Financial Planning DIY 投资理财点滴

My Reading List in 2011

2011-12-31T10:39:00.002+08:00

Today is the last day of 2011. To me, it has been a busy year. I traveled extensively to various countries in Northeast Asia for meetings as well as to visit my customers and suppliers. I also launch my first Chinese book, "无限的财富" in November. Thanks to all my readers.

Despite of busy schedule, I never forget to read. I normally read books 1 hour before bed time and, by doing so, it really creates a peace of mind to me after a day of hard work. Here, I would like to share with my fellow readers about what I have been reading in 2011:

ENGLISH TITLES:

1. This book shares very daring ideas to have more time to do what you like without quitting your full-time job. But I wonder how many of us can really follow his ideas fully. Anyhow, it is still worth to read and start to practice some suggestion, if not all.

2. We have been seeing people driving big cars, living in houses, wearing branded outfits. But accept the fact that they might not as rich as you think. This book reveals the truth.

3. This book discusses about how the education system should be in order to make our kids and us live happily. Great book.

4. Another good book to show us to to regain the control of our time.

5. This book thoroughly discussed about Warren Buffett investment style. Rather technical as it involves some financial and mathematical calculation. Those who like figures and want to know more how Warren make his investment decision, this is the book.

华文书籍

一、当生活欺骗了你：
讲述了生活中的许多所谓的自然定律其实是蒙蔽了我们的双眼。

二、冥想：
此书是在教导我们如何通过冥想来放松自己。

三、股票投资正道：
一本由本地资深投资家，冷眼，的著作。读了他的书，你更定会对你的股票投资深信不疑。

四、别相信任何人：
一本翻译小说。说的是一个失忆的女人如何通过一位医生的建议来恢复记忆从而发现了她那不可思议的过去。

五、减生活简生活：
一本教导你如何通过放弃来获得真正的快乐。

六、稳赚大马股市：
一本本地著作。此书是教导技术分析。但我本人觉得并不是非常实用。看看无妨。

七、30年后，你拿什么养活自己：
此书的标题勾起了我极大的兴趣。但是才看了前面两章，我决定不再看下去。这是一本叫人如何进行财务管理的书籍。与其他相关书籍的内容大同小异。我以将此书拿去再循环了。

八、新福尔摩斯之丝之屋：
一本在今年11月全球同步发行的翻译侦探小说。内容紧凑紧张。我一看便欲罢不能。精彩！

九、饥饿游戏3 之自由幻梦：
这是饥饿游戏三部曲中的最后一部。与翻译版在今年二月发行。我是在台北买这部小说的。在2010年看完了前两部后，就一直期待它的大结局。它叙述了一位女孩如何被一些她无法控制的情况下与她所爱的人一起努力而最终取得成功。非常紧张刺激。

十、投资大师也会犯的错：
我是在上海的福州路的一间小书局里找到这本书的。它被放在一个极不起眼的角落那儿。历史是一面镜子。此书通过许多国际知名的投资大师的投资失误来警惕投资者。非常值得一读。

十一、战国策：
我中学时就对中国历史产生了极大的兴趣。今年九月在上海工干，晚上有时间便去书局逛逛并找到了这本文言与白话对照的“战国策”。我二话不说便把它买下并花了一个礼拜的时间将它读完。这是我对古人的智慧更加钦服了。

十二、一整年不用钱：
这本书也是在台北买的。作者叙述他是如何再没水没电没钱买食物的情况下生存下来并不花一分钱。佩服佩服！

In the year to come, shall we read together for leisure and for our better future?

HAPPY NEW YEAR!
新年快乐，万事如意！

无限的财富

2011-11-26T17:28:00.000+08:00

自英语版“无限的财富“出版以来，我收到广大的读者们的热烈反馈。非常感谢大家的支持。为了能让更多的读者受益，“无限的财富”中文版也已出版。现已在各大书局出售。

为了能更好的反映当下的市场情况，我在中文版里添加了不少资讯及投资技巧。欢迎读者们进行讨论及分享。

期待你们的回馈。

谢谢！

Goodwill in Balance Sheet

2011-11-26T17:16:00.000+08:00

We always see the term "GOODWILL" appears in companies' balance sheet. So, what is a goodwill? According to oxforddictionaries.com, goodwill is "the established reputation of a business regarded as a quantifiable asset and calculated as part of its value when it is sold". Sound hard to understand? Well, in a layman term, it means a company is sold to a buyer company at a higher price than its NAV. The difference between the higher buying price and the lower NAV will be shown in buyer company's balance sheet as goodwill.

