Are you new to investing? Well, a lot of choices out there that can be used as your investment platform. But in this article, we will look more into one of the investments offered in Malaysia which is unit trusts.
Do you know what unit trust is? Maybe we heard it before but do we know how unit trust works? Is it better than any other investment scheme or is unit trust the safest investments for beginners?
Maybe this article will help you to understand more about this product, unit trust. Be advised that investment goals vary for each one of us. It also depends on our investment goals to decide on which type of product or platform suit us well.
What Are Unit Trusts?
Unit trusts can be simply said as mutual funds that will be invested in various places. It holds assets that will turn into profits which will be given to the investors. It pools money from various investors to invest in assets such as bonds and equities. Fund managers will manage the investments for you. All you need to do is just relax and enjoy your daily life.
But hey! You should understand that investing has its own risk. Your investment may be profitable or you may face some losses.
It’s good that we know and understand a few basic things in unit trusts.
Unit Trust Have you heard about Amanah Saham Bumiputera (ASB)? The concept is about the same. ASB is one of the funds in unit trust but it’s only for the Bumiputera. ASB will give you bonuses and dividends as your profit while you will gain profit from unit trusts via dividends and the increment of the funds’ price per unit.
Unit Trust Management Company (UTMC) Malaysia Security Commission (SC) monitored UTMC. For UTMC to operate in Malaysia, it will need approval from the Central Bank of Malaysia and the Ministry of Finance. Based on the report by SC, there are 39 approved unit trust management companies in Malaysia as of March 2022.
Fund Based on the same report from SC, there are 761 authorized funds and 279 of them are shariah-compliant funds.
Is It Safe To Invest In Unit Trusts?
As what being said before, any investment will have its own risks. Depending on our risk appetite, we can choose our investment that can cater to our needs in investment. Unit trusts make it easy to diversify our portfolio but different funds will have different risks and rewards. I’m sure that you’ve heard this before, but a high-risk investment will provide you with a high return. Be in mind that not only you’ll be served by a high return but there’s a chance your investment might not work well and prepare for your losses (most probably with high losses too!).
What Are The Fees Incurred In Unit Trusts Investment?
Unit trusts investment use fund managers to manage our pool of money to invest. There are fees that need to be paid even if the investment are not profitable.
Management Fee Charged once a year
Trustee Fee Charged once a year
Switching Fee Charged when switched to another fund
Redemption Fee Charged when unit sold
Sales Charge Charged for each ‘buy’ transaction
Safest Investment For Beginners?
Have you understood what unit trust is now? At least, you get a rough idea of what and how unit trusts work.
Do you think that unit trusts are the safest investment for beginners? Well, the answers are yes and no. Each one of us has a different risk appetite. Before you make any investment decision, make sure that you’ve studied and understand on how things work.
Don’t rush and jump into something that you’re not well of. Investment is a journey. It’s not some kind of Skim Cepat Kaya.
Investing for retirement is undoubtedly an investor’s biggest goal. After all, a successful retirement is not a birthright but something one must earn through hard work and proper – if not cautious – planning.
However, those approaching retirement have found themselves in a unique position today, with the Covid-19 pandemic giving way to market volatility. Businesses across almost all industries are affected, as are share prices, and the concern about losing money is one that equity investors know better than to take lightly.
Upping Your Nest Egg Game Plan
“By not investing, you are losing your purchasing power by almost 1% each year,” Alpine Advisory director Gor Sheau Shuenn tells Smart Investor.
As a result, most of the soon-to-be-retirees hesitate to retire and suffer from the ‘one-more-year’ syndrome, which sees them staying in the current job for one more year before they retire.
“For those who do not have the luxury of delaying their retirement, they will worry for their slowly-depleting life savings and thus, defeating the objective of retiring in the first place, which is to have a rewarding and worry-free life,” he adds.
Gor’s suggestion for those whose retirement is on the horizon?
“Start looking into your personal finances. You will need to understand how your retirement life is going to look like, and what are the possible hurdles and hassles that may affect your nest egg.
“Most of the time, retirees do not actually deplete their money by spending it on themselves but rather, to sponsor their children’s dreams or their parents’ medical expenses, or even dealing with the aftermath of a wrong investment decision.”
Therefore, he continues, every pre-retiree should have their financial plan on the table at least five years before they plan to retire. This enables them to adjust to their lifestyle, settle unwanted loan commitments and prepare adequate funds to sponsor their loved ones’ dreams, which will then prevent any premature withdrawals from their retirement fund.
Where To Put Your Money?
In general, as a person approaches their retirement (say less than three years), the less risk they are able to take.
“Given that today’s investment environment can be said to be uncertain with interest rates at a multi-year low, stock market valuation above their long-run fair valuation and an economic outlook that remains weak, it is only prudent to err on the side of caution,” Maybank Asset Management Sdn Bhd Head of Investments, Unit Trust Chen Fan Fai explains.
Having said this, the main chunk of a person’s capital should be allocated to low-risk assets like fixed income so that the income generated from coupons can at least match their minimum cashflow requirements without having to dip into capital.
Balancing the need for yield in these low-interest rates environment and the possibility of rates moving higher in the coming years, a duration of five to seven years may be considered.
“Should there be a surplus capital after the exercise, the balance can be invested into higher-risk assets such as REITs, equities and precious metals depending on one’s appetite for risk and desire for capital growth,” Chen adds.
Rethinking Financial And Retirement Strategies
The current market conditions and the pandemic should force you to rethink your financial and investment strategy for retirement.
“Again, time to retirement is an important factor to take into account,” Chen opines, adding that in situations where the time to retirement is relatively short, uncertainties like an on-going pandemic take on added importance.
“However, assuming that time to retirement is far longer – 10 to 20 years, for instance – then it may not be that critical and investors should place more emphasis on an asset with long-term return to enable them to achieve their retirement nest egg.
“In this case, we are talking about a riskier asset with higher long-term return potential.”
The underlying assumption made here, says Chen, is that all asset classes undergo periods of under- and over-performance as they go through different economic cycles and event risks. “However, when given enough time, they will revert to their long-run returns.”
For Alpine Advisory’s Gor, the investment objective during retirement would primarily be capital preservation while your retirement income strategy would encompass the timeline and the amount that you would receive in dividend income, fixed deposit, and/or business dividend pay-out, etc.
As such, a full roadmap of a retiree’s or soon-to-be-retiree’s monthly cashflow statement (which includes large annual expenses such as insurance premiums, car insurance renewals, road tax renewals and assessment tax, for example) is crucial.
