of a wide variety of investment sectors and geographical regions. You could invest in a fund that invests in several global regions, which can reduce your exposure against big market swings in any one area. Or you could target specific countries and regions, to take advantage of the growth of their markets and gain more lucrative profits.
Investing through institutions
Would a retail investor or an investment institution have the upper hand in investing? The answer is obvious. When you leverage your investment through collective investments, you’re participating in the market through institutional investors. The level of detail and analysis that an institution does is far superior to anything a retail investor can access.
Though there are a relatively low number of investment institutions compared to hundreds of thousands (if not millions!) of retail investors in the market, the decisions made by the institutions often create a greater impact and opportunities compared to the retail as institutional funds are huge and professionally managed.
Summary
Investing through collective investments is meant to seek leverage on the expertise, time and convenience, minimise risk and optimise investment returns through professional and sizeable fund management. And while there are plenty of collective investment vehicles and fund managers, if you remain unsure which ones you should opt for, consider consulting a licensed financial adviser or planner to work out a tailor made solution for you!
About the author
Lee Yee Xiong, (FAR AfRFP BAAcc) is a licensed financial advisor with an accounting background and is well-versed in a holistic, independent and unbiased advisory approach. He is among the very first batch of MDRT International Benchmark Awardee in the FA Channel. He can be contacted at YeeXiong.Lee@yesfinancial.co
It’s been a tough year for the world, and Malaysia is no different with Covid-19 cases rising to a new high from 2,000+ cases to 6,000+ cases daily despite several Movement Control Orders (MCO).
It doesn’t seem that the pandemic is going to end anytime soon, so what’s the best way to manage personal risks in this new normal?
Managing personal risks means being prepared for the worst possibilities that may occur.
It also means that you should ensure that if something unprecedented does happen, it would leave little to no impact on your family finances and well-being.
Here are six tips on how to manage your financial risks in this new normal:
1. Prepare a buffer of emergency funds
Thanks to the Covid-19 pandemic, the economy has been severely impacted and the unemployment rate is rising. Due to the restrictions set by the government, many businesses couldn’t survive, leaving them with no choice but to enforce pay cuts, retrench staff, or in the worst case scenario, shut down their businesses.
In addition, there are also businesses that are quick to adapt and move towards digitalisation which can often mean that human capital is then regarded as redundant, leading to further retrenchments.
This turbulent time has taught us that anyone can be at stake, which is one of the main reasons why it’s absolutely crucial for us to build up an emergency fund that can last at least 6-12 months.
Having this fund will provide a buffer of cash reserves to help us weather tough times if we are no longer able to rely on our active income or even when we experience pay cuts. It’ll also help us avoid relying on a credit card for essential expenses as a go-to fund will be in place to help us stay afloat.
2. Upskill or reskill to stay relevant
With the increasing unemployment rate, the job market is becoming more uncertain and tough. The supply of labour is now greater since more people are actively seeking jobs.
Thus, it’s essential to always ensure your skills aren’t obsolete and are still relevant. That way, if you’re still employed, your company will see you as valuable and thus increases the chance of job security.
On the other hand, jobseekers will benefit from upskilling and reskilling as you’ll remain employable and at the same time stand out in the job market. There are tons of free and paid courses to explore online.
The Employment Insurance Scheme (EIS) under the Social Security Organisation (SOCSO) also provides vocational training to eligible participants who have been retrenched. The training cost will be covered by them and you may also be eligible to receive a training allowance.
In addition to all these, do consider being flexible and open to any job even though it’s not paying as much, as this will not only help you with learning and using relevant skills but will also help to stretch your emergency fund before you land yourself a suitable role.
3. Reduce the risk of getting infected
The number of cases has shown that the virus doesn’t discriminate or choose its victims. We also know that people who fall under vulnerable categories have a higher risk of getting infected, and it can even be fatal for them.
Regardless of which category we’re in, it’s important to follow the standard operating procedure to reduce the chances of getting Covid-19 and to ensure that we won’t become a carrier to those who are more prone to be infected.
Try to lead a healthy lifestyle; be it in terms of adopting a balanced diet or engaging in physical activity to boost our immune system. It’s easy to opt for a sedentary lifestyle these days, especially now that some of us can work in the comfort of our home without having to travel back and forth to the workplace.
In addition to that, it’s crucial to get vaccinated to prevent you from getting infected with Covid-19, and by doing so, we can also help reduce the spread of the virus. You can register on the MySejahtera app if you’re yet to do so.
