Category: business

The Financial Happiness Formula: Applying DMAS to Life
Life can be complicated if we choose to make it so. As adults, we should know what makes us happy. Yet, most of us adults have fewer happy moments now compared to when we were younger. Is there a financial happiness formula?

After years of working experience, I’ve come to realise that the easiest way for us to achieve Financial Happiness is by going back to basics.

Most of us started our experience in dealing with numbers during our kindergarten years. We learnt about numbers, how to count and perform mathematical operations, geometry, and other math concepts from young till high school and beyond.

Due to not regularly practising these equations in everyday life, it’s not surprising that most adults develop misconceptions with the order of operations to be performed while solving a mathematical expression (BODMAS – acronym for Bracket, Order, Division, Multiplication, Addition, and Subtraction).

How Does One Reach Financial Happiness?

It is normal for us to begin practicing Addition from young, and by the time we joined the workforce, we would’ve become experts at this. Our environment trains us to view the Addition of new “wants” or “needs” positively; as something to be desired.

However, it’s rare for young adults to be taught how to differentiate between wants versus needs. The perception that “more is better than less” leads us towards the trappings of the proverbial rat race.

We fail to leverage our understanding of BODMAS in our financial life and furthermore, we aren’t aware of how it plays a vital role in our effort to pursue Financial Happiness.

BODMAS is the golden rule for solving equations and guides us on how to solve mathematical problems by following the correct sequence, otherwise, our answers may be wrong if we fail to follow the rules. When we apply the BODMAS rule to solve equations, we must first solve the Bracket.

Subsequently, we solve the Order (that mean powers, roots, etc), then we continue with Division, Multiplication, Addition, and Subtraction. The key point to note is that Division and Multiplication rank equally, and in fact take precedence over Addition and Subtraction.

Applying DMAS to Life

Taking a leaf out of the BODMAS system, I’d like to suggest that DMAS (Division, Multiplication, Addition and Subtraction) can be the core approach to solve our personal financial matters.

Let’s go through an example to see how we can achieve Financial Happiness by applying DMAS in our daily life.

By following the proper arrangement, we always start with either Division or Multiplication.

Division is the action of separating or process of splitting things into equal parts. This action and process is so much more meaningful when we apply it to determine our life priorities, for example in areas such as health, relationships, career or how we deal with money.

Obviously, we all understand that these priorities are equally important and deserve equal attention throughout our lifetime.

In fact, changes in life stages and socio-culture environments might lead or force us to make disproportionate choices.

Common life problems such as financial or health, marriage and family, or career pressures often occur due to mistakes and failure to maintain the balance while fulfilling our needs.

Hence, a proper and systematic rebalancing strategy (also an important strategy in investment management) will enable us to review our situation and ensure we reposition ourselves at the appropriate ratio.

Multiplication gives the results of combining groups of equal sizes whereby we can consider it as repeated addition, creating a larger whole. Multiplication in finance is always related to the rule of compounding, and it amplifies our financial condition, either positively or negatively.

If we start off on the wrong foot, we’ll most likely end up with a bigger mistake. This can be clearly seen in the increasing number of Malaysians declared bankrupt or affected by overwhelming debts, especially credit card debts.

We should recognise that the rule of Multiplication is not limited to money but also other scarce resources such as our networks and knowledge.

As long as we’re able to identify the appropriate resources we want to grow, by putting enough time and effort, we will reap what we sow.

After applying both Division and Multiplication, you may now continue with Addition and Subtraction.

Addition of two whole numbers results in the total amount. In life, we tend to add new compartments by fate or chance. Given the same 24 hours a day or 365 days a year, we never tire of being attracted to new things and adding them to our bucket list.

All of us have a different threshold and we should know better the tipping point of fulfilling our own desires as we become older and more experienced.

Always take into consideration the results you will likely get from Division and Multiplication mentioned above. When the time is right, consider adding a new skill to grow your career, a new asset class into your investment horizon, or a good hobby or habit that helps you to excel in life.

Subtraction is the operation of removing objects from a collection. It’s not an easy task for us to practice even though more people are now attracted to the KonMari Method. With respect to financial matters, you may want to consider the two subtractions below:
1. Get rid of negative financial thoughts
2. Eliminate unwanted financial habits
There are no shortcuts to Financial Happiness. It only seems impossible if we don’t act at all. Apply the basic rules of DMAS patiently and wisely, and you will have an easier journey to achieve Financial Happiness.

About the author

Jess Hon is a Licensed Financial Planner and can be contacted at jesshon@finwealth.com.my.
February 15, 2021
Does Value Investing Work?

For decades, value investing has been popular with financial luminaries like Ben Graham and Warren Buffett, who is arguably the most famous investor in the world. Buffett is renowned for his investing style which is “value investing”. Many are curious about what value investing is and whether the concept still works in an environment where the Covid-19 pandemic is plaguing the whole world.

Firstly, investors must understand how value investing works. In layman terms, value investing is a strategy for taking advantage of the market at the right moment. It’s based on the idea of “appraising” stocks, with value investing advocating hunting for stocks that are undervalued based on their “intrinsic value”, before buying them, holding them and weathering the volatility of the market. In theory, a company’s stock value should be the same as its market price but in many cases, this doesn’t hold true. It’s possible that stocks could be overvalued and at other times, it’s undervalued.

To carry out this strategy, the investor will be required to analyse the company’s fundamentals and project the future profits that the business is going to generate in its lifetime and with that the investor is able to assess whether the company is underestimated in the market or not. If so, you get to buy its stocks at a bargain in the hopes that the market will turn in their favour over the long run. These value stocks are being sold below their intrinsic value and have huge potential to grow in the future when the price is adjusted accordingly.

Although the concept seems simple, value investing is extremely difficult to implement properly and requires rigorous analysis to determine what the “underlying value” of a stock is. In today’s environment, investors must consider geopolitical factors, fiscal or monetary policies, currency, business model, supply and demand of the company’s services or products, and other underlying factors.

