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A Real Life Investment Question Answered

Dear Mr Neoh, I was hoping that you can give me some advice on my situation, below is a bit about me:

I am Malaysian, now 62 years old. I am currently single, and I am still working for a living. My take home income is about RM3,000. I do have two children who are now already working and in their late 20s/early 30s. I am feeling a bit insecure because currently, I only have about RM40K in savings with me, and this represents the only money (savings) that I have. What should I invest in order to get extra when I am no longer able to work for a living? Recently, I was approached by a Unit Trust person from a reputable unit trust company who invited me to take up a scheme with her in order to grow my wealth. Since I have never had any investment experiences in life, I honestly think that I lack knowledge about investments. I don’t feel confident about this investment. In fact, I feel a little confused. Can you please give me some advice?
Mr Ng

Answer:

Hi Mr Ng,

Thank you for your email, I hope after reading this response, you will feel less confused but empowered to make a decision regarding the above.

I understand that you are still working, and I am assuming that the take home pay of RM3,000 mentioned here is a net income, consistent month-to-month.

While I agree that you should actively look for options to invest your money, it is very important for you to ensure that you make a good, quality decision.

This is because, if you invested into something that is too risky for you, or into something that is not what it seems to be, your chances of losing your money will be higher. This will be very dangerous for you, considering that you are now in your sixties.

Based on the illustration above, let us assume that you invest all RM40,000 but you suffer a loss of 50% in the first year. You will end up with just RM20,000. If this misfortune happens, you will then need a long time to get back to the original amount of RM40,000, assuming you are able to rebalance the remaining RM20,000 to an investment or portfolio that can grow at 10% pa.

The above projection shows that if invest RM20,000 into something that can generate 10% a year for the next few years, you will need seven years and four months before you can get back to the original amount of RM40,000; and by that time, you will be 69 or 70 years old.

Of course, if you can only feel comfortable investing into a “safer” investment generating 5% a year, you will need 14 years to get back to the original amount of RM 40,000 as can be seen in Illustration 3. By then, you would be 76 years.

The above example is why it is very important for us to ensure we don’t lose our money by investing into things that we do not understand, or are too risky to match our risk profile.

At the age of 62, and with RM40,000 being your total savings at this point, you may want to be conservative with your money. Having said this, it does not mean that you should just keep all the money in a savings account or all of it in Fixed Deposit. Because this is also dangerous since our purchasing power will decrease every year due to inflation (where you need to pay more to buy the same or even lesser amount of the item you need).

Therefore, you should consider investing not more than 20% of your money into equity (stocks or shares). But investing in shares requires knowledge, time, effort, and you will also need a bigger capital to have a reasonable holding of stocks that are properly diversified.

I suggest you invest into stocks or shares through a Unit Trust fund. You can invest into a Unit Trust fund that invests in “Blue Chip” stocks as it is more stable and less volatile compared to other stock funds. An alternative to a blue-chip stock fund, will be a Balanced or Moderate fund. This type of fund typically invests 50% of the money into stock and 50% into fixed income instrument, so it will be quite safe, since we limit your exposure to not more than 20% of your wealth.

I do not know the kind of fund or scheme the unit trust agent recommended that you invest into, therefore, I cannot comment on the suitability of the fund for you.

It is however very important for us to note that no matter what you will eventually invest in, the investment has to be one that suits your current needs, your capacity for risk-taking, and if things go south, will not put you into a position that will likely lose most if not all of your savings.

About the author

Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my.

06/07/2022
SC Releases New Sukuk Framework to Facilitate Companies’ Transition to Net Zero

The Securities Commission Malaysia (SC) today launched the Sustainable and Responsible Investment linked (SRI-linked) Sukuk Framework (Framework) to facilitate fundraising by companies in addressing sustainability concerns such as climate change or social agenda, with features that relate to the issuer’s sustainability performance commitments.

With the accelerated shift towards developing a climate-resilient future, high-emitting industries are at a high risk of being phased out. The SRI-linked sukuk will enable companies in these as well as other industries to transition into a low-carbon or net zero economy. As at December 31, 2021, the global sustainable bonds outstanding exceeded USD1 trillion with sustainability-linked bonds making up USD118.8 billion [1].

The Framework is an extension of the initiatives under the SRI Roadmap that was introduced in 2019 to broaden SRI products offerings. More significantly, this initiative reflects the SC’s commitment to expand the reach of the Islamic Capital Market (ICM) to the broader stakeholders of the economy and build an enabling ICM ecosystem for the sustainability agenda.

The SC recognises that there are significant opportunities for the market to attract a more diverse issuer and investor base and undertake a wide range of sustainable projects.

The SC Chairman Dato’ Seri Dr. Awang Adek Hussin said, “The SRI-linked Sukuk Framework will encourage greater mobilisation of private sector and issuers’ financing towards sustainable development and meet the increasing global demand for sustainable financing. This is in line with the initiatives outlined in the Capital Market Masterplan 3 to reinforce Malaysia’s value proposition as the regional centre for Shariah-compliant SRI.”

Under the Framework, the proceeds raised can be utilised for general purpose, subject to the issuer committing to future improvements for sustainability outcomes within a predefined timeline, which will be monitored using key performance indicators (KPIs).

The financial characteristic or structure of the SRI-linked sukuk may be varied based on the success or performance of the issuer in meeting its KPIs and sustainability goals.

The Framework also provides greater transparency for investors by requiring issuers to appoint an external reviewer before issuance and an independent verifier postissuance to assess compliance with the framework and issuer’s sustainability performance which can be tracked by investors.