4. Be prepared for unfortunate events
As much as we try our best to maintain a healthy lifestyle, we’re all exposed to risks other than Covid-19. Death is inevitable, while total permanent disabilities and illnesses are potential risks in life.
If we’re not prepared for such events, it may leave our family finances vulnerable and possibly break the bank or worse yet, spiral into debt.
These are scary events to think of, but we have to face the fact that not preparing for them is more detrimental. So how can we start? Think about how you would want your money to be managed in these events.
For instance, if you were to pass away, how would you settle your debts and ensure the continued survival of your dependents? This is imperative for parents with minors and those with special-needs dependents.
As for disabilities and illnesses, are your funds enough to take care of this, or is it cheaper to opt to be insured in the first place?
5. Take up financial initiatives by the government
Since the first MCO, there has been much financial assistance offered by the government to safeguard the people’s welfare as well as to continue stimulating the economy.
While some financial initiatives announced aim to help vulnerable groups and daily wage workers, there are also optional initiatives like the EPF i-Sinar advance facility and loan moratorium where you can defer your loan repayment.
So who should take up this financial initiative? Those with little or no emergency funds, high-interest debts like credit cards and personal loans, at risk of getting retrenched, experiencing pay cuts or retrenchment, or a monthly cash flow deficit should consider taking these up.
Take this period of assistance as an opportunity to reset and improve your financial situation so it’ll be more resilient to withstand any shocks. Having said that, it’s also important to understand the impact of utilising these facilities.
The EIS by SOCSO also offers a job search allowance (JSA) for those who are eligible, and if you do, you can claim this allowance for up to six months. It will be reduced over the period so you won’t be able to fully rely on this, but it’ll certainly help your emergency fund last longer.
6. Review your investments
‘Should I redeem my investments?’, is one of the questions I received a lot during this hard time as people are uncertain about the market. If this is what you are thinking of, review your investments and ask yourself:
What is my investment objective for that particular investment?
The objective of investments will determine how long you should stay in the market. A longer time horizon should be able to withstand the turbulence as you’re not going to need the money in the short term.
This is also where the emergency fund plays a role to increase the holding power of your investment and you won’t need to cash out in times of emergency.
Am I able to withstand the ‘roller coaster’ movement of the investment?
If your answer to this is no, you may want to switch to a lower risk profile. This doesn’t mean that you’re exiting the market; it just means that you’re lowering your exposure to high-risk investments and increasing exposure to low-risk investments so you’ll not have to experience as much volatility.
Are my emergency funds enough?
It’s essential to have a buffer of funds prior to any investment. However, different people have different circumstances these days.
If you’ve suffered a job loss, and are currently living on your emergency funds, you may want to have the a final backup plan ie. selling your investment, should you exhaust your funds before you can secure a job. It’s a better option compared to relying on credit cards.
With the current work arrangements, you may also find that you have extra money to invest. If this is the case, regularly saving will help you get into the market at different times and you will benefit from the market dip where investments are on sale!
Conclusion
Being prepared with risks will give us peace of mind that things will be taken care of. A resilient financial situation will certainly help us weather this crisis. If you’re unsure about how to go about your finances and stuck, do seek unbiased professional help. It may be a daunting period but there are also lots of opportunities.
‘Tough times never last, tough people do.’ – Robert H. Schuller
About the author
Nursyahirah Mohd Ghazali (CFP, IFP) is a Licensed Financial Planner. She strongly believes that financial education starts from home and that parents play a huge role in raising financially savvy kids, and that a collective effort from parents in this matter will result in a more financially literate generation, helping to transform Malaysia for the better. She can be contacted at nursyahirah@wealthvantage.com.my
As a doting provider, you would want your family to inherit the fruits of your labour and ensure that they will always be well looked after especially in later years. With legacy planning, it allows you to pass on what is most important to your loved ones without compromising your current and future lifestyle.
With adequate legacy planning, you will be able to increase your estate, enjoy greater liquidity and ensure fair distribution should any unforeseen circumstances occur while benefiting from financial freedom in your golden years.
If your wealth changes your life for the better, you are successful. If your wealth changes others’ lives for the better, you have created a legacy. What legacy will you leave behind? When is the right time for such commitment? The answer is now or the sooner the better. However, there are a few things to be considered such as:
So while EPF has been paying a solid return each year, MIS provides the opportunity and potential for you to increase your investment returns and boost your retirement savings overall.
In summary, any investment that you may choose to do via MIS comes with pros and cons. Do research and understand all the risks that you’re taking before proceeding with investing. If you have further enquiries on EPF investment via MIS, I suggest that you seek out a financial professional to discuss and design an investment plan that matches both your risk profile and investment objectives.