At the same time, they will also need to consider incoming cashflows from multiple investment portfolios that will continue to generate passive investment income, and also the capital appreciation to generate enough income to fund the living expenses as laid out in their financial plan.
“Despite retiring soon, you shouldn’t forget that you could possibly live on for another 20 to 30 years, and should therefore diversify your investment into different time horizons – short, medium and long term.
“The advantages of having separate portfolios is to serve as an indicator as to how disciplined a retiree is in terms of his expenditure during retirement.
“This way, you wouldn’t have to panic sell during an economic downturn (if the underlying investment asset is solid) and become stressed out when there is no monthly income credited to your bank account in the first few months of your retirement,” Gor explains.
Building A Resilient Retirement Portfolio
One of the most important factors to take into consideration when building a resilient and growing retirement portfolio is diversification, says Maybank Asset Management’s Chen.
This is in addition to time to retirement, the required rate of return to reach retirement sum, the ability to take on risk and the long-run return and risk of different asset classes.
“We are talking about diversification of not just asset class but also investment style or diversification of fund managers as history has shown time and again that even the best plan can go wrong,” he explains.
With a plethora of investment products in the market with different characteristics that investors can consider, Chen further points out there are many ways to invest for one’s retirement, and everyone has their own personal circumstances.
That being said, there is no standard solution, and the important thing is to keep in mind the aforesaid factors as you go about planning for your retirement.
“One seemingly obvious solution is to buy a fund (or a few of these funds to diversify across fund managers) that are specifically tailored for retirement needs. These funds are commonly known as lifestyle or life cycle funds and they will normally specify the year when retirement is expected.
“An investor will then choose the fund that matches their retirement year. Essentially what the fund does is gradually rebalance the investor’s asset mix to reduce risk as the retirement year edges closer. However, the results have been mixed,” he reveals.
The second option is to construct a portfolio of funds yourself or with your financial advisers taking into consideration the previously-mentioned factors.
“To do this well, you and/or your financial adviser will need to have a good understanding of the financial markets. In general, I find mixed asset funds and absolute return funds to be very useful building blocks for a retirement plan,” says Chen.
Helping Clients Achieve Their Retirement Goals
Before deciding on any form of investment, Alpine Advisory director Gor Sheau Shuenn believes one must have a clear understanding of their current financial position. And based on that, the next thing that needs to be done is to determine the gap between what one has now and their retirement goal.
Why is this important?
“Look at it this way. You see a doctor for pain in one of your knees, telling the doctor, ‘My knee hurts’ and stopping at that. What do you think the doctor will do? Surely, he will ask ‘Which knee, what kind of pain, when did it start, was it a result from a fall?’
“The doctor will then proceed to examine your knee to determine whether there is a fracture or is the knee just inflamed. Only then will the doctor prescribe the necessary medication.
“Investment is like that. In order for you to decide how and where to invest, you need to have a clear idea of how much you have, how much you need and how much time you have to achieve it.
“Investing without a purpose is like sailing out into the seas without a sail, rudder and compass – you will most probably get swept away by the undercurrent, or worse still, capsize during a storm,” he explains.
Once you have determined all these, the next step is to allocate the right proportion into bank saving accounts, fixed deposits, bonds, shares, mutual funds, properties, lands, antiques and other alternative investment products.
Your investment journey is not about finding the best product to invest in but about finding the right product that meets and suits your retirement needs, he adds.
“The most important thing you need to remember is to never invest in something you do not understand, especially when it comes to how the product is managed. Cliched as it is, when something sounds too good to be true, it normally is,” says Gor.
Earlier this year in March, the Securities Commission of Malaysia (SC) announced the approval of two operators to conduct Initial Exchange Offerings (IEO). This is an exciting and consequential development because IEOs create a whole asset class for investors with new financial instruments.
Just as SC became the first to regulate equity crowd funding (ECF) in Southeast Asia in 2015,[1] IEOs are poised to launch our local capital markets into the digital asset age.
However, public interest seems subdued. The public is largely unaware of what IEO is, without much investor education or media attention out there. Some just think this is another ECF clone.
Or maybe the news got overshadowed by the digital banks announcement that came weeks later. Furthermore, since IEOs are digital assets which are similar to cryptocurrencies, there is a certain stigma to overcome.
This three-part article series aim to explain IEOs from the perspectives of (1) the investor who buys these assets, (2) the issuer who sells these assets, and (3) the operator who runs the platform that brings investors and issuers together. Hopefully this can simplify, in ordinary business language, some of the technical concepts related to IEO investments.
It also presents some of the challenges and limitations of IEO in its current state which smart investors like you may consider before coming onboard.
What Are Initial Exchange Offerings?
Basically put, these are privately issued assets in the form of digital tokens. Privately held businesses, which must be tech-related and can be of different maturity stages, can issue these tokens and sell to the investor public for the purpose of fundraising of up to RM100 million. This activity can be only performed through the IEO operators within a regulated setting.
You’d be surprised that the IEO name itself is somewhat misleading as there is no exchange involved. None of the digital asset exchanges (DAX) in Malaysia are allowed to place out IEOs. The commonly used name is Initial Coin Offering (ICO), but this has a negative connotation as it conjures memories of scams back in the day.
For ease of understanding, an IEO works like an Initial Public Offering (IPO) – where a company that wants to go public will issue and float its shares in the open market. In the context of an IEO, digital tokens are used instead of shares.
Wait, Digital Tokens Are Not Shares?
Our domestic law makes it very clear that digital tokens are neither shares (equity) nor debentures (debt).[2] It should also not be confused with unit trusts. In other words, please don’t expect to get payouts in the form of dividend or interest when you invest in these tokens. You also don’t get to have voting rights or attend annual general meetings like normal shareholders do.
Since this is not debt, you are generally not considered a creditor to the company that issued the tokens to you. And assuming that your tokens are not secured to assets of the company, you won’t know what your priority of repayment is if the company goes under. Therefore, it is important to ascertain the exact nature of your rights before you invest.
If digital tokens are not shares, what are they? That’s a good question.
They are prescribed as securities, which are defined in the Capital Markets and Services Act (CMSA) 2007 as shares, debentures or unit trusts, or “any right, option or interest in respect there of”. The latter sentence will presumably take on an expansive meaning depending on how creatively structured the tokens are.