Further details of the requirements for the SRI-linked sukuk are set out in the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework and the Guidelines on Issuance of Corporate Bonds and Sukuk to Retail Investors, which can be downloaded here.

[1] Source: Sustainable Debt Global State of the Market 2021, Climate Bond Initiative

About the Securities Commission Malaysia

The Securities Commission Malaysia (SC), a statutory body reporting to the Minister of Finance, was
established under the Securities Commission Act 1993. It is the sole regulatory agency for the regulation
and development of capital markets. The SC has direct responsibility for supervising and monitoring
the activities of market institutions, including the exchanges and clearing houses, and regulating all
persons licensed under the Capital Markets and Services Act 2007. More information about the SC is
available on its website at www.sc.com.my. Follow the SC on twitter at @SecComMy for more updates.

30/06/2022
FICO Insights: In Malaysia, 1 in 2 Experienced Drop in Income Due to Pandemic; Many Will Switch Banks in 2022 to Chase Better Offers
RFI Global’s 2022 Post-Pandemic Consumer Banking Expectations Report, prepared for FICO, confirmed
that the pandemic has aggravated financial hardship for retail banking consumers in Malaysia, with 1 in 2
experiencing a drop in income. It has also revealed that many are motivated to search for better banking
offers, and that the inclination to switch lenders has increased year over year.

More information:
https://www.fico.com/en/how-banking-expectations-asia-pacific-are-changing-post-pandemic

Disruptive impacts from the pandemic differed across the region

While a considerable 23-30% of Australian and New Zealand respondents experienced a negative
impact, 50% of Malaysians, 40% of Singaporeans and 63% of Indonesians saw a decline. Respondents in Thailand suffered the biggest blow, with 70% saying their income had been reduced.

The report uncovered that more than 1 out of 4 consumers across the region (27%) and nearly half (49%) of Malaysian respondents have deferred loan repayments. While nearly 1 in 3 (31%) in India and nearly half in Thailand (47%) deferred loan repayments as a result of COVID-19, this was much less common in Singapore (12%), Australia (9%) and New Zealand (7%).

Despite the uncertain financial climate, the majority of Malaysian retail banking customers plan to
maintain or boost their investments (77%). Most are looking to maintain or increase savings (82%), and many will consider changing banking providers this year.

Increase in customers’ intention to switch banking providers

Surprisingly, while the report indicates that most customers were highly satisfied with their main banking
providers, up to 20% of APAC banking customers who responded said they plan to change banks in 2021. In contrast, only 10% said they changed banks in 2021.

This increased propensity to switch lenders is highest among the mass affluent (defined as the high end
of the mass market or those with at least MYR200,000 total investable asset holdings).

In Malaysia, 5% of retail banking customers and 5% of mass affluent customers switched in
2021. That is set to at least double this year, with 10% of retail customers and 14% of the
mass affluent saying they are very likely to switch.

Top reasons cited by Malaysian respondents include a change in personal circumstances (31%),
consolidation of accounts to where they now have a deposit account (25%), a desire for access to
better investment and wealth management products and services (24%), as well as a change in
where payroll is deposited (21%).

Financial impacts felt by even the wealthiest of Malaysians

Amongst mass affluent banking customers in Malaysia, 43% experienced a decrease in income due
to the pandemic, with half of overall retail customers negatively impacted. Nearly half of the mass
affluent (46%) deferred loan repayments as a result, just 3% lower than the wider retail
banking market in Malaysia.

This disruption to income has left 2 in 5 affluent Malaysians saying they intend to reduce spending (40%), just as 39% of Malaysia’s retail banking customers plan to do.

Across APAC, the mass affluent are more likely to step up their borrowing compared to the wider market
(16% vs 8% ). In Malaysia, specifically, more of the mass affluent plan to increase borrowing
(19%) than retail banking customers (6%).

The report further revealed that 80% of the mass affluent are opting to maintain or boost their
investment levels with banks, versus 77% of Malaysia’s overall retail banking market.

Impacts of the Pandemic on banking intentions

Consumers are changing their banking behaviors, in response to the financial impact of the pandemic.
More than 4 in 5 of Malaysia’s retail banking customers will either increase or maintain their savings (82%). Across the region, the sentiment to maintain or increase savings was highest in New Zealand
(94%) and in Indonesia (87%).

Despite a dip in borrowing plans year over year, the level of borrowing for APAC retail banking customers
still remains higher than pre-pandemic times as consumers deal with the lasting effects of the disruption.
“The pandemic has clearly exacerbated financial hardship for customers regardless of income class,” said
Aashish Sharma, Senior Director of Decision Management Solutions for FICO in Asia Pacific. “As
borrowing and spending habits contract, customers will be on the lookout for avenues to grow their
wealth and boost their savings. Banks must be able to proactively identify customers’ needs, and pivot
their approach to alleviate financial anxieties while ensuring their products suit customers’ affordability
and funding requirements.”

Gravitating towards Digital

Many Malaysian respondents (47%) still consider the proximity of branches and ATMs as a top
determinant for a main banking provider; however, the report highlighted the importance of providing
digital services. As many as 72% of APAC retail banking customers chose a fintech product over the
option to use their banks’ main services. This was highest in Malaysia (94%) where customers did
so as they wanted ease-of-use, time savings and easier application processes.

Comparing 2021 to 2019, APAC consumers are increasingly gravitating towards digital channels at every
stage of their application journey: initial enquiries and research (up 14%), follow-up enquiries (up
15%), and banking applications (up 15%).