Understanding Value Investing is Vital before Making any Investments

If you look at the chart above, the red line indicates the company’s potential or intrinsic value. In the beginning, due to its low value, the market misinterpreted the situation and quickly undervalued its stock. Value investors wait for this golden opportunity to buy the shares at a discounted price. They know the company has future growth potential. Then, they sell their stock when the market price is overvalued, earning them a nice, big profit.

For example, let’s take Microsoft whose product is widely used and accounts for 76.56% share of its industry as of December 2020 according to Statista.com and has about 1.5 billion active users worldwide. On average, its net income margin is about 25% per year and it consistently manages to turn over healthy profits. Despite the Covid-19 outbreak, its products were still massively used but during the pandemic selloff in March 2020, it lost about 25% of its share value.

Putting the factor of the COVID-19 outbreak aside, this company maintained good, continuous growth, and its share value grew about 23,000% in the last 30 years. Using the value investing strategy, one will see a huge opportunity in this company due to its nature of business, as well as the demand for its service and product continuing even during a pandemic.

(*Note: This should not be taken as financial advice or a buy recommendation.)

Like all investment strategies, patience and diligence to stick to the investment philosophy is a requirement. There will be days when an investor may want to purchase some stocks because the fundamentals are sound, but he or she may have to wait if it’s overpriced at that time.

If investors are unable to properly carry out this strategy themselves or commit to the time needed to invest themselves, it’s always advisable for them to seek for professional advice or seek a proper licensed financial planner or financial advisor to assist them. These professionals will be able to offer advice according to the investors’ risk appetite, goals and objectives. Other factors will also be used to evaluate the investors’ current financial condition before such advice is given.

Conclusion

Therefore, do buy the stock that is most attractively priced at that moment, and if there is none that meets the criteria, just sit and wait and let the cash sit idle until an opportunity arises. The bottom line is, value investing is a long-term strategy, it requires hard, there is no short cut and it works as Warren Buffett is still a devoted advocate of this strategy.

About the author

Alex Ng Wern Ping is a licensed financial planner, and can be contacted at alexng.alpineadvisory@gmail.com.

February 10, 2021
Kenanga Investors Bhd: The Art of Diversity

Kenanga Investors Bhd has always been guided by its unwavering conviction in the investment strategies that has weathered them through many challenging periods in the past. And this deep-rooted philosophy has proven its resilience, especially in these trying times.

The firm’s success isn’t a single-handed effort, however.

Rather, it is attributed to the organisation’s capable and dynamic investment team as well as the diversity of ideas, strengths and competencies that come from the team, Kenanga Investors Bhd chief executive officer Ismitz Matthew De Alwis tells Smart Investor.

“Diversity is strength, and together, all of us have worked tirelessly to uphold our firm’s philosophy that is ‘Consistent Top Performance’ and ensure sustainability in what we do,” he reveals candidly.

Key Drivers for Impressive Growth

Over the years, Kenanga Investors Bhd’s strategy to be a multi-segment, multi-distribution and multi-product platform has spurred the organisation’s strong growth.

“We are able to cater our services and products to meet different client risk appetites be it equity, fixed income, managed portfolios or even alternative investments.

“We achieve this by firstly prioritising the optimisation of our investment engine to create an alpha-centric performance culture – a culture that is the foundation of our consistent top performance,” De Alwis explains.

From a product perspective, Kenanga Investors Bhd has streamlined its entire suite of offerings to ensure their investors’ various needs are being met.

In addition to sourcing for new investment ideas and strengthening the distribution of the funds on their platform, much thought and effort has been put into ensuring their existing product line-up continue to contribute to their vision of being a market leader. This also provides a holistic approach to their clients’ investment and wealth management journey.

“We have also taken up the mantle of championing financial planning which will benefit our consultants and investors alike by focusing on a needs-based structure.

“This highly complements our goal of eventually becoming a one-stop wealth advisory firm with access to all capital market products while also providing holistic financial planning to our clients,” says De Alwis.

Pandemic’s Impact on Fund Management Strategies

Kenanga Investors Bhd’s investment strategy, reveals De Alwis, has always been premised on a bottom-up stock-picking approach on stocks that can offer a strong earnings trajectory.

As such, across its top-performing funds, the common performance contributors are their overweight positions in technology and rubber glove sectors, with the global outbreak of the Covid-19 pandemic leading to a surge in demand for glove products.

“This strong earnings profile coming from the tech sector especially is a showcase of not only their capabilities but the emerging importance of home-grown Malaysian technology companies in the global semiconductor supply chain.

“Kenanga Investors Bhd believes there are structural drivers such as the rising adoption of 5G, artificial intelligence, electric vehicles and industrial automation and thus the supply chain that provides the components to these industries will benefit.

“Besides growth, tech stocks also have solid balance sheets and strong cash flows which enable them to weather an economic downturn better than some other cyclical.”

For check and balance, De Alwis reveals Kenanga Investors Bhd adopts a holistic approach to risk management to prepare the firm for inevitable situations by identifying, assessing, reporting and managing the probability and impact of all related activities.

Indicators are used to provide early warning signals which then determine the responses required. For instance, during unsustainable bull markets, their indicators may help them to avoid companies with weak fundamentals or to avoid paying excessive prices for stocks relative to its intrinsic value.

“Kenanga Investors Bhd’s risk management policies that our returns commensurate with the risks we take which means achieving out-performance without taking on more risk.”

Navigating Market Complexities of Tomorrow

The economic fallout from the pandemic has many Malaysians questioning their financial security, with concerns such as needing to postpone retirement or tapping into savings to pay for basic expenses.

So how does Kenanga Investors Bhd address such concerns?

The firm, according to De Alwis, has always been known as an equities expert within the Malaysian landscape. Since 2019, however, they have expanded into the fixed income space after a strategic mergers and acquisitions (M&A) exercise, while in early 2020, Kenanga Investors Bhd launched Malaysia’s first leveraged and inverse ETF to be benchmarked against the FTSE Bursa KLCI.

“Investors now have the flexibility to diversify their portfolios further to suit changing needs and investment environments backed by superior and holistic investment expertise.

“Furthermore, Kenanga Investors Bhd’s on the financial planning model ensures we are a needs-based asset manager, instead of mere product-pushing which may not benefit investors in the long run,” says De Alwis, stressing the firm is now more equipped than ever to guide investors of today in navigating the market complexities of tomorrow.