One thing to remember: It is always sensible to approach and analyse these tokens like an investment contract. What underlying asset is your money going into, what is being represented and promised to you, and what are the downside risks including the worst-case scenario?
Are These Investment Products Legitimate?
Being legitimate is not necessarily the same as being legal. Digital tokens have the legitimacy as a regulated financial instrument, and they are handled by recognised market operators (RMO) with the oversight of SC. The legal certainty of it, however, is another matter.
Digital tokens are not legal tender, and each token offering is different based on its own set of facts. As and when disputes arise, they will have to be brought before the judicial courts to decide on the legal merits.
According to the landmark case Luno Pte Ltd & Another v Robert Ong Thien Cheng, it was decided (and affirmed on appeal) that digital assets like bitcoin can be used as consideration to seal a contract between parties. There is value attached to digital assets in the same way as value is attached to shares.[3]
Nevertheless, there are questions with respect to how digital tokens, which use ‘smart contract’ code, can effect legally binding signatures between two parties. It is also important to note that the rights in contract differ significantly from the rights in property which are more complex. Whether digital assets can represent legal and beneficial interests in real property have not been ascertained yet.
In fact, courts around the world are ruling on whether digital assets, in their intangible or incorporeal form, can be rightfully considered ‘property’. There is no legislation in Malaysia to recognise them as such. There is also an insufficient body of precedents here and in other Common Law jurisdictions to make a conclusion at this stage.
Ultimately it depends on the financial engineering of the tokens, for example, whether the tokens represent ownership of property assets, or are backed by them as collateral, or are merely claims. You will need to read the fine print carefully.
Who Are the Target Investors?
While retail investors can participate in these offerings, they are limited to RM2000 per issuer and a grand total of RM20,000 within a 12-month period. If Alice picks Company X, she can only invest a maximum of RM2000 in its tokens. If Alice has more cash to spare, she will have to spread it to other companies.
This way, Alice can limit her exposure to Company X and stop-loss at RM2000. But it also means she cannot meaningfully participate in the upside of Company X if its tokens eventually grow by leaps and bounds.
The objective of this regulatory limit is to protect ordinary folks like mom-and-pops from putting too much money on these investments which are intrinsically risky. On the other hand, accredited investors and those with high net worth have no such limits imposed on them.
Can I Sell and Trade Digital Tokens?
At this point, IEOs are offered only at the primary market level, that is, between the issuer and the end investor. There are no guidelines from SC to open up the secondary market yet for trading among investors.
In other words, Alice cannot transfer her tokens to Bob. Eventually this will be facilitated by the four registered digital asset exchanges (DAX), which will need to comply with the admission rules for listing IEO tokens.
Given that IEO platforms have not even started operating, and have been given nine months to prepare, you will not see the trading of tokens in the immediate future. Which means that investors will not have the options to exit freely in the open market yet.
In a sense, investing in an IEO can be less liquid than investing in a close-ended fund (CEF). There are no new tokens issued and no new investors onboarded once the offering closes. Investors can neither redeem their tokens from the issuer nor expect repurchase or buyback.
Even if the tokens are listed, there is also the question whether the secondary market and price discovery process will be vibrant enough to make it worth their while.
In the next two articles, we will dive into how tech businesses can capitalise on IEOs, the benefits compared to conventional funding strategies, and the potential problems. While IEOs can democratise venture capital (VC) investing for ordinary investors and change the way entrepreneurs raise funds, the Malaysian context is quite unique from global practice and needs to be taken into account.
About the Author
Edmund Yong is the managing partner of Celebrus Advisory and appointed by MDEC as part of its Talent Expert Network (formerly known as Digital Expert Panel) for blockchain technology. He is also the resident consultant for GLT Law, a multi-award-winning legal practice with specialisation in digital assets. All opinions expressed are the author’s own.
As our lives gradually regain some normalcy after years of restrictions, many businesses too are starting to get back on their feet and (hopefully) make up for lost time.
Most of us, whether salaried employees or business owners, were likely to have our income streams affected to a certain extent during the Movement Control Order (MCO) period of limited operation and closures.
At the same time, we are also concerned with the state of our financial situation especially if we have dependents, fixed commitments and stacks of bills to pay at the end of every month.
During trying times like these it is natural for us to imagine a future where we do not have to deal with the daily stress and pressure of depending on continuous monthly income just to ensure that household expenses are covered.
If only we could be free of financial burdens, then our lives could be better spent with our loved ones, sans the worries and sleepless nights thinking of bills and more bills.
Many may wonder how would it be remotely possible to one day achieve financial freedom when there are countless other pressing financial issues on the table that need to be dealt with, particularly in the aftermath of the MCO.
One thing is for sure; financial freedom is not an overnight transformation, neither is it going to happen by chance such as striking a winning lottery ticket.
We Will Bounce Back Stronger
It will take time and there are no guarantees that the process is going to be a bed of roses without sacrifices along the way. But with the right mindset and attitude, financial freedom is an attainable goal for more people than you would imagine.
However, before you attempt to dive headlong into it and say “Tell me the 5 things I need to do to achieve financial freedom”, I have to be upfront that there is no standard magical formula because financial freedom means different things to different people.
Therefore, you need to first understand what financial freedom means to YOU, then and only then can you chart your financial path towards that goal by implementing good long-term financial habits.
While financial freedom may have varied definitions for every individual, there are a few common ones that many of us share, such as:
1. Having sufficient assets or income to support your expenses and financial goals
2. Having assets that generate sufficient income to cover expenses
3. Not being dependent on active income generation
4. Doing what you love (for passion) rather than working for money
You may find that more than one definition of financial freedom relates to you which you wish to achieve, and that is perfectly fine as these goals are not mutually exclusive. Many individuals have a combination of financial freedom goals to aspire towards, sometimes at different stages in their lives.
Having identified what your financial freedom goals are, the next critical step is to determine your financial freedom number. This refers to your targeted financial freedom fund amount that you require in order to achieve your set goals.
Knowing what number is right for you and why it is so is important because the number is, by all accounts, a goal in itself and should be one that is specific, measurable, achievable, realistic and time-bound (SMART).
The way to go about determining your financial freedom number is by asking yourself these few questions:
a) What kind of retirement lifestyle do you aspire to have?
While typical idyllic responses tend to be “travel the world”, “play golf daily” or “look forward to grandchildren”, don’t forget the potential scenarios that are closer to home such as:
Any outstanding loan commitments? You may want to replace your executive sedan with a more fuel-efficient vehicle, so don’t forget to factor in a car loan if any.