How Banks can Ensure the Customer is at the Center of Actions and Decisions
- Transform operations and data silos through the use of sophisticated analytics technology and centralized management platforms.
- Make data-driven decisions by predicting, analyzing and optimizing customer interactions in real time for an event-based, profile-driven approach to relationship management.
- Develop precise insights into optimal interactions and offers that would work best for customers
- Create a digital twin (a type of virtual model used for simulation purposes) to leverage this continuous learning and test out radical new approaches and strategies in a low-cost, low-risk environment
- Deliver hyper-personalized offers and customer actions in a scalable way
“Banks must understand their customers’ needs on a deeper and more granular level, or risk losing them
to competitors and alternative providers,” said Sharma. “Maintaining customer satisfaction alone will no
longer suffice; customer experiences must be radically enhanced. Customer-centricity will be key to
consistently delivering hyper-personalized experiences and retaining customers.”

Survey Methodology

This survey was conducted in 2021 by an independent research company adhering to research industry
standards. 1003 Malaysian adults were surveyed, along with 12,885 consumers in Australia, New
Zealand, Singapore, Indonesia, India and Thailand.

Learn more here and at www.fico.com.

About FICO

FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded
in 1956, the company is a pioneer in the use of predictive analytics and data science to improve
operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase
profitability, customer satisfaction and growth for businesses in financial services, manufacturing,
telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in
more than 120 countries do everything from protecting 2.6 billion payment cards from fraud, to helping
people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right
time.

Learn more at www.fico.com.

FICO is a registered trademark of Fair Isaac Corporation in the US and other countries.
30/06/2022
Financial Scams : Fear, Greed & Ignorance

I still remember a business owner who asked my team to create his portfolio to make sure he would have enough money for his retirement. We advised that he could earn solid returns from a diversified global portfolio based on his financial profile.

He was assured that part of the strategy drawn up for him would spin out a good amount of cash on a regular basis. I convinced him to “buy” some sleeping pills and take a slightly higher level of volatility to achieve better capital growth.

A week after the meeting, he came back and said he was no longer interested in my portfolio because he had found a much better opportunity elsewhere. He said that a financial salesperson had explained to him that he could make more profit with lesser risk if he took another investment product.

All That Glitters Is Not Gold

A few years later, the same business owner revealed to me that the investment he had bought into performed terribly. It turned out to be more volatile than he had thought. It is no consolation to realize that he, along with others who had also bought into that product without taking a balanced look at all the facts, will suffer.

Remember all those expensive, slickly produced advertisements boasting market beating ratings and top quartiles? Contrary to what nearly everyone believes, you do not make money buying an investment just because it “looks good” on the surface.

Yeah, everyone is going to get rich washing Mercedes, and BMWs. How about slogans like “You can become a millionaire in three years”, “You can turn your financial dreams into reality”, “Amazing, fabulous, unbelievable strategies for building massive wealth”, “You can invest with the world’s blue chip funds with as little as…,” and so on?

Life is not all sunshine and lollipops. There will always be financial salespeople with sketchy reputation or those who will put their own interests before their clients. They are usually well spoken and persistent and like to target the most naive and least informed investors.

I have no desire to offend anyone. Speaking from my experiences, it is commonly believed that those working in the sales department of bigger institutions are compensated well because they make money for investors. Yet, some of their clients are getting worn down. Some are still losing money or making very little money after so many years.

Taking Advantage

I have seen investors saddled with unnecessary charges and lengthy lock-up periods. It is good for the seller but not the poor investor buying it. Some of these investors have absolutely no idea how badly they are being ripped off. Anyone with eyes and a brain knows what I mean.

So, you have been told not to worry just because your investment is being managed by the captain who has been dealing with multi millions or billions for a long time. Well, so what? Someone used to share with me that some fund managers should not be allowed to run a grocery store, let alone operate a billion-dollar investment vehicle.

Sorry to throw up at your party. There are some fund managers with poorer track records and far less skill but are managing far more money. Yet, some other great managers slip under the public’s radar because of the lack of publicity.

In my work, I love to find managers who have some limited capacity, so the big boys cannot compete against them. It is about sustainably higher returns for investors, not scale. Big is not beautiful here.

Many of you out there have been scammed, in one way or another, at some stage. Beware of financial schemes or money games guaranteeing anything from a few percent to double-digit returns within a few weeks or months. Financial scams are so popular because they take advantage of people’s fear, greed and ignorance.

The whole idea behind a scheme is that they do not want you to understand anything. Anyone can make any story out of thin air which is absolute nonsense. The fraudster allays your fears and provokes your greed, they entrap you by befriending you, and they say the investment is riskless then they talk about returns.

Betraying Your Trust

Some of the victims are professional business people because they are intelligent, they think they should understand what they are being told, so they go along with it. The people who sell them are often someone whom they know for a long time.

Fraudsters and operators of financial scams sometimes target business groups in order to find their victims. In some cases, members have innocently encouraged each other to put money into such schemes. Run like hell if someone is pressuring you to make a decision at any financial events.

Most of the modern schemes are versions of old frauds, first committed more than 100 years ago. They are known as Ponzi Schemes after a 19th century fraudster named Charles Ponzi who was offering a 50% return on investment in just 45 days.

Fraudster draws victims in by honouring the agreed interest for the first few installments, then drawing more and more money from them as they start to believe they are on to a sure thing. It is like “robbing Peter to pay Paul” as the fraudster pays the initial interest payments with the investments from other victims who have fallen for the scheme.

Always open your eyes. If you leave your head in the sand and ignore it, you are only going to be victimised.

About the Author

YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at yhwong@satoriconsultancy.com.

29/06/2022
How Does Gresham’s Law Apply To Private Money Like Crypto?

Back in 2018, the Managing Director of the Monetary Authority of Singapore (MAS) Ravi Menon, gave a speech about the future of crypto and cited an old concept in economics known as Gresham’s Law, which is loosely interpreted as ‘bad money drives out good money’.