By helping an investor map out their risks and goals to develop a plan (possibly comprising a diversified portfolio of various asset classes), they will eventually achieve their intended goal.

“Following that, we will work hand-in-hand with the investor to keep periodic tabs on their overall portfolio to ensure they are on the right track and to make adjustments where necessary.

“It is critical for the investor to stay diversified so that the various assets in the portfolio can take advantage of different economic conditions, leading to the best possible outcomes during crashes,” he adds.

De Alwis goes on to highlight the need for investors to avoid following a herd mentality, especially when they are caught in times of crises.

“It is easy to follow where the crowd goes because many believe there is safety in numbers. But when it comes to personal financials, one person’s risk appetite and goals can differ to the next person’s.

“With Kenanga Investors Bhd in the picture, we can help the investor to assess their situation before they indulge in panic selling and finding out later that they would have recovered or profited had they stayed the course,” he concludes.

By Bernie Yeo

February 9, 2021
How to: Achieve Financial Independence in 5 Years
In the digital age, many young Malaysians are eager to invest and grow their hard-earned money.

Through information, they have obtained on the internet and through their peers, they understand the importance of growing their wealth through investing and have a desire to achieve financial independence as early as possible.

There are also young adults who find it more comfortable to not invest until their financial situation becomes more stable or they have more money to invest.

For this category, they are looking to invest and will do so when they have the extra disposable income to set aside.

There are also others who have embraced the YOLO lifestyle, looking to live in the present and are accustomed to instant gratification.

They spend every ringgit they earn, and perhaps even more by borrowing through their credit card or personal loans and choosing to let tomorrow worry about itself.

Whichever category you may fit in, one key point to take home is that if you’re in your 20s, you have a big advantage over many others when it comes to investing.

Here are three reasons why your age can be your biggest advantage:

1. Time and Compounding Interest

There is a famous saying attributed to Albert Einstein where he called compound interest the “8th Wonder of the World.”

Whether Einstein said this or not, compound interest is the key that allows young investors to grow their wealth over time.

Compound interest requires only two things: the reinvestment of earnings and time.
- Compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than the simple interest which is calculated only on the principal amount.
- Interest can be compounded on any given frequency schedule from daily, to annually.
- When calculating compound interest, the number of compounding periods makes a significant difference.
Assuming a 6% interest rate per annum, the table below shows the stark difference in the final amount based on how long an initial investment of RM10,000 is put to work:

Starting Age Compounding Period (Years) Final Amount at Age 60

20 40 RM 102,857

30 30 RM 57,434

40 20 RM 32,071

The longer money is put to work, the more wealth it can generate in the future for you.

Here’s another chart that demonstrates how much you would need to set aside every month at different ages, assuming you are looking to accumulate RM1 million for your retirement.

As shown below, if you start investing at an earlier age, it is much easier to hit your financial targets through the sheer power of compounding interest.

2. The Ability To Take Risk

It goes without saying that higher-risk investments that are more volatile yield the highest return. Simply put, the higher the risk, the higher the return and the lower risk, the lower the return.

Younger investors are usually focused on growing their wealth and should invest in higher return investments.

This is because you have the time to recover if something were to go wrong, giving you the opportunity to make riskier moves. For example, when you are in your 20s, even if you suffer a loss today, you’ll be working for the next 25-40 years and have many years to earn an income. In short, you’ll likely recover from that investment loss.

Those who begin to invest late in life are often inherently more cautious with how they invest their money.

As one nears retirement, one usually starts allocating their investment portfolio to lower risk assets which correspondingly have lower returns. By starting late and having lower returns, one might fall short of their financial goals.

3. Learning by Doing

As a younger investor, you have the flexibility and time to study investing and learn from both successes and failures.

Since investing has a fairly lengthy learning curve, young adults are at an advantage because they have years to study the markets and refine their investing strategies.

You will make money, and lose money on some investments.

Examples of things one needs to learn can include opening a stock trading account, opening a mutual fund account, buying real estate, or even calculating investment returns – these are all best learnt through experience.

There are many other aspects when it comes to investing such as understanding how the market works, how the economic cycle affects your investment, or how mutual funds and Robo-advisor fees can affect your returns.

Gaining this experience at a younger age will give you the confidence and knowledge to invest and grow your wealth to achieve your financial goals in the long term.

Capitalise on Your Biggest Advantage

There are many factors that one looks at when designing an investment portfolio. Ultimately, it should be designed to allow you to achieve your financial goals, be it short-term such as planning for a wedding, or long-term such as retirement.

It cannot be overstated how beneficial it is to start early. In today’s information age, it’s your responsibility as a young investor to educate yourself on investing and take action to capitalise on the key advantage you have, which is time.

Time cannot be bought and unlike investment losses, lost time cannot be recovered.

Every day you delay is an opportunity loss to capitalise on the power of compounding interest and the ability to take risks.

When one starts early, you get to learn from experience and make mistakes when they are less costly (ie. you have less money to lose) compared to when you get older.

About the author

Nicholas Wong is a licensed financial planner and can be contacted at nicholas.wong@ipp.com.my.
February 5, 2021
A Multi-Generational Wealth Manager for HNWIs

For many high-net-worth individuals (HNWIs) in the region, managing and growing their wealth has become ever more complex with the heightened uncertainties and volatility of recent times.

This is especially so given the Covid-19-induced global economic shock, US-China trade tensions, rising geo-political risks and prospect of Black Swan events. This is where the value of family offices and private wealth managers come to the fore in helping these HNWIs strengthen the pillars of their wealth.

And this is a business segment that Affin Hwang Asset Management has seen growth in recent years. In fact, the wealth segment will be a key business focus over the next five years for the asset management firm, which has total assets under administration of RM60 billion as of 30 June 2020.

“With more focus and resources, we can continue to grow this segment in line with Affin Hwang AM’s aspirations to be a distinguished wealth manager in Malaysia and the region,” says Shawn Kong, senior director, Institution, Corporate & High-net-worth individuals (HNWI) Business.