Will your children have completed their university education by then and be able to start working? Best be prepared that fresh graduates may not be able to find a suitable job immediately and you may be required to help support them for a little while longer.
Any plans for home renovations or modifications to make it more senior friendly?
Additional health-related expenses that you may not be spending on now but are likely to do so in future, such as comprehensive medical check-ups or procedures that may crop up eventually like cataract operations or joint replacements.
b) What is the cost of that retirement lifestyle in today’s value?
c) What will it cost in the future, after factoring in inflation?
Once you have a financial freedom number with a big red bullseye painted on which may be cause for concern because as far as you are aware, all they money you currently have in your savings, EPF, insurance and retirement fund is not even close to that amount.
But you still have an advantage in terms of time which is why the sooner one determines his/her financial freedom goal, the better.
With more time ahead of you, funding your financial freedom is doable and the best part is that you will be in better control of how you want to achieve it. You will not have to subscribe to any “Secret tips for financial freedom” by a glorified money guru telling you to invest X amount in this, buy Y worth of that, etc.
A viable way to fund your financial freedom is by adopting the following 8 healthy financial habits and values that have been tried and tested:
#1. Automate your savingsand invest in diversified investments instead of going for the ‘hot’ market investment ideas;
#2. Aim to increase your savings rate every year to correspond with your salary increment;
#3. Be mindful of personal lifestyle inflation where there is a tendency to upgrade your lifestyle at the expense of savings which should be the priority;
#4. Avoid falling for the herd mentality when societal and peer pressure influence your spending decisions. Financial matters are personal and should not be a reason to keep up with the Joneses due to fear of missing out;
#5. Pay attention to good debt vs bad debt when making investments to identify which has the potential to appreciate, for example taking a car loan vs an education loan to upgrade your skills;
#6. Diversify your income streams so that you do not become over reliant on any single source;
#7. Optimise your time well to maximise productivity. This means consider monetising your free time whilst in pursuit of your interest. For example, if you love to paint as a hobby, why not put your works of art up for sale?
#8. Leverage on the expertise of others. If you find yourself too busy or lacking sufficient technical know-how to manage your financial affairs, it is good to seek advice from the professionals. Just make sure that you select the right person to speak to, one who is knowledgeable, trustworthy and reliable.
The key to achieving your target financial freedom fund (which also translates into meeting your financial freedom goals) is to start by incorporating the right behavioural changes when it comes to making financial decisions. You will soon see that it is not an impossible dream to achieve that target number after all.
In fact, you may even discover that by consistently practicing these 8 healthy financial values in the long run, the finish line of your financial freedom marathon can be nearer than you think.
About the Author:
Felix Neoh CFP CERT TM is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my
We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth
Halal investing, in simple terms, means investing in permissible businesses according to the Islamic ethico-legal system or Shariah. There are two main screening levels for halal or Shariah-compliant investments.
Firstly, a business screening is undertaken to review a company’s business practices, products sold, and revenue sources. A company is prohibited from generating returns from the selling or producing of alcohol, pork, products, weaponry, gambling, adult entertainment, or riba (interest). Other considerations include the prohibition of hazard or uncertainty (gharar) such as speculation and the prohibition of investment in forbidden assets (haram).
Secondly, a financial screening is done to ensure that companies have better control on their business and excessive risk taking is avoided. The screening lays out three broad pre-defined ratios, as formulated by AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) standards:
Conventional debt / Total market capitalization < 30%
(Cash + Interest-bearing deposits) / Total market capitalization < 30%
(Total interest + income from Shariah non-compliant activities) / Revenue < 5%
Investments are considered halal if a company passes both the business and financial screenings set out by AAOIFI or by the local Shariah body of scholars. In Malaysia, the Shariah Advisory Council of the Securities Commission Malaysia is the central authority responsible for determining the application of Shariah principles in the local Islamic capital markets.
Why Halal Investing Matter?
Asian Muslim families celebrate Eid together while enjoying a meal
For Muslim investors, the option to invest in a halal manner enables them to generate wealth in line with their faith. The interpretation of Shariah law as applied to business activities is nuanced. Since different standards exists, Muslim investors rely on guidance from Islamic scholars to help in the determination if an investment is halal. This allows the Islamic finance industry to thrive as halal solutions are becoming increasingly available in the capital markets.
For non-Muslim investors, investing according to Islamic principles still offer many benefits. Halal investing brings a sense of responsibility on how investments generate returns by preserving a concern for ethics and values. It encourages a disciplined investment process that promotes in-depth research and monitoring to better understand the business.
The financial screening standards also facilitate a conservative approach that appeals to risk-averse investors without compromising on returns.
How To Invest In A Halal Manner?
In this age of digitalization, halal investing has been democratized by the emergence of many options such as digital brokers, online providers of unit trust funds and robo-advisory platforms. This means investors with little financial knowledge may still be able to participate in the Islamic capital markets and learn the ropes on investing from a younger age as the barrier to entry becomes lower each day.
The financial inclusion of the younger and underserved demographics is vital in ensuring that the overall economy continues to grow and remains sustainable.
What Is A Robo-Advisor And Why Should You Care?
Artificial intelligence AI research of robot and cyborg development for future of people living. Digital data mining and machine learning technology design for computer brain communication.
Robo-advisors are automated financial advisors. They are an online tool that assists investors in picking an optimal investment portfolio according to their risk tolerance profile. Typically, robo-advisors start by asking investors questions to understand their risk appetite and allocate investments based on certain algorithms.
Once investors agree to the investment allocation, they can start funding their account and the robo-advisors will purchase the underlying securities and manage their portfolio by rebalancing it periodically. Robo-advisors have emerged as favorites to younger demographics due to their low account minimums, low fees, digital-only service and overall, a more efficient and timesaving offering.
About Wahed Invest
Wahed Invest (“Wahed”) is one of Malaysia’s robo-advisors (or digital investment management company) that focuses on halal investing. Wahed was licensed by the Securities Commission Malaysia in August 2019 and launched in October 2019. Since then, Wahed has been offering Malaysians diversified Shariah-compliant investment portfolios that provide exposure to foreign and local equities (via exchange-traded funds or ETF), local Islamic fixed income (via sukuk funds) and gold (via ETF). Further information regarding Wahed’s services can be found at wahedinvest.com, and the Wahed Invest robo-advisory application can be downloaded from the iOS App Store or Google Play Store.