He opined: “Like Money, crypto tokens can be a force for good or bad… It is the enchantment with these tokens as a way to make a quick buck and their abuse for illicit activities that are at the root of our concerns.”

Therefore: “We must work together – regulators and the crypto industry – to make sure that bad money does not take hold. And that a new generation of crypto tokens emerges, that harnesses the potential of blockchain technology for social good while mitigating the risks today’s tokens pose.”

Good Money vs. Bad Money

The original concept in Gresham’s Law is that in an economy where there are two currencies with the same face value, people will use up first the currency that is constantly devaluing (bad money), and hoard the currency that retains or increases in value (good money).

For example, let’s say you are given equivalent amounts in both MYR and USD. As MYR keeps depreciating against USD, you will spend MYR first and hold USD in reserve. The so-called ‘bad money’ would be used for daily transactions and dominate circulation, while ‘good money’ would eventually disappear from circulation as it is kept for savings and long-term investment.

Imagine now that you are given BTC (bitcoin) instead of USD. If you expect that BTC will rise in value, you will not pay your daily expenses with BTC as you may lose out on its future valuation. This is one of the reasons why BTC has grown faster as a store of value than as a means of payment.

Going back to the MAS speech: Interestingly, it applies the concept to market conduct. It refers to the illicit use of crypto by bad actors in the market, along with the profusion and poor quality of crypto products as a form of currency. If these bad actors continue to flourish, they will crowd out and drive away the good actors. The crypto industry and its innovation benefits will suffer as a result.

But if crypto can be used responsibly as a force for good, it will be ennobled and gain wide acceptance by the public. This would turn into the opposite of Gresham’s Law (known as Thiers’ Law) which states that ‘good money will drive out bad money’.

Is Private Money Good or Bad?

The characterisation of crypto as either good-or-bad is not always helpful. Private money like crypto, which are not issued by central banks, is very diverse and hard to generalise. Tech is morally neutral. They are self-serving financial constructs and are not mandated to be a public good. The vast majority of them are work-in-progress prototypes that will fail.

On one hand, you would read of industry reports claiming that illicit or criminal activity constituted only 0.10% (according to CipherTrace) to 0.15% (Chainalysis) of total crypto transaction volume in 2021, the lowest level ever. This makes crypto sound like a model private citizen!

But on the other hand, the crypto scandals keep getting bigger and bolder, with contagion impact on venture capital and lending companies as seen recently. The industry has spawned an entirely new genre of lawlessness (which Elliptic calls) “DeCrime” which could rewrite the penal code. Black hat hacks are commonplace, highly sophisticated, and even state-sponsored.

Ironically, as crypto improves and creates better version of themselves, they become too good to ignore. Savings and capital may leave financial systems, for good. Domestic banks may become undercapitalised. In response, governments are mulling to create crypto-versions of central bank digital currencies (CBDC), so that their national currencies will not be substituted by crypto. And they have the natural advantages to do so. As the Bank of International Settlements remarked, “anything that crypto can do, CBDCs can do better”!

Investors are at a unique point in economic history. They are spoilt for choice between private money (crypto) and public money (fiat), something that was unthinkable a generation ago. They have free capital movement, in the truest sense of the word, across borders, assets and entities. Whether this is ‘good’ or ‘bad’ is anyone’s guess.

Disclaimer: All opinions expressed above are the author’s own.

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.

29/06/2022
3 Non-Financial Matters of Retirement Planning That You Must Not Ignore

From advertisement run by insurance company, investment company to banks, and even the likes of private pension and pension fund, the idea of retirement planning is central on the need to plan early so that we can have adequate savings that sustain our golden years.

That being said, most (if not all) messages revolving around the concept of retirement is more often than not about “whether you prepared enough money for your retirement”.

Imagine people who have been working diligently and save very hard to prepare for this eventual phase of life called retirement for the past three decades. When they finally retire from their full-time work, does this now mean they will have a very good retirement?

I believe that a good retirement is determined not by what product we use to prepare for it, but how we invest our retirement money. In fact, there are three non-financial sides that we should not ignore.

Time

“What we do with this luxury of time is equally important (if not more important) than whether we have prepared enough money for our old age.”

One of the biggest differences between before and after retirement is not just about our main income will come to a stop, but rather, we will now have all the time available to ourselves.

So, what we do with this luxury of time is equally important (if not more important) than whether we have prepared enough money for our old age.

There is a saying that sound like this, “Growing old with lots of money is no longer the goal. Dying rich cannot compete with living rich, and making a living does not measure up to making a life.”

This implies that while we may be rich financially, if we are not rich in life, then those money may not carry any significant meaning beyond fulfilling our basic need.

There are 24 hours a day and this means we will have 168 hours every week now. Before we stop working completely, assuming we spend eight hours a day for our work, and we work 22 days a month, we will now have an additional 160 hours available to us!

So, how are you planning to use this new found 160 hours of your life? Having an idea for this is crucial because how we use our time will determine how our money will be used.

Of course, we will have some ideas about what we want to do when we no longer have to wake up to clock in for work. Maybe we can go shopping, hi-tea with friends, travel and do some of our hobbies. This is such a good thing and it will surely be liberating for us to indulge in these activities. However, do we see ourselves constantly doing this to fill up the 160 additional hours for years or decades? Could we come to a point that these activities that look attractive to us now may then become boring in future (after enough repetition)?

Meaning

“When we do not find life interesting, we may start to lose a sense of what is worth living for.”