It also sees a transfer of wealth across generations with more millennials becoming high-net-worth individuals in the coming years. In reaching out to this group, Kong says Affin Hwang AM will continue adapting to become “a multi-generational wealth manager” by listening to their needs and growing together with its clients. Here are excerpts of our interview with Kong on the company’s fast-growing private wealth business.

Smart Investor: Wealth structuring whether it’s wealth creation, capital preservation or intergenerational planning has become more complex in light of heightened volatility and black swan events like Covid-19. What is your take on this and how do you think the private wealth landscape has evolved in the new normal?

Shawn Kong: Investments and markets today have evolved. Market cycles are a lot shorter and more volatile, as we saw this year with the pandemic. Interest rates are low and overall economic growth is slow. As such, investment and wealth management has become more complex and challenging.

In a world of complexity, the team at Affin Hwang AM is all for simplifying wealth management to our clients. It is crucial to first understand the objective of the wealth structuring for a person or a family before putting in wealth planning tools or products. Upon understanding the investment objective and risk tolerance, we can then craft a suitable diversified portfolio for our clients.

With heightened volatility, it is essential for clients to first understand the risks of their investment to ensure they are comfortable with the risk they are taking. A litmus test question that I always find helpful would be to ask clients if they are able to sleep at night with the level of risk or volatility that they are taking.

SI: What have your conversations been with private wealth clients and their main concerns today?

SK: As we enter a historically low interest rate environment, our recent conversations with clients have centred around the search for yield. There is renewed interest in fixed income and dividend yielders as investors seek to enhance portfolio yields to beat long-term inflation.

On the other end of the risk spectrum, another common conversation would revolve around the sharp equity recovery since the rout in March due to Covid-19. Many would have felt that they might have missed out on the strong rebound in markets.

A divergence between how well global and regional equity markets have performed due to ample liquidity versus poor economic fundamentals on the ground presents a dilemma for equity investors. Is it too late? Is the rally sustainable? Those are the questions that keep cropping up.

Eventually, our client engagements would lead to crafting a well-diversified core portfolio that would provide long-term exposure to a broad range of asset classes, investment strategies and regions. We would overlay that portfolio with some tactical ideas or strategies to capture shorter-term opportunities. It is also crucial to have an on-going portfolio monitoring and review with clients regularly.

SI: Is there strong appetite for risk including alternative asset classes? How are you guiding asset allocation for your private wealth clients?

SK: Alternative asset classes like private equity, private debt/ mezzanine funding or private real estate can be very attractive diversification opportunities aside from public equity and fixed income.

Private equity will provide clients with the opportunity to participate in the growth of a business in the earlier stage before it goes public, thus enhancing the long-term returns.

On the other hand, private debt or mezzanine funding, which behaves more debt-like instruments, will give recurring income via coupons (typically higher than tradable bonds in the market). The trade-off for these asset classes would be liquidity and usually a longer investment horizon, compared to the public markets.

We would guide our clients to invest into these asset class according to their risk profile and investment horizon. A more aggressive client may have a higher allocation to private equity while a more conservative client would be more suitable to private debt.

It is key to know what t he underlying investment is and to understand the risks as well as how the returns are generated. In the case of investing into private funds, it is also important to understand the style of the manager and their track record.

We have recently provided clients with access to private real estate related deals, from asset-backed securities (ABS) to private REITs; whereby the listing of the asset 3-5 years down the road would give investors a decent total return. All these alternative options provide ways for investors to gain further diversification especially from traditionally listed equities or fixed income that are publicly traded.

SI: We are seeing a massive transfer of wealth across generations with a larger number of millennials becoming high-net-worth individuals. How is Affin Hwang AM adapting to this demographic shift and catering to the needs of a new generation of wealthy investors?

SK: The millennial generation has access to infinite amount of information via technology. How Affin Hwang AM can add value is to make sense of all that information or data to help clients translate them into investment decisions. Digitalisation is also important to enhance their investing experience whether it is portfolio monitoring or smoother execution of transactions.

We have also been running various “future leaders” programmes which include seminars, workshops, study visits and networking sessions to create value for the younger generation of our investor base. Seminar topics range from investment and market updates, wealth preservation concerns as well as leadership and business innovation.

We are mindful of the large transfer of wealth that is going to take place across Asia (Malaysia included) over the next 20 years. Thus, it is imperative that Affin Hwang AM continues to adapt to be a multi-generational wealth manager over time by listening to their needs and growing together with our clients.

SI: What further plans does Affin Hwang AM have to grow its private wealth segment?

SK: This wealth segment is one of our key business focus over the next five years. We have made some encouraging initial progress and growth over the past five years. With more focus and resources, we can continue to grow this segment in line with Affin Hwang AM’s aspirations to be a distinguished wealth manager in Malaysia and the region.

Among our plans is to continually expand our investment offerings and solutions (e.g. asset classes, strategies, regions and currencies) to help our clients achieve optimal diversification in their portfolios.

Within the wider wealth management ecosystem, we can then also build other pillars of our client’s wealth including wealth preservation and distribution. We are also continuously upskilling our people and talents as we grow the team.

Our key proposition as a wealth manager is that we are investment-led, given our roots in asset management as well as client-focus, where we strive to live up to our mantra to always put our client’s interests first.

Our long-term growth and success has been anchored by this singular trust that we have built with our clients over the years.

This article was originally published in the September-October 2020 issue of Smart Investor.

February 2, 2021
3 Tips to Building Your Emergency Fund

In the previous month, I talked about the importance of having an emergency fund. This will put us in a better place to deal with surprises and curveballs in life.

Sometimes, this sounds like a no-brainer as most of us are well aware of this. Yet, according to some statistics published in the media, we are constantly reminded of the dire situation among consumers.

The most infamous one is the Bank Negara Malaysia study that showed 75% of Malaysians would struggle to come up with RM1,000 to deal with unexpected situations.

This is the kind of number that makes me feel frustrated, and sad at the same time.

On one hand, people gladly use this revelation as a ‘sales tool’ to create a need for consumers to buy their financial products.

On the other hand, it does highlight a serious scenario that needs attention. People are finding it hard to save, and worse, deal with any unexpected situation, which we’re almost ‘guaranteed’ to face in life.