RHB Research recently published the 18th edition of Top Malaysia 20 Jewels 2022. RHB Research continues to persevere and maintain unwavering commitment towards producing yet another signature compendium of 20 top small-cap investment ideas despite the extremely challenging macroeconomic environment.
The selection has been complicated by capital market volatility – buffeted by rising interest rates, high inflation, the Russia-Ukraine conflict, and draconian lockdowns in China – we see a strong rebound in economic activities, with manufacturing and retail spending recovering swiftly. Valuation for small-cap stocks have also retraced, leading to a sizeable valuation gap to the big caps, making the investment thesis more compelling.
Top Malaysia 20 Jewels 2022
Here’s the list of Top 20 Malaysia Small Cap Companies for the year 2022 by RHB Research.
1. Aemulus Holdings
2. Bonia Corporation
3. CJ Century Logistics Holdings
4. Coastal Contracts
5. Dayang Enterprise Holdings
6. Dufu Technology Corp
7. Homeritz Corporation
8. Kawan Food
9. Kumpulan Fima
10. KKB Engineering
11. Nova Wellness Group
12. Optimax Holdings
13. Samchem Holdings
14. Sedania Innovator
15. Supercomnet Technologies
16. Texchem Resources
17. Tune Protect Group
18. Unimech Group
19. VSTECS
20. YBS International
The 20 companies featured are not within RHB Research’s existing coverage. Companies from 10 different sectors with an average market cap of MYR509m have been curated into this 2022 edition. Consumer and industrial products & services sectors feature prominently, making up 45% of the picks. All but five – which are Ace Market listed – of the 20 names reside on the Main Market.
Source: RHB Research Team
*All investors are advised to conduct their own independent research into individual stocks before making any decision to buy or sell. Investors are also advised that past stock performance is no guarantee of its future price.
It has been a volatile few years for the global markets. Pummeled by the COVID-19 pandemic, risk assets endured a fierce selloff in the 1Q2020 as economic activities came to a grinding halt with a complete shuttering of businesses. Global equities succumbed to one of the steepest and quickest correction ever witnessed in March 2020.
However as sharp and quick as the rout began, the recovery has also been swift and ebullient. Due to unprecedented stimulus measures injected by governments and central banks, benchmark gauges have rebounded strongly driven by ample liquidity. The US stock market has even surpassed its pre-COVID-19 peak despite infections continuing to rise in the country.
To any casual market observer, the new normal investment realm can be confusing terrain to navigate as the gap between the real economy and the stock market continues to widen. This is especially as traditional macroeconomic theories no longer apply in a world of negative interest rates and unlimited quantitative easing (QE).
Whilst the markets will ebb and flow, it is far more important for investors to stay the course and practice diversification in their portfolios. Here is a 5-step guide that investors can follow to an effective asset allocation.
Step 1: Defining Your Investment Objectives
It’s the first step in the asset allocation process that often gets overlooked. But really, it is the most important part that you should invest the most time with before modelling a portfolio.
Asking yourself basic questions like “who am I?” and “what are my aspirations and expectations?” can help you define your objectives. Are you a millennial looking to build and accumulate wealth, or are you someone in your mid-50s looking to prepare for retirement and have a steady income stream?
Once you’ve established these answers, it’s crucial then to be as specific as possible and to be able to quantify your financial objectives. How much wealth do you want to build exactly? How much does your current lifestyle cost and how much do you need to sustain it?
For example, someone in their mid-50s will need to determine how much wealth they would like to accumulate by the time they reach retirement, as well as the rate of return % they need to achieve as a hedge against inflation.
All these considerations are important because it lays down the parameters of your investment objectives so that your portfolio is geared towards achieving its stated purpose.
Step 2: Gauging Your Risk-Tolerance
Determining your risk-tolerance is the next step. Understanding your risk-tolerance can also be gauged by asking yourself basic questions like your age, monthly income and expenditure and other types of commitments you have. Different psychological profiles and imprints often determine what type of person you are and if you are a risk-taker or risk-averse.
But it is critical here to separate what your risk-tolerance and risk-acceptance are, as the two gauges measure different things. For example, an investor in their mid-20s may be more inclined to take on more risk because of his youthful exuberance and more daring nature. Therefore, he has a high risk-acceptance.
But if you consider the fact that if he is already married with a child along the way, as well as parents and in-laws to take care of, his capacity to take on risk is actually limited. As such, the investor actually has a low risk-tolerance and would not be able to stomach an aggressive portfolio that is highly tilted towards riskier asset classes.
Step 3: Time Horizon and Liquidity Needs
Businessman holding an hour glass, signifies the importance of being on time
Next, an investor would need to determine their investment time horizon and liquidity constraints. Think of these two factors as the levers shifting the gears of your portfolio that will ultimately determine your capacity to invest and by how much.
For instance, an investor in their mid-20s who does not need the principal sum and returns back from the investment for the next 8 – 10 years would have a long investment horizon and hence a higher capacity to invest.
This would allow the investor to take on more risk and be more exposed towards longer-dated instruments or riskier asset classes that only show returns at a later stage. Such asset classes typically include small-caps or growth stocks that are high-risk and typically exhibit strong earnings and growth only at a later cycle. Thus, investors with a shorter investment horizon should avoid such asset classes.
Similarly, as an investor you should also assess your liquidity needs and determine how much you are willing to set aside from your wealth as investments. It’s crucial that you understand that this is a separate pool of wealth that is different from your own savings account that you use for your own daily sustenance and allowance.
Thus, as much as possible, you should avoid dipping into either pools of wealth and using your savings for investments and vice-versa.
You need to give time for your portfolio to work and to compound returns. Opting to cash-out from your portfolio can be disruptive to your investments especially at a crucial stage of the market cycle when it is starting to rebound. Thus, investors should remain disciplined and focused.
Step 4: Understanding Different Asset Classes
These are the ‘building blocks’ of your portfolio. There are 3 broad asset classes for an investor to work with, i.e. equities, fixed income and cash.
Equities are the riskiest asset class but has the potential to provide the highest returns. Common instruments include ordinary shares or equity funds that an investor can easily buy into.
Fixed income, also known as debt, is a less risky asset class that provides more stable but often lower returns. Investors may not be able to gain exposure to this asset class by investing in bonds directly or through bond funds.
Cash or cash-equivalents are the most liquid asset class and typically provide little to no returns especially in inflationary periods. But they serve its importance by being extremely liquid to quickly move in and out of a market correction as well as a buffer during an emergency.