Another key factor for people not retiring well is boredom. When we do not find life interesting, we may start to lose a sense of what is worth living for. It may also lead to us seeking new excitement with the retirement funds we have and in certain extreme situations, the person may even squander away their retirement savings.

On the other hand, people who have retired well and happy in their golden years usually have a few things in common. One such trait is living their life with a purpose. This can include volunteering at certain organisations with a cause they believe in. It may also be work that allows them to use their talents or experience to help the younger generations, such as a mentoring program.

Money is not the main motivator for getting involved in such projects or activities, but rather living a life that is ‘rich’ in meaning and purpose. If we look around, there are many people that can already afford to retire, but yet they are still actively pursuing a certain cause.

Speaking with them to understand their mentality may also help in seeing a different perspective.

Health

“No matter how wealthy or how financially prepared we are, without good health, anything else hardly matters.”

Think about your retirement as having three phases. In early retirement, you hopefully have the time, resources, and fitness to lead an active life. In the middle of retirement, your level of activity will probably start to slow down. And in the third phase, most retirees begin to settle into their homes and prioritise their wellbeing.

It is in the third phase that health care costs can increase dramatically depending on your needs and your personal support network. This is also potentially one blind spot that most people have not come to realise.

Some retirees who anticipate assisted living or in-home nursing purchase medical insurance with very high coverage. But these products only can do so much, i.e. it only pays for our hospitalisation bills and some post-hospitalisation. Other things that require money but not a hospital stay are not covered (yet). Hence, there is still a need to plan for additional funds that cater to these situations and having a back-up fund that we can dip into is crucial.

A more sensible way is to plan and accumulate our retirement savings, while also planning how to keep ourselves healthy and fit so that we enter our retirement with reasonable health.

Sadly, too many seniors put off making these difficult decisions until they are dealing with a major health or financial crisis. Planning ahead puts folks in a much better position to choose how and where they are cared for on their own terms.

No matter how wealthy or how financially prepared we are, without good health, anything else hardly matters.

Retirement Planning Is Never Just About Numbers

Back to those advertisement messages we are bombarded daily, those are messages about how financial products can help us prepare for retirement. But it is not preparing for a full retirement as money is just part of the picture.

In order to plan holistically for a retirement that really has meaning, you will have to engage in deeper conversation that helps you in understanding yourself better, discovering your personal values, identifying how you envision your retirement life to be, and how are you going to fill up your 168 hours a week, before looking at the numbers.

Real retirement planning should be a process that integrate numbers, and your life. Because eventually, it is the person (you) that gives meaning to the number, not the other way around.

About the Author

Kevin is a NextGen Money Mentor and founder of NextGen Independent Advisors. He works with people to transform their relationship with money and be brave in their pursuit to live a meaningful life with their money. He is a CFP professional, a certified member of Financial Planning Association Malaysia (FPAM). Kevin can be contacted at www.kevinneoh.my.

29/06/2022
9 Reasons Why You Should Invest For Dividend Yields

Hi, I am new to stock investing. Should I invest for capital gains or dividend yields?

There is no right or wrong answer to this question. It is possible to build yourself a sizable portfolio regardless of your own preference between the two. With that said, however, after communicating with our pool of readers at Bursaking.com.my and KCLau.com, I think, it is better for you to focus on investing for dividend yields if you are a complete beginner.

Here’s why:

1. Dividends are More Predictable

Dividend income is more predictable than estimating capital gains. After all, dividends are cash whereas capital gains are merely paper gains and are subject to changes on a daily basis. Your investment returns would not be “yo-yoed” based on the ups and downs of the stock market.

Instead, you’ll enjoy the certainty of income flowing into your bank account on a periodic basis if you choose to invest for dividends.

2. Dividends Pay Your Fixed Bills

This leads to Reason #2. Regular dividends pay your fixed bills which include your rent, mortgage, car loan, utility bills, Astro, insurance and grocery. Even if you had the above covered, it is nice to have a nice “makan” out, movies, dating, wall climbing, or a ‘Cuti-Cuti Malaysia’ trip paid for with dividends.

3. Dividends Build Your Confidence

Often, investors see their first dividend income flowing into their bank accounts within three to six months after making their stock purchases. Subsequently, based on the stock purchased, they would receive dividends either on a quarterly, semi-annually or annual basis.

Imagine, being a new investor and starting to earn cash returns every three months from your portfolio, you would probably feel good regardless how the price of your stock is moving. Even if the stock falls in price, you would continue to receive cash returns from it. At least, the stock will be “good for something”, and it will incentivise you to keep it over the long-run.

4. Dividend Investing is Less Risky

Here is a definition of a good stock investment. It is one where the stock has excellent fundamental qualities, and its price is attractively undervalued. In other words, the stock must be good and cheap. Often, stocks which are consistent in their dividend payouts possess great fundamental qualities.

These include having a resilient business model, excellent management team, a healthy balance sheet and a proven track record of growing profits consistently. As such, you would minimise your risk or chances of making poor investment decisions if you just stick to stocks that have the qualities above.

5. Dividends Build Your Portfolio

Earlier, we had mentioned that you could use dividends to pay for your expenses. But, what if you are currently making tons of money and do not need to rely on dividends to fund your current lifestyle? Is dividend investing still suitable for you?

The answer is Yes. This is because you could reinvest your dividend income into another dividend stock or stocks that you prefer, thus, allowing you to further expand your portfolio in the future.

Over time, you may not need to save money to invest, but use your dividends to fund your future investment. It works like a cycle where you use profits to generate more profits.

6. Why Not Capital Gains?

Does it mean that investing for capital gains is not good? Nope. Investing for capital gains is good if you are a more sophisticated investor. Being a skilled investor, your chances of achieving capital gains will be higher than one who is unskilled.