As painful as it sounds, I really hope I can play my part to help people build up their savings.

Here are some suggestions that you can use as a guide in your efforts to build up your own emergency fund.

I hope this will help make it easier, and together, we’ll bring down that 75% to a much lower number!

A Ringgit Saved = A Ringgit Earned

Commonly, people tend to say “I will save what I have at the end of the month”.

Just because most people adopt this mindset, it doesn’t mean this is an effective approach. In fact, based on experience, almost everyone that struggles to save money has told themselves this.

The results show that this mindset will only get us limited results.

If you’re a salaried person, have you ever struggled to pay your income tax bill? The answer is most likely “No”. Why do you think this is?

That’s because, before the money even reaches your hand, it’s already been ‘taken out’ and ‘paid’ to where it should go.

If you’re still not convinced, how do you think your EPF account continues to grow in size each year?

While the dividend is a good reason, however, the main reason you see the amount grow is due to the regular contribution, which again, before you can ever touch it, has already been redirected towards your EPF account.

If you want to see a different outcome, from “I can’t save” to “I am saving”, you just have to change the sequence.

Save first, spend the rest. It’s as easy as this!

Where Do You Keep This Money?

Keeping your savings in your salary-receiving account is never a good idea.

A majority of people I’ve interacted with seemed to know this. Some of them who have trouble saving up their emergency fund tend to keep this money in a separate account.

However, this account also tends to be their ‘day-to-day’ account. Perhaps that’s another reason why your savings won’t sit there for long.

We’re creatures of habit, and our basic instinct is wired to spend money.

To build on this instinct, we’re also constantly bombarded by messages, advertisements, and opportunities that induce us to spend and part with our money. This eventually creates an inevitable outcome, which is helping us to spend.

For what it’s worth, do note that there’s nothing wrong with keeping your emergency savings in your day-to-day account. It’s just that it increases the likelihood for the money to leave you.

For example, in the middle of last month, I saw my day-to-day account still had about RM4,000.

This immediately made me feel excited knowing I still have RM4,000 to spend for the next two weeks.

However, when I checked my credit card used for the past 2 weeks, I noted that the balance has already built up to about RM2,000+.

This instantly means my real spending amount is not RM4,000 (although the money is there), but just the leftover after paying off my credit card.

This is what is likely to happen to emergency savings if mixed with your day-to-day account. And since emergency savings are so important, you should avoid this possibility at all costs.

In general, an ideal place to keep this money will be a place where we don’t have to worry about the value of the money.

This means it shouldn’t be placed in accounts or asset classes that tend to be volatile. The idea is for it to be easily accessible anytime we need it, and as soon as possible.

How Much Do I Need to Save?

While there are plenty of guides or rules of thumb offering answers to this question, please note that you can actually determine this.

You don’t have to let existing guides tell you how much you need to save up.

Have you ever tried travelling to the moon? I can confidently ‘predict’ that most of you haven’t or even thought about doing this.

For things that you don’t think is possible, chances are you’ll never even bother trying to do it.

Another common situation I tend to encounter often is that people ‘plan’ to save a huge amount, or when they apply the rule of thumb, the projected amount made them feel hopeless.

This feeling ends up making them feel defeated, resulting in them giving up trying. To them, this amount is like travelling to the moon!

When it comes to emergencies, we can never predict what will happen, hence it’s impossible to predict how much we’ll need.

Therefore, you can aim for emergency savings as low as RM1,000. Even RM50 can be crucial. Imagine someone without any savings, who one day needed to go to the clinic to get a consultation for a fever. To them, RM50 is a huge deal.

So, if you’re low on your emergency savings, don’t despair. Start saving up in small amounts. It’ll be better than when you haven’t set aside this small amount that doesn’t seem to matter now.

When you’ve built enough momentum and have a small fund, start to make it a goal to save up for one month of your expenses, then three months, then six months, then a year or more.

Just like collecting water in a tank, you must ensure you store as much as possible and refill it to the maximum level each time you use it up when there’s a water disruption.

If you have to dip your hand into this pot in between, make it a point to refill it.

About the author

Kevin Neoh is a NextGen Money Coach and can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my.

January 29, 2021
Should I Pay Off My Car Loan Early?

Pre-payment of a loan is the payment of the outstanding loan amount before it becomes due. This usually comes in the form of a car loan.

For example, if you have a house loan for 35 years, you can opt to pay off the remaining balance at year 10 and free yourself from the monthly repayment from year 11 onwards.

The way I see it, loans when used correctly can be very powerful, but when abused / ignorant it will be destructive.

Today, I want to take an objective angle on this – backed with numbers, of course. Before answering the question “Should I settle my loan early?”, I want to highlight a term.

Opportunity Cost

This often comes up in the subject of finance and economics. In truth, you experience this in our lives daily. Opportunity cost refers to the loss of something when you choose one option over the other.

If you snooze your alarm, you lose 10 minutes of being awake for the benefit of 10 more minutes of sleep/rest.

When you choose to drive to work, it takes 30 minutes of focus on the road vs paying RM10 for 30 minutes of free time in a cab. Spending RM5,000 on a new phone takes RM5,000 away from other things like investment, a holiday to Thailand, a laptop for work, etc.

Investing in stock A means less/no cash to invest in other companies.

You will always face the question of “what is the opportunity cost” when you make choices. And you make lots of choices every day, though some are more obvious than others.

Loans and prepayments present a very relevant opportunity cost issue – interest rates.

Interest Rates

Fixed Rates

Fixed interest rates are not affected by the changes in the market and will remain the same throughout the tenure of the loan.

Variable/Floating Rates

Variable interest rates are tied to and will change in accordance with the market reference rate – this usually means the change of the overnight policy rates (OPR) in Malaysia or “prime/base rates”.

Structure – Flat

A flat interest rate structure calculates the interest rates based on the original loan amount regardless of how much principal has been paid down.

Structure – Reducing Balance

Reducing balance calculates the interest rate payable based on the amount of principal outstanding.

The interest portion of the loan instalment reduces (and the principal portion increases) every month because the principal is being paid down in each instalment.