There are also other types of asset classes including REITs, commodities, precious metals, real estate or even alternative asset classes such as private equity or debt. But more importantly, you need to really understand what it is that you are investing into and the underlying asset class of the product before deciding to include it in your portfolio.
Step 5: Constructing Your Portfolio
Finally, you are ready to construct your portfolio. There is no single method or approach in building the ‘perfect’ portfolio, as each portfolio would need to be customised according to the needs and risk-profile of the investor. But there are some model blueprints that an investor can follow as a start.
For more risk-inclined investors, they can invest in a more aggressive portfolio composed of 70% – 80% in equities and the rest in fixed-income. On the flip-side a more risk-averse investor should have a higher tilt towards fixed-income of between 70% – 80% in bonds, with minimal holdings in equity and some in cash. A risk-moderate investor could have equal exposure to both asset classes.
Underpinning all these considerations in the asset allocation process is the simple principle of diversification of not putting all your eggs in a single basket. Diversification strives to minimise risk in a portfolio by investing in a mix of different types of asset class that are not or less correlated, so that gains from one asset class can offset losses from another.
It is a risk mitigation technique that has been proven to outperform over the long-run by protecting against losses, whilst maintaining sufficient exposure to capture market growth.
Knowing is Half the Battle
Starting your investment journey can be especially daunting during such volatile market conditions. But as the saying goes, “Never let a good crisis go to waste.” Anyone can invest as long as you have a plan and a robust asset allocation to ride through the market peaks and troughs.
About the Author
Lee Sheung Un is a communications officer at Affin Hwang Asset Management. A millennial, he is still finding that balance between wealth, freedom and purpose. Views expressed are his own.
“Given the nature of these alternative investments at this juncture – where price discovery remains a challenge, volatility is high, and long-term values remain uncertain – it would be more appropriate to classify them as part of your high-risk investment bucket.”
It is almost impossible to miss the headlines these days about the next new investment idea. Chances are those new ideas are likely related to digital assets (e.g. cryptocurrencies) or online funding intermediation (e.g. peer-to-peer lending or equity crowd funding) and the like.
These options seem to be the most attention-grabbing ones, attracting both seasoned and novice investors alike. This begs the all-important question – are these investments suitable for you?
To help us get a grip on this question, let us briefly take a look at what each of these alternative investments are, how it works and how can you benefit from it.
1. Digital Currencies (a.k.a. Crypto Currencies)
Digital currencies as the name suggests are an alternative means of a financial exchange in a non-physical format. This is unlike fiat currencies that are government issued and regulated such as the US dollar, British pounds or our own local currency – the Malaysian ringgit. Among digital currencies, bitcoin remains the most well-known and sought after.
The rise (and fall) in value of digital currencies has been nothing short of phenomenal. However, apart from scarcity, it would seem that speculation (partly fueled by celebrity tweets) and regulatory risks seem to be main drivers of price movements for now. This could change as digital currencies start to gain a foothold as a medium of exchange, potentially replacing fiat money in the future.
For now, an investor will monetise any returns by selling the investment, hopefully at a profit.
2. Peer-to-Peer (P2P) Lending
As the term suggests, this involved the lending of funds between individuals, supported by a platform as an intermediary to facilitate the process. It is effectively a way of cutting off the middleman’s role which has long been played by financial institutions.
In P2P lending, also known as “social lending”, investors are offered a socially attractive value proposition by borrowers who might otherwise find it challenging to fund their enterprise via traditional channels. Investors receive returns in the form of interest payments at the end of the loan period.
Given that these often represent higher risk lending, the interest payment will likely be higher than bank fixed deposit rates.
3. Equity Crowdfunding (ECF)
ECF works similarly to P2P lending in that it provides an alternative source of funding for budding companies. However, the main difference is that ECF investors will receive a stake in the business instead of an interest payment. This might be an attractive proposition for those looking to discover the next unicorn investment.
However, investors should also be aware of their exit strategy before committing their hard-earned money.
What’s Your Risk Profile?
Now that we have some high-level idea about these alternative investments – are they right for you? Instead of limiting your analysis to the investment idea itself, I would suggest that the question is better answered by firstly determining your investment risk profile, followed by your ideal strategic asset allocation. Only then should one take the plunge to invest.
Investopedia defines risk profile as “an evaluation of an individual’s willingness and ability to take risks”. Are you a risk taker by nature, fully aware of how investment values fluctuate depending on market condition and are ready to ride out any storm that come your way?
Or are you the more conservative type – preferring to err on the side of caution by placing your hard-earned money in risk-free assets?
Secondly, how long can you remain invested? If you need to use the fund in the next one to two years, then investments should not be on your mind. However, if your investment duration is between three to five years, perhaps you can consider moderate risk rated investments.
If your funds can remain invested for over five years, then you are in a better position to weather the ups and downs associated with higher risk assets.
Answering these two questions will give you an idea of your risk profile – conservative, balanced or aggressive. Next, you should determine your ideal asset allocation. The strategic asset allocation is a breakdown of your investment allocation into three simple investment asset classes – low risk, moderate risk and high risk.
Low risk assets would comprise of risk-free assets that hold their values and likely have a pre-determined rate of return. Examples would include deposits place in financial institutions and government issued bonds like Malaysian government securities (MGS).
Other fixed value assets with variable expected returns or those with minimal price fluctuations that fit this category include our Employees Provident Fund (EPF) savings, certain fixed priced Amanah Saham funds and low risk fixed income securities like money market funds or capital protected products.
Moderate risk assets on the other hand have the potential of generating a higher variable return (e.g. between 4-6% p.a. above the risk free rate) and could comprise of assets such as blue chip dividend stocks or a balanced diversified portfolio consisting of shares and bonds. Property assets and REITs that offer both regular income and potential long-term capital appreciation can be categorised here as well.
Lastly, we have growth or high-risk assets that are made up of stocks in a diversified portfolio of expansion-focused companies, small to mid-sized businesses in developing countries, commodities and perhaps alternative assets such as private equity investments or collectibles like wine, luxury watches and paintings.
These may fluctuate a lot more in value but offer potentially better long-term returns.
Let us look at a simple approach to asset allocation for one’s investable assets:
A moderate risk investor would probably place the bulk of his investable assets in moderate risk assets and only around 10% in the high-risk space. From this allocation, he should expect a blended overall return of around 6-8% p.a. As such, the strategic asset allocation gives you an idea on how you can select a combination of different assets classes and the corresponding expected returns on your overall portfolio.