In most cases, people who are into capital gains without any sort of skills are often gamblers and speculators in the stock market. They are often thrill-seekers who see the stock market as a legalised casino.

They are not necessarily profit-driven, and this differs from the mindset of stock investors who are very profit-driven.

7. Dividend Investing is Investing with Clarity

How do you tell the difference between an investor and a speculator? It is quite easy. First, if a person tells us that he is investing for capital gains, we ask him: “How much capital gains are you expecting?” If his reply is: “I don’t know” and often, that is quite a standard reply, I would classify him as a speculator.

This is because true investors have already calculated their expected returns before buying into a stock or any investment. For example, if you ask a dividend guy what he is investing for, his reply would usually be: “I’m expecting to make at least 5% ─ 6% from this stock investment.”

Definitely, he is investing with clarity and with purpose, and not so much into luck, rumours, tips, or comments.

8. Dividend Investing is Simple

Dividend investing helps new investors to make stock investment decisions easier, faster and better. These decisions are mostly based on facts and figures, logic, and common sense. Thus, if you know how to do some simple maths, you can become successful in dividend investing.

Here’s a quick way to determine whether a stock is undervalued or overpriced. First, the reason why people invest in stocks is to earn more than banks’ Fixed Deposits of around 3%. Hence, any stock with dividend yields below 3% is overpriced.

However, if the dividend yield of a stock is 5% and above, investors may look into it as it is considered to be undervalued at its current price. Thus, dividend investing is a simple system which promotes one to “Buy Low, Hold for Dividends, and Sell High”.

Formula:

Dividend Yield = (Dividends per Share / Current Stock Price) x 100%

9. Dividend Investing is Investing for Capital Gains

What? Am I serious? Yes. Investing for dividends is investing for capital gains. Why? Because stocks with consistent dividend payouts are in demand by a larger pool of investors. They include EPF, KWSP, Tabung Haji, insurers and mutual funds, particularly income funds.

These institutions have billions and are still receiving billions for investment purposes. In this time when the markets are uncertain and volatile, these large institutional investors may be adopting a defensive stance to their portfolio as they are expected to perform and deliver returns to their stakeholders.

It may explain why dividend stocks tend to achieve sustainable capital appreciation over the long-term.

About the author

This article is co-written by KCLau and Ian Tai.

KCLau is a financial educator. He had published 6 books and co-created a dozen online financial courses. You can download his popular Money Tips e-book packed with 44 money hacks absolutely free, here: http://kclau.com/lp

Ian Tai is the founder of Bursaking.com.my, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia.

29/06/2022
Should I Nominate My Wife As Sole Beneficiary Of My Life Insurance Policy?
Most people, especially family breadwinners, have life insurance policies. They assume that on their passing or if they are permanently disabled, the policy will pay out the sum insured that will take care of the financial needs of his family.

However, depending on the circumstances, things may not pan out as the policy holder intends. The following story about Sam highlights the different scenarios that may lead to unintended consequences, and offers the solutions to deal with it.

Question:

Hi, I’m Sam and I’m 43 years old. I’m happily married to Jenny, a 40-year old housewife and together, we are blessed with two children namely, Jim and Gina aged 6 and 3.

As I write, I wish to continue to provide for my family’s living expenses and pay for Jim and Gina’s tertiary education fees if I pass on prematurely. In view of this, I intend to buy a new life insurance policy where the sum assured is RM1 mil and nominate Jenny to be the sole beneficiary of my new policy.

With that being said, I have a few concerns. My question is: ‘Who would receive and manage the RM1 mil in sum assured if:
- I become comatose or mentally disabled?
- After my passing, my wife passes on before my children reach adulthood? Or,
- I pass on simultaneously with my wife due to an accident?
Answer:

In Sam’s case, having a life insurance policy or a handful of them is a good start. The sum assured is helpful to his loved ones if he passes on prematurely as the money will be paid to his wife Jenny in a couple of weeks after Sam’s passing.

It is unlike Sam’s estate which may consist of cash, shares, and properties which will be frozen upon his death. It could take 1-5 years to unlock Sam’s estate and have them distributed to his beneficiaries, depending on his testacy status.

Here, I’ll list down possibilities of how his sum assured of RM1 mil could be received and used in the three scenarios above. More importantly, I’ll share a simple solution that Sam could use to be assured that his life insurance policy will be able to serve his intended objective.

For a start, most, if not all, life insurance policies will cover both death and total permanent disability (TPD). If Sam becomes comatose or mentally disabled due to an accident, his insurer will pay out the RM1 mil in sum assured to him.

But, is this RM1 mil collected helpful to his loved ones?

Well, it depends on the type of bank account his RM1 mil will be deposited into. First, if the RM1 mil is transferred into Sam’s personal savings account by his life insurer, who can have the access to his RM1 mil if Sam is the only person who has the username and password to his bank account?

Thus, his RM1 mil will be stuck and is of no immediate help to his family members.

Second, if the RM1 mil is banked into Sam’s joint account with Jenny, she will have full access to the money. So, is this problem solved? Well, I don’t think so because Jenny could be prone to mismanaging the money.

This could be due to a variety of factors ranging from overspending, to being conned by swindlers and failures in business ventures and investments. But then, Sam could place great confidence in Jenny’s ability to manage his finances.

If that’s the case, will it solve the issue? In a way, the answer is yes but it’s only if Jenny remains alive on planet earth. If not, this would lead us to:

It is possible for Jenny to pass on before their children reach adulthood, and this is after Sam’s demise. In this scenario, Jenny’s balance sum from the RM1 mil given would form a part of her estate and be distributed based on her testacy status.