Structure (TRAP) – Rule of 78

This is commonly found in cars and personal loans. In short, you pay most of your interest rates at the start of the loan as opposed to evenly distributing across the loan tenure.

Yes, this means that if you prepay at a later stage of the loan tenure, there are not much interest savings because you would have paid up most of our interest portion by then.

You can read up about the rule of 78 by doing your own research, but be warned that you might get upset once you discover how some bank loans work!

4 Horsemen of Loans for Individuals

I’ll approach this section on four fronts – interest rate type, loan structure, interest rate and prepayment opportunity cost.

1. House Loan

Interest Rate Type: Commonly variable / floating

Loan Structure: Reducing balance

Interest Rate: Base Lending Rate minus 2.5% (Averages around 3.3% as of now)

Opportunity Cost: A house loan is typically quite a big sum.

Hence, to prepay it involves coughing out big money! This will forgo a lot of other purchases/investment opportunities that may generate income more than the 3% – 5% interest rate (floating rate) paid here.

Verdict: Given the interest rate that we are paying and the reducing balance interest rate, it is better to use the capital to invest in assets that can generate returns beyond 5%, including ASB / ASM, REITS, etc.

On top of that, if it’s an investment property that is generating rental income, then is the monthly instalment actually still an issue?

2. Car Loan

Interest Rate Type: Fixed

Loan Structure: Flat + Rule of 78 Trap

Interest Rate: 2.9% – 3.3% (Effective Interest Rate is 5.5% – 6.2%)

Opportunity Cost: The amount of interest savings from prepayment depends on when we prepay. The earlier we prepay -> The more interest we save -> But the more capital we need.

Prepaying early would require bigger capital, hence losing out on investment returns. Prepaying later would be sacrificing investment returns for not many savings in interest payment.

Verdict: Given the nature of the Rule of 78 and the EIR of about 6%, we have screwed all ways.

It’s highly likely not worth it to prepay since the interest savings would not be much a few years down the loan tenure.

The capital can be better used to invest in assets that can generate higher returns than the interest rate and compound the returns from such investments.

If you want to prepay very early in the loan, you might as well buy the car in cash!

3. Personal Loan

Interest Rate Type: Fixed

Loan Structure: Flat + Rule of 78 Trap

Interest Rate: 4% – 7% (Effective Interest Rate is 7.5% – 13.5%)

Opportunity Cost: Forgo investment returns on the prepayment capital in exchange for saving effectively 7.5% – 13.5% interest charges annually. But again, this is subject to the Rule of 78 issues, similar to the car loan.

Verdict: Given the high EIR, it’s highly likely that prepayment is a better choice to avoid serving an extended loan.

I suggest using a loan settlement calculator to see how much you would save, before deciding whether your capital is better used to prepay or to invest and generate higher returns.

4. Credit Card Loan

Interest Rate Type: Fixed

Loan Structure: Special as it is based on your last month’s outstanding amount but with an interest that is compounded daily – read more on iMoney for the exact details

Interest Rate: 15% – 18% tiered and compounded daily effectively making it up to 20%

Opportunity Cost: Forgo investment returns on the prepayment capital in exchange for saving up to 20% interest charges annually.

Verdict: I’ve said before that I love using credit cards compared to other payment methods.

However, as a loan, it’s ridiculous due to the way the interest is structured as well as the exorbitant interest rates.

If you don’t pay your credit card loan ASAP, you’d incur the interest rate wrath of up to 20% effectively (due to the daily compounding).

I don’t know any investments out there that provide more than 20% returns consistently, so I won’t hesitate to prepay this in full today. In my opinion, avoid getting into this loan in the first place!

The Ultimate Opportunity Cost

So, should I settle my loan early? To answer this question – it depends on what your opportunity cost is when you choose to prepay.

In my choices above, I won’t prepay if I can use the capital to generate higher returns elsewhere compared to the interest rate that I am paying for.

The ultimate opportunity cost here is this – getting a loan allows you to use less capital to acquire an asset in exchange for paying an “interest rate”.

If I have RM100,000, I can use RM10,000 to pay for the downpayment of a house worth RM100,000.

I could borrow RM90,000 with an interest rate of 3%, but use this RM90,000 to invest into a REIT that pays out 5% dividend yield.

From this 5% return, I pay the loan of 3% and I still have 2% in returns that I can reinvest to get more returns.

Essentially, I own a house with RM10,000, and RM90,000 worth of REIT shares and generate a net return of 2% on the RM90,000, which will be compounded.

And this is without renting out the property. It’s a simple example, but it showcases the power of using loans the right way.

The other option is using RM100,000 to buy the house in cash. I now have a house and no cash or extra investments. Are you seeing what I see?

About the Author

This article was originally published at betweenthemoney.com, a personal finance website by Jason Loh that focuses on money matters and investment topics for Malaysians.

January 27, 2021
How To Check And Claim Unclaimed Money in Malaysia Online
In 2019, the sum of money NOT being claimed by Malaysians was reportedly over RM10 billion, which is quite a sizeable amount! According to the news article, the Accountant-General’s Department (AGD) wanted to help Malaysians check the status of their unclaimed monies, leading to the development of an online system for this purpose.

Previously, to check whether you have any unclaimed monies (eg. from tax relief), you’ll need to queue up without knowing if you even have any unclaimed money! However, earlier in 2020, the AGD’s eGUMIS portal went live and it was a significant improvement for people wanting to check whether they had any unclaimed monies.

Despite this breakthrough, if you wanted to claim the money, you were still required to pay a visit to the AGD’s office to submit a physical form (Borang Permohonan Bayaran Balik WTD “UMA-7”).

I remembered I had a small sum of money unclaimed, but due to the trouble and since the amount was not significant, I procrastinated and left the money unclaimed, on purpose. Towards the end of 2020, I read an article on The Star that stated the government could consider using unclaimed monies as a “source of revenue” – this triggered me to check my unclaimed money again.

I was asked to create an account again as my account had expired after six months of inactivity. As I registered for another account, I realised that the user interface had changed and the more I explored, the more I realised that eGUMIS now allowed us to submit forms online.