Given the nature of these alternative investments at this juncture – where price discovery remains a challenge, volatility is high, and long-term values remain uncertain – it would be more appropriate to classify them as part of your high-risk investment bucket.
Back to the question of whether investing in those alternative assets in the examples given are suitable for you, firstly consider where it fits in based on the suggested strategic asset allocation.
Perhaps a 10% allocation in each of these strategies would be sufficient for most. In simple terms, this means roughly 1-3% allocation of one’s investable assets would be about right for the balanced to aggressive profile investor.
In conclusion, the next time you encounter an innovative investment option that comes across as the best invention since sliced bread, the first thing you need to do is to increase your knowledge and understanding of that product instead of signing the dotted line simply based on a herd mentality or the fear of missing out.
Should you decide to proceed thereafter, then invest based on your ideal strategic asset allocation in line with your risk profile. This golden rule should keep you in good stead for a long time to come.
About the Author:
Felix Neoh CFP CERT TM is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my
We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth
Well, if this is the first time that you heard of these letters, you are likely new to investing or Warren Buffett. Let’s start by giving you the background of this super investor, his letters and its significance to the investment community around the world today.
Who is Warren Buffett?
Warren Buffett is the chairman and CEO of Berkshire Hathaway Inc, a US-listed holding company that owns substantial interests in some of the world’s most profitable and valuable companies. They include Apple, Coca-Cola, American Express, Wells Fargo, US Bancorp, and so on.
The 91-year-old Buffett has accumulated a total of US$125 billion in net worth, hence, placing him as the fifth richest man and a living investment legend on planet earth today.
A native of Omaha, Nebraska, Buffett is also known as the Oracle of Omaha because the investment community closely follows his investment picks and comments on the market.
His Letters
Buffett writes to his fellow shareholders of Berkshire Hathaway Inc to report on the latest happenings and future direction undertakings of the company, and more importantly to the rest of the world, imparting his gems of wisdom and as well as decades of experiences in the field of investing.
Tens of million investors around the world have read and studied his letters in search of insights to what or how they can do better when it comes to managing their investments.
My Advice to New Investors
Empty cinema white screen with audience. Ready for adding your picture. Screen has crisp borders. This shot was made using tripod with long exposure.
Read it. Study it. It is worth it. You will emerge as a better stock investor from it. Here, in this article, we’ll share five lessons from reading the letters written by Warren Buffett.
1. Investments Into Productive Assets
Warren Buffett invests for steady and rising cash flows for the long-term. In his letter in 2011, he views a stock or a business as a ‘commercial cow’ which could produce ‘milk’, referring to recurring profits and cash flows for years or decades to come in the future.
Also, in his letter in 2013, Buffett wrote that if your focus is on ‘prospective price change’ when buying stocks, you are speculating and he is sceptical of anyone who claimed to have sustainable success in doing so in the stock market.
So, put it into perspective:
An investor is one who will be looking at a stock’s long-term income-generating ability before investing for he wants to receive recurring profit or to have its shareholdings revalued higher as a result of sustainable growth in earnings in the future.
A speculator tries his luck buying into stocks in the hope that its prices might somehow jump in the future, which is not wise based on the writings of Buffett. After 78 long years of investing, he has not seen anyone able to speculate his way to sustainable profits in the stock market. Thus, the question is: ‘Why would you?’
2. Be Prepared For The Thousand-Year Flood
Jokingly, Warren Buffett remarked in his letter in 2014 that he would be the guy who sells life jackets if the thousand-year flood occurs in the future. What does it mean to get ready for the thousand-year flood?
The answer lies in the ‘financial staying power’ of an investor. This is evident for Buffett for he has maintained a sizeable cash balance of US$ 75+ bil within Berkshire Hathaway Inc in Q3 2019. While he stated that cash itself is a poor investment, he is holding onto them for emergency funds or to stand by for significantly discounted investments in the future. In other words, Buffett believes not in being cash-strapped and is one who builds a sizeable buffer at all times.
3. The Use Of Debt Or Borrowings
In his letter in 2010, Buffett likens debt as being a double-edged sword. It can either make people rich or poor. He is known to favour an investment into stocks where their businesses earn a good return on equity (ROE) without or with little use of debt.
But, having said that, Berkshire had made investments into companies which were funded by long-term debt such as Burlington Northern Santa Fe and MidAmerican. Nevertheless, Buffett is comfortable with them as the obligation from both corporations is serviced by cash flows from operations which are stable and recurring.
4. Reduce Investment Fees At All Cost
In his letter in 2017, Warren Buffett wrote a profound statement: ‘Performance comes, Performance Goes. Fees never falter.’ This comes after Buffett emerged as the winner of a 10-Year Bet against Protege, a US-based investment advisory firm where Buffett has publicly challenged any investment firm to create a fund or funds to beat a ‘virtually’ cost-free unmanaged S&P 500 index fund.
Protege, the firm who took up Buffett’s challenge, had failed to create funds to overcome the returns of S&P 500 index fund despite having assembled a team of investment experts to manage these funds professionally over the last 10 years.
The conclusion of this bet is pretty simple. It is to educate the public, and especially those who had invested in mutual funds or hedge funds, to rethink about their investments. First, he wishes to point out about the recurring ‘fees’ involved in these investments, for they are not cheap. Second, he wants us to consider the worth of fees paid to fund managers.
This is because fund managers are compensated regardless of the fund’s investment performance over the long-term. Hence, the message is clear, and it is to avoid investing in funds that charge high fees for they would erode your investment returns in the future.
5. Continuous Learning Is Important To Investors
Warren Buffett is an avid reader, an active learner and one who appreciates the power of mentorship. It is evident, as Warren Buffett revealed that he had read two books that had effectively shaped his investment life.
The first is titled ‘The Intelligent Investor’ by his mentor, Benjamin Graham, while the second is titled ‘Common Stocks and Uncommon Profits’ written by Philip A. Fisher. To date, he remains committed to applying what he’d learnt from these books into investing in the stock market and now, Buffett believes that he should pass along this same investment wisdom to the next generation, which is us.
What Should I Invest In 2022 And Beyond?
The answer is: ‘Investment Education’. Instead of finding out what stocks to buy or speculate in 2022, why not take time to learn to become a better investor? It would be the most profitable thing to do if you are new to investing, be it stocks or properties.
By the way, you can download Buffett’s letters from Berkshire’s website, for free. Begin your progression towards becoming a better investor.