If she has a written will, the balance sum would then be distributed to her beneficiaries accordingly by her executor.

Otherwise, without a will, the sum shall be allocated based on the ratio of ⅔ to Jim and Gina and the remaining ⅓ to Jenny’s surviving parents as mentioned in the Distribution Act 1958. If Jenny has no surviving parents, then, the sum shall be allocated to her children in full.

Here is a question. How will Jim and Gina collect their sum allocated, if they are below 18 years old?

The answer: Jim and Gina must have a trustee to help them collect the money and manage it on their behalf until they reach, at least, 18 years old.

This leads us to another question: ‘Who shall be their trustee?’

Will it be one of Jim and Gina’s uncles or aunties from either their paternal or maternal side or both? This could potentially result in conflict and strife among Jim and Gina’s relatives, which leads to more financial uncertainties to them.

The RM1 mil in sum assured will form part of Sam’s estate. Thus, the sum is to be distributed based on Sam’s testacy status, which is similar to what we had discussed above in Scenario 2. But here, it is common for a husband like Sam to have elected Jenny to be the sole executor of his will.

Hence, in the absence of a written will or a will without an appointed substitute executor, the question of ‘Who shall be their trustee?’ remains. The siblings’ relatives (both paternal and maternal) may contest to be their trustee, which can result in financial uncertainties for both Jim and Gina as mentioned earlier.

First, the RM1 mil in sum assured shall be kept with Sam’s insurer for a period of 12 months until a trustee to Jim and Gina has been appointed.

Let’s say, Jim and Gina’s relatives could not come into consensus on who should be their trustee after 12 months of their parents’ passing. In this case, the RM1 mil in sum assured will then be transferred from Sam’s insurer to a public trustee, namely Amanahraya Trustees Bhd.

The money shall be kept until Jim and Gina reach 18 years old, the age when both of them are eligible to receive their rightful inheritance. However, this would lead to three common issues for both Jim and Gina as listed below:
- Who shall fund Jim and Gina’s daily living expenses before they hit 18?
- Would Jim and Gina be aware of their inheritance when they hit 18?
- If they do, how will they manage their inheritance after receiving theirs?
Hence, having a life insurance policy alone is insufficient to offer assurance that the money provided for will eventually fulfill Sam’s intended purposes. As such, what then is his solution?

The answer is for Sam to set up an insurance trust.

So, what is it?

For a start, it is the use of both a life insurance policy and a trust to manage the sum assured based on Sam’s intentions upon occurrence of events stipulated in his trust document. Here is how it works;

a. Sam buys a life insurance policy where his sum assured is RM1 mil.

b. He assigns his policy to his trust instead of nominating Jenny as a beneficiary.

c. Then, Sam may elect Jenny, Jim and Gina to be beneficiaries of his trust.

d. Sam may dictate how and when the RM1 mil would be distributed to his beneficiaries. For instance, he may instruct the trustee to distribute the sum in the event of his passing on or him becoming permanently disabled according to the following proportions:

First, if Sam becomes permanently disabled, his insurer will pay RM1 mil to his trustee. Thus, the sum will not be stuck in his personal savings account.

Second, the trustee is to manage the sum based on Sam’s intentions with professionalism and integrity. Thus, the trustee is not permitted to use the sum to invest in stocks, real estate, or new business ventures if it is not instructed by Sam beforehand. This helps to reduce the risk of his funds being mismanaged.

Third, if Jenny passes on prematurely, Sam may include one additional clause in his trust where it allows his trustee to distribute the money directly to both Jim and Gina. As such, this would assure Sam that his children will be taken care of financially if he and his wife pass on prematurely.

Perhaps your situation is uniquely different and thus requires assistance from a qualified estate planner.

About the author

Jocelline Chee is the founder of WG Legacy, a leading professional estate planning firm. You can download a Strategy Report at wglegacy.com/report to find out how she preserved her family’s financial future via a combination of insurance, will and trust and how you can do the same for your loved ones too.
29/06/2022
Meeting With Your Financial Planner For The First Time?
Congratulations! You have decided to take control of your financial life. You have researched your options, asked a lot of questions, and found the right licensed financial planner professional to help you plan for your financial future.

As you prepare for your first meeting as a client, it is likely you have even more questions, and if so, you are not alone. Many clients of financial planners are not sure what to expect, how much to divulge, or even what documents to bring to their first official meeting.

While every financial planner and firm are different, most follow a common general framework based on the six-step financial planning process. The first step often involves something called a ‘discovery’ meeting, in which the financial planner and the client form a basis for their relationship.

It is an opportunity to build trust, understand problems and priorities, and establish a roadmap for progress toward the client’s financial and life goals.

Licensed financial planners, CFP professionals, and their firms often have an established process that includes providing a checklist of required documents and information they need to get an accurate picture of a client’s financial situation. While it may seem a bit overwhelming to share your most important financial details with someone you do not know well, it is really no different than consulting with a physician about your health.

When you engage a CFP professional, you are working with someone who has pledged to place your interests first.

The Big Picture

When financial planners conduct a discovery meeting, many will ask questions not only about their clients’ financial situation, but also about their personal interests, family and lifestyle. Often, a person’s interests, family or lifestyle can influence their financial goals and decision-making, so having a good understanding of the client’s background may help the CFP professional understand their willingness to take on risk, or the triggers that will make them excited or spark their concern.

The goal is to help clients create a plan that will serve them well in good times or bad, so they always feel confident about reaching their goals.

Thorough financial planners have a process to securely gather their clients’ information, analyse it, and synthesise their findings into a set of recommendations. After receiving and discussing the recommendations from the financial planner, the client and financial planner plan how to implement these, and the role each will play in carrying out the plan.