My step-by step experience of claiming my unclaimed monies is outlined below, and be sure to read till the end as I will also explain how to overcome a certain bug (as of 28 November 2020) in the system:

Step 1: Register For a New Account

First, head over to this link to register for a new account. Then click on ‘Registration’ in the top right corner as per the screenshot below to get started.

Note: You may first need to change the default language to English, or you may proceed in Bahasa Melayu.

You may then fill in the form to register your new account.

Your account will be deactivated after six months of inactivity, so if you have previously registered and have not logged in for the past six months, you’ll need to register for a new account.

Step 2: Update your Profile

Next, update your profile. Make sure to fill up all the boxes that is marked as compulsory (*).

Step 3: Check for Unclaimed Monies

Click on “Search for Unclaimed Moneys” and enter your Identification Number into the provided space. If you have any unclaimed money, it will show up in the search result.

I also helped my parents check their unclaimed money through my account. However, I’m not sure if I can actually process the claims using my account, so to be on the safe side, I registered new accounts for them to help them claim their money.

Do note that you can only check a maximum of two IDs per day.

Step 4: Application Form

If you have any unclaimed money, here is what you need to do to claim it:

Don’t click anything other than the following two steps. As the system doesn’t save your search results, if you use up your quota of two searches per day, you have to wait for the next day to proceed to the next step.

Select the “check all” box, as I assume everyone wants to claim all their unclaimed monies.

Select the “Proceed to Application” box.

Step 4.5: (Workaround) Bug in the System

In my experience, for some reason, there is a bug in the English version of eGUMIS which prevented me from proceeding to the next step. I’ll save your time without boring you with the details; here’s the work around:

Visit this link and under “Semakan” click “Log Masuk”. This is the Bahasa Malaysia version of eGUMIS.

Step 5: Enter Payee Information

This screenshot was taken in the English version. In the Bahasa Malaysia version, “Tambah Penerima” is also located in the same position.

Once you click on “Tambah Penerima” (Payee), a pop-up will appear and you’ll need to fill in your particulars and bank account number accordingly.

After you’ve saved the Payee details, check the two boxes below and click on the “Hantar” button.

Step 6: Almost there

Once you’ve completed your application, you should receive an email by the AGD. To complete the claim, you are required to submit:
- A copy of your ID (IC / passport / company certificate)
- Bank statement (from the same bank that you entered in the Payee column).
Submit the above document to permohonan_wtd@anm.gov.my with the application number as the email subject.

(Please be reminded that each email cannot exceed 15MB.)

Final Thoughts

Even though there’s no time limit as to when you can claim your money, it’s better to claim it as soon as possible. This is because the Registrar of Unclaimed Money doesn’t pay any interest on the money claimed while your money can be invested elsewhere to generate a return.

One common reason why money remains unclaimed is because the legal beneficiaries don’t know about the money after the owner passes away. This is especially true if the owner dies unexpectedly. Therefore, it’s good to have a simple will (at the very least) to avoid this scenario.

Don’t stop at checking your own account; if you have elderly parents or family members, do help them to check as well.

However, please be reminded that the Ministry of Finance or the Registrar of Unclaimed Money doesn’t appoint any individual/firm/company as agents for the refund of unclaimed monies. Be extra careful if anyone claims that they can help you claim the money.

This article was originally published at planNERD.

About the Author

Marshall Wong is a licensed financial planner and can be contacted through his website or marshallwong@fa.my.
January 22, 2021
What Is Financial Abuse?
Are You Being Financially Abused? What Is Financial Abuse?

Abuse comes in many forms and one of it is financial abuse. In a marriage, money is usually co-owned but in many cases, the husband may control every aspect of finances and the wife doesn’t have access to it.

If she needs to ask for money, the assumption is that she doesn’t have any access to the bank accounts.

This can be the case in many situations, especially if the husband is the sole breadwinner in the family, with his income going directly into a bank account that only he can access and control.

In some instances, the wife won’t have her name on it and will need to ask for money in order to purchase basic household items.

Other than the fact that she’s in a very dangerous position if anything happens to the husband, the marriage is built on the principle that he is above her in terms of finances.

He makes all the financial decisions, and then decides if he wants her input while she has no control over it because she has no access to the money.

From the beginning, if a marriage is built on the basis that money is “his”, and he’s doing her a favour by letting her have some of it, this is not acceptable in today’s climate.

Marriage is for two people to come together as one flesh and a partnership, not for one to be fully dependent on the other.

If your partner is denying you access to finances and is treating it like it’s only “your” money instead of the marriage’s money, that can be categorised as financial abuse.

Money as a Method of Control

The partner often uses money as a weapon to maintain control in the relationship.

Your partner may assure you that they have it all covered, but the reality is that he or she is restraining you of your rights and potentially robbing you of your freedom.

Financial abuse in a relationship is often hard to identify considering that the abuse is embedded with complex beliefs and social norms, so it can often go unrecognised by the person experiencing this.

This robs the woman’s or man’s right to acquire and maintain economic resources, threatening their financial security and pushing them to not be self-sufficient.

Types of Financial Abuse
1. The controllers – This person uses a combination of abusive behaviours to exert their power over their family
2. The exploiters – This person takes all responsibility and also uses all kinds of abuse to financially exploit their partner for their own needs
3. The schemers – They have a specific plan in place to steal their partner’s financial resources and leave
Research has shown that the traditional stereotypes and attitudes toward gender roles and attitudes make grounds for controlling, exploitative and abusive behaviours regarding finances.

In most cases, women trust their partner to act in the best interest of their family.

However, their judgment is often clouded by the belief that their partner knows what’s best for the relationship, resulting in them fully relinquishing all financial responsibility to the abusive partner.

It Doesn’t Get Easier After the Separation

If the partner decides to leave the abusive marriage, it doesn’t mean that the effects of the abuse stops.

Studies have shown that their income decreases further and suffers more after leaving their marriage, in addition to being impacted psychologically, whereby they experience a loss of confidence, guilt and also shame.

“Each year, more women are touched by domestic violence than breast cancer, ovarian cancer, and lung cancer combined.”

– Purple Purse, Allstate Foundation

How Do I Get Out of a Financially Abusive Relationship?