About the Author
This article is co-written by KC Lau and Ian Tai.
Ian Tai is a Dividend Investor. Financial Content Machine. Producer of 200+ Articles, Weekly Host and Presenter at KCLau.com. Co-Founded DividendVault.com, an online educational membership site that empowers retail investors to build a stock portfolio that pays rising dividends in Malaysia and Singapore.
KCLau is a financial educator, having published seven books including the current bestseller Money Smart, and co-created a dozen online financial courses. He gives away his popular Money Tips e-book volumes free at his website: https://KCLau.com
“17 years ago, I missed the opportunity to invest in Desa Park City. 5 years ago, I missed Sunway Velocity. I regret it. I don’t want to miss the boat this time”.
“Too many new projects available now and developer offers good incentives and rewards, I don’t know which to choose.”
“I heard many unpleasant experiences from friends and family, I worry the property I invested would be abandoned or the quality is bad when I gain vacant possession.”
These are typical comments you might hear when Malaysians share their perspective on property investing. Like other developing countries, economic growth and continuous urbanisation in major cities have made real estate investing one of the more attractive investment vehicles for Malaysians to grow their wealth.
There are loads of property investing books and “property gurus” on hand to offer pointers to those looking to embark on the property investment journey, imparting their strategies and experiences in this field. Some share their seemingly unbelievable profit-making experiences through property flipping (buy-to-sell) or property management (buy-to-rent).
The outbreak of Covid-19 in 2020 put a dampener on an already sluggish real estate market, resulting in property players having to transform their business model to weather the storm. Industry players responded with various digital innovations to allow most of the transaction process to be conducted without physical interaction.
Supported by a low interest rate environment, these efforts seem to be paying off, as property demand at certain areas remained fairly stable despite the depressing health and economic backdrop.
Just like any other investment asset class, the real estate investment journey has its ups and downs. Some of us may make money from it, others should learn from the mistakes made so as not to repeat them to our own detriment.
An opportunity often arises from a threat, so it is important to be able to separate the wheat from the chaff. In order to have a higher probability of success, we will need to apply a structured approach to address these potential opportunities.
Plan-Check-Monitor
A structured opportunity management approach for investing involves a simple three-step process: Plan-Check-Monitor.
Plan refers to having a clear purpose and objective for the investment – do you know what you want to achieve and when you want to achieve that? The answer will determine your direction in investing and know what information is required to build a solid investment portfolio.
Check involves activities to survey and collect information about the respective investment to ensure it is compatible with your plan.
Monitor is about keeping track of any changes on investment and being sensitive to the important indicators that your investment returns can potentially sustain and improve, or otherwise. This also requires one to be nimble and responsive according to changing market conditions. Adopting the PCM approach will enable investors to differentiate whether it is a real opportunity, and to know how to ensure the compatibility of the opportunity to one’s current situation.
As property investing is possibly the single largest financial commitment in one’s lifetime, it can have a different impact on various aspects of our personal and family life. As such, merely asking what property to buy or where to buy is not enough.
So how we can apply the PCM model in a property purchase scenario?
You should start with questioning. What is your primary purpose for this property investment? What is your goal for this investment? The answer is crucial to determine the appropriate strategy to follow.
Say you are looking for an own stay property. You will need to identify a property that caters to your current and future family needs. Start by consolidating information about the targeted property (for example, understand the potential of the upcoming neighbourhood, the demographics, nearby amenities, etc.).
Then identify and assess the saleable area of the property, number of rooms, potential renovation costs due to expansion or layout restructuring and suitability for future expansion to determine its compatibility to your needs. For newlyweds, do not forget to consider the extra rooms for your future children.
If you are looking for investing or a rental property, you need a clear approach with cost-effective solutions and a well-planned property rental management strategy to optimise your rental yield. If you want to save the cost of engaging agents or a property management company, you need to determine if you have the capability to do it on your own.
Again, start with gathering information about the property types that are popular for rent, the targeted potential tenants, their preferred rental price range, etc. Then continue to identify and assess the property based on the needs of your targeted tenants.
In addition to this, you should continuously monitor the progress around the targeted property area. Are there any growth plans and projects to spur the development of that area, such as upcoming MRT lines, connection to highways and other developments that might affect your investment return direct and indirectly?
You should also be prepared for vacant tenancy periods without rental income as this will represent an opportunity cost to you. Hence, your sensitivity towards the growth around the property area will assist you to seize the opportunity in pricing the rental accordingly.
Potential capital appreciation and positive rental income is a property investor’s ultimate goal. Nevertheless, few can accurately predict their actual investment return as this will depend on the overall development and progress of property location – actual versus expected.
Given this uncertainty, it is important for you to have a practical plan to secure the rental yield and a well-planned exit strategy prior to investing in any property. As such, one can apply the PCM model prior to the investment instead of blindly following what is recommended by people around you.
Impact On Your Financial Health
Malaysia currency of Malaysian ringgit banknotes background. Paper money of one, five, ten, twenty, fifty and hundred ringgit notes. Financial concept.
The above examples should give you a fair idea on how you should approach a property purchase in the future. But is this sufficient for you to make the right property-related financial decisions? Will the purchase have a positive or negative impact on your overall financial well-being? To answer this, we will need to overlay the decision-making process with a holistic financial planning perspective.
Broadly speaking, holistic financial planning provides you a 360-degree view of your financial situation, taking your current and future financial expectations into consideration to empower you to make more informed investment decisions. A holistic financial planning empowers you to constantly be on guard against possible investment risks and potential financial costs as you expand your property portfolio holdings.
Working on strategic asset allocation helps you manage your investment risk while stabilising your overall investment returns. For example, strategic asset allocation will remind you to invest less than 40-50% of your funds in properties.
Understanding key financial ratios provide valuable information to help you monitor your debt ratio to avoid over-gearing and keep track of your emergency funds in the event of a scenario without rental income. Cash flow management will help you ensure that you have sufficient cash for down payment without using up your emergency funds, and give you clarity on how you can continue to save and invest for other goals once the property loan repayment starts.
In conclusion, there is no doubt that property investing has a big role to play in growing one’s net worth. However, there are pitfalls in investing in this asset class so the practice of opportunity management approach utilising the PCM model, coupled with holistic financial planning, will help to minimise.
About the Author
Jess Hon is a Licensed Financial Planner with Finwealth Management Sdn Bhd and would like to assist millennials to take control of their own finances and achieve financial happiness. She can be contacted at jesshon@finwealth.com.my
We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth
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