The more honest and direct clients are at the beginning of the relationship, the better the financial planner can help them create a sound, actionable plan to help them reach their goals. Although some clients might be hesitant to discuss embarrassing financial mistakes they have made in the past, it is important for them to share those so the CFP professional can address any consequences of those decisions.

Prepare For Your First Meeting

Before attending your discovery meeting with a CFP professional, take an hour or two to prepare yourself with answers to these potential questions:

Identify Your Goals
- What do you want your money to do for you? (Would you like a comfortable retirement, or a college education for yourself or your children? Would you like to start a business or buy a home? Contribute significantly to a favorite cause?)
- What are your professional goals?
- What goals do you have for your loved ones?
- What legacy would you ultimately like to leave for your family and the world?
Understand Your Attitude Toward Money
- Do you consider yourself to be a spender or a saver?
- What drives your decision to spend or save money?
- What scares you about money? What makes you excited?
Process
- How much would you like to be involved in managing your finances?
- How comfortable are you in using technology to access online statements, performance reports, tax returns or other documents?
- What do you expect from your relationship with your financial planner?
Get Organised

Your financial planner may also ask you to bring certain documents to your first meeting. Those could include:
- Bank statements from the past year
- Other financial statements, such as loan documents
- Insurance policies
- Tax returns
- Pension or retirement savings account information
- Estate planning documents, such as a will or a trust
- Brokerage statements
Some firms provide a checklist with secure links to enable clients to upload their information prior to the meeting, but you may also bring the actual documents with you, depending on your comfort level. Whichever option you choose, be sure to label your documents and clarify any information that could be confusing.

A Relationship For Life

Although it may seem like a significant time investment or an emotionally taxing experience, being well- prepared for your first meeting sets the tone for a successful, trusting, long-term relationship with your financial planner. The more your financial planner knows about your history, your family, your interests and your financial situation, the better he or she can help you achieve the financial well-being you and your loved ones deserve.

This article is courtesy of Financial Planning Standards Board Ltd (FPSB).
28/06/2022
How Does The Greater Fool Theory Apply To Crypto Investing?

You may have heard of crypto investors being labelled as ‘fools’. Business figures such as Jim Cramer, host of CNBC, and Bill Gates, founder of Microsoft have made such comments. Asian regulators such as Felipe Medalla, incoming governor of the Philippine Central Bank, and Raghuram Rajan, former governor of the Reserve Bank of India, have warned the public about crypto investing.

What And Who Is The Greater Fool?

According to the Greater Fool Theory, investors buy a digital asset not because they believe that it is worth the price, but rather they believe that they are able to sell it later to someone else at a higher price. The original investor is a ‘fool’ and hopes he or she can sell it to a ‘greater fool’ out there. The theory is about investor psychology and not a name-calling insult.

Let’s say you are thinking about buying an NFT (Non-Fungible Token) of a cute animal that costs 1 ETH. You know it’s just a cartoon image on a JPEG file. It doesn’t cost much to produce. You don’t even own the copyright to it and the NFT creator can reproduce other copies for sale.

But you want to buy it anyway because you are confident of selling it (or ‘flipping’ as they say) for 2 ETH. You are influenced by Youtubers and TikTokers who claim to have made a lot of money doing so.

What should you do then? Always, always ask this question – Is there a ‘greater fool’ than you out there who will eagerly pay a higher price than you did for the NFT? If none of your immediate circle of families and friends are willing to do so, then you are the ‘only fool’ you know!

First, you need to be sure there exists a ‘greater fool’ that will buy the NFT from you – before you buy it yourself. If you are not convinced that there is a ready market out there, then you shouldn’t buy it at all.

To further illustrate this theory, here is a real-life case study close to home. Last year, a Malaysian-based businessman Sina Estavi made headlines around the world after buying an NFT of a tweet for US$2.9 million. In April this year, he put it up for sale via an auction and started the bid at US$48 million. However, as Bloomberg reported, the auction for the NFT closed with only seven offers ranging from US$6 to US$280!

You read that correctly, this is close to the cost price – but minus four big zeroes! It is almost a complete write-off. There were just no ‘greater fools’ in the market for this deal.

Are All Crypto Investors Fools?

The Greater Fool Theory has been used to criticise the investment thesis of bitcoin back in its early days, when it was in the sub-US$10K levels. Since then, crypto has become a lot more mainstream. Wall Street is accumulating bitcoins, and even some governments and pension funds are doing the same. Are they all ‘fools’ writ large?

The critique had gone quiet for some time but recently surfaced again due to the NFT mania and ‘degen’ culture. The word ‘degen’ is a shorthand for ‘degenerate’ and refers to crypto investors who go after risky digital assets like NFTs without doing their own research. Crypto ‘degens’ have become the new punching bag in this current bear market with the Greater Fool Theory as its punchline.

For some, the theory is an investment strategy to profit from ‘fools’ – specifically when there is a high degree of price uncertainty and herd mentality in the market. This works for certain assets like art and real estate where there is no objective price reference. The founder of modern macroeconomics, John Maynard Keynes explained this with an example of a beauty pageant, where judges are rewarded for selecting the contestant whom all judges think is the most beautiful, instead of the one they personally find the most attractive.

One can observe similar behaviour in the NFT market. Investors don’t value an NFT based on what they think it’s fundamentally worth, but what everyone else thinks the value of the NFT is. Some investors know how to use this to their advantage, though many fail as well, no doubt. It ends up being a zero-sum game, you either fool others or be fooled yourself.

Disclaimer: Contents above shall not be considered financial advice.

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.

28/06/2022