Most of the time, people tend to feel trapped in their position. They stay in an unhappy marriage or relationship out of fear that they can’t afford to feed, clothe and house their children, as a result of having no idea about their partner’s income, or even the assets and debts in their name.

The first step to move on is to understand and believe that there are ways to leave this financial abuse in the past.

It’s so important that you’re mentally prepared and have decided that you’ll do whatever it takes to leave this toxic relationship for that light at the end of this tunnel.

Step two is to gather all the information about your finances. Every single detail is needed to take the first steps towards regaining your power.

The last step is to start planning out your new financial life. Write down all your hopes and dreams for yourself and your future. Think of realistic ways for you to take steps towards achieving your financial dream.

The journey is a long one. It’ll be tough psychologically, physically and financially but the earlier you take the necessary steps to gain control of your finances, the better the chances are of you determining your own financial future.

About the Author

Nurul Yahi is a financial enthusiast and you can find her at dearduit.com. You can also find Nurul on Twitter, Instagram and Facebook.
January 20, 2021
Cultivating Healthy Financial Literacy for Kids

“I wish I knew about this earlier. Why were we not taught this at school?” Thus begins the lack of education and awareness of financial literacy in kids.

Whenever I discuss financial planning and other sub-topics with clients and prospects, this is the most common thing I hear.

Have you ever thought about how great it’d be if good money management skills were nurtured in our young ones? And how it’d be even better if we’re prepared to face the challenges in handling money from young?

One of the best skills that parents can teach children from a young age is smart money habits. It’s important to impart good knowledge and attitude in handling money during the early years as it’ll shape their attitude towards money as adults.

Undeniably, this will largely be influenced by parents, peers as well as the media. If their foundation is strong, they’ll be able to rationalise the idea of money and become financially savvy in the future once they become adults.

However, it’s getting tougher to teach kids about the value of money since we’re firmly in the cashless era now. More and more people are no longer used to paying for things in cash, with more online transactions and card payments used.

Thus, kids do not see physical money transactions when their parents and people around them purchase goods and services. In addition, with the easy availability of credit today, the need to be able to manage money is even more important.

So how can we start teaching our kids about good money management?

1. Start Them Young

Parents can teach their kids from as early as three years old. Kids at this young age learn through observations so for a start, parents can teach the concept of money by exchanging it for food or toys, which is likely to be their primary interest at such an age.

2. Value of Money

For kindergarteners and school-going children, you can start to teach them about the value of money. This is to prepare them since they will need to purchase their own food when at school. At this age, parents must be more involved by instilling confidence in their kids.

For instance, get your kids to approach the cashier and pay when making purchases, while you observe.

To assist when they’re paying to ensure that they can calculate the money to give and balance to receive.

Provide them with a fixed allowance and rationalise with them by suggesting substitutes if the item they choose is more than what’s budgeted. As a result, you’re also teaching them that not everything can be purchased, and we should spend within our means.

3. Include Your Kids in Conversations

When your children are in their teenage years, do include them in conversations when making money decisions.

You may ask for their opinions and discuss the advantages and disadvantages, repercussions, and rationalisation behind making decisions with regards to financial decisions like buying a car, a television, a phone etc.

You can also discuss with them their aspirations for college and the cost it entails. This is important as they will learn that it’s okay and safe to talk about money with someone that they trust i.e. family members.

In addition, they will feel involved and should develop a sense of responsibility towards money as their opinion is heard.

As a result, they’ll have more understanding and familiarity about how money works and how better to manage debts.

4. The 3 Jars System

Parents should provide a consistent allowance to school-going kids so they can practice handling money and learn how to manage their allowance.

One of the ways to inculcate a healthy financial mindset is to set up jars that signify a percentage of their money eg. 70% for spending, 20% for savings and 10% for charity or donation.

At the end of each quarter, bring your kids to the bank to save the money accumulated and bring them to the charity of their choice to share some of their savings.

Consequently, you are teaching your kids about sharing with the less fortunate, how to save for their future, and budgeting for spending on what they need and want.

5. Paint the Picture that Things Can Go Wrong, Sometimes

Kids should know that sometimes, things will not be in our favour and it’s not always rainbows and butterflies.

Parents may share with their kids if they’re facing money difficulties and some compromises or sacrifices need to be made by the family. At times like this, where the economy is not as good, most people face pay cuts, unpaid salaries, and even retrenchment.

Thus, it is best to layout the expenses that can be dropped temporarily, for example, extra classes like piano, art, taekwondo, swimming etc.

Do involve the kids in the discussion where some expenses need to be cut off as this will affect them, physically and mentally. Explain to them what needs to be prioritised for the time being.

In this way, you also teach them that when things don’t go your way, you’ll need to have a mitigation plan in place without sacrificing what truly matters.

6. Be a Good Example

Parents should always portray a good attitude towards money in front of children. Avoid quarrelling about money due to overwhelming debts or spending lavishly above your means.

Talk about money from positive angles and paint money as a tool that can help us achieve what we desire eg. education in the university of choice, to live comfortably within our means, and the freedom to work towards what we want to acquire with peace of mind.

Children learn about money from observing you. Thus, parents need to learn how to speak the right money language and develop the right money attitude and skills.

Children will absorb these money habits from their observation and listening while growing up.

Your beliefs become your thoughts,

Your thoughts become your words,

Your words become your actions,

Your actions become your habits,

Your habits become your values,

Your values become your destiny.

A famous quote from Mahatma Gandhi

Kids that are taught good money management skills will have a better chance of making sound financial decisions and not getting into money troubles when becoming adults.

They’ll also be better prepared to face any challenges in the future.

As parents, we should discuss openly with kids and share our financial mistakes so that they won’t repeat them in the future (touch wood!).

Nonetheless, in order to cultivate a healthy financial mindset in our children, we should also equip ourselves with the right skills, knowledge and good money management!

About the Author

Fateen Binti Rosli (IFP) is a Licensed Financial Planner. Her expertise is in holistic financial planning that includes health care planning, children education planning, retirement planning, wealth accumulation and cash flow management. She can be contacted at fateen@wealthvantage.com.my

January 18, 2021