Now, you may ask, why does a buyer company want to spend more to buy a company that worth less? Well, we should look at this kind of buying from the other angle. Say the seller company has been doing good for years and its earning and return to shareholding are growing without fail. In this sense, seller company will consider its business future growth potential as a strong selling point when negotiating with buyer company. In turn, the buyer company will evaluate the seller company's potential at the same time. If the earning future of the seller company is there, the buyer company do willing to spend more to acquire it.

Some argue that goodwill does not carry any value in actual as it will be amortized from time to time, just like a depreciation. Well, as of my opinion, it is true only if it is a positive acquisition that generates goodies for both buyer and acquired companies as the value will return to shareholders in future. With this sense in mind, we may consider to remove goodwill from Assets. This exercise will reduce shareholder equity in turn. Therefore, the Return on Equity (ROE) will become better.

Therefore, do try hard to study the content of goodwill as well before your investment. Do note that higher goodwill with over expansion will not create value to shareholder.

How Do You Control Your Spending?

2011-08-13T05:46:00.000+08:00

It has been again a long time for me to update my blog and I would like to sincerely thank to my loyal readers. I will strive my best to update and share more frequent to share my view and thoughts on investment and financial planning.

Few days ago, when I was making a coffee during my short 5-minute tea break, I had a brief chat with my colleagues. They were asking me how much do I normally spend on my meal. I replied that I spend about $4~$5 for a dinner for my family and they shocked. They felt incredible and said I was lying because they normally spend at least $6 for dinner alone. I informed them that is what people do normally without second thought. If you follow the crowds, you will end up the same as what the crowds are doing.

Should you read through my previous posts may understand that I encourage everyone to have you own way on doing anything as you are unique in this world. You are the one and only. Nobody knows what you actually need but yourself. I understand that if I follow what the crowds are doing, I will end up the same with them and my dream of early retirement will never come true. I must control my expenses now so that I will be able to at least remain this living style after my retirement.

I strongly advise you to think hard on how to control you expenses in order to make you $1 more than $1. Focus on your needs and delay or eliminate those wants. Believe me, if you able to do that, you will be definitely a winner among the crowds.

Do it now.

Best Stock Investment Timing

2011-07-02T15:34:00.000+08:00

Many readers of my book are asking me whether it is time for them to invest in stock market NOW. When I am writing this article, FBMKLCI is standing at historical 1,583 points. I can't really judge how high will the market go from this point. Economy uncertainty in the US and Europe makes me more worry about the sustainability of the historical breakthrough. May be I am wrong but I still believe the best timing for stock investment is when everyone is selling.

Let me give you an example. I study the price movement of MAYBANK since market panic selling in March 2009 until 1st July 2011. Based on the chart above, its share price has moved from the low of $2.77/share in 16th March 2009 to $8.95/share in 1st March 2011. This represents an impressive annual compouding return of 67%. Yes, the great 67% p.a.. Of course, as indicated in my book, I will wait more positive signal to buy. As a result, assume I decide to buy MAYBANK on 15th April 2009 at $3.27/share. By 1st July 2011, my unrealized profit is still a mega 58% p.a..

Continue with this example. Since MAYBANK stock price has been moving upward since then, the return of any subsequent entry is sure much more inferior than the early recovery stage and, of course, the risk of holding (losing) is higher now than ever.

Once again, I AM NOT suggesting now is not the time for stock investment but is not the time for accumulating. The yield of any high price stock will be very slim and the risk of stock price contraction is just too huge when general market is high.

Good luck.

Stock Investment Talk

2011-06-03T20:35:00.001+08:00

I was invited by Kanyin Publications to give a talk at Read Malaysia'11 book fest on 28th May 2011 at MIECC (The Mines). Well, this is my very first time to give talk in front of my readers. I did not feel nervous as I get use to speak in front of public as required by my full-time job as a Marketing Manager. But what I concern was readers' response.

I introduced my STARS evaluation system in order to let more people to be benefited from my system. There were questions concerning about current market condition and whether it is a right time to invest or not. Well, no offense, if you are a speculator, may be anytime is a good time provided you got time to look at those momentum stocks price movement in every minute. To me, I would rather spend more time with my family and fill up my life with more meaningful activities. Life is really short, I really don't want to waste it.

"So, what is the right timing to you?" You might ask. To me, I would rather start my "shopping spree" when those good quality counters are on sales. Just like what I did in Q1 2009 when the market was about at 800+ points. By using my Process #1, I have identified those good counters. My Process #2 has helped to identify the right timing to enter for each counter. I am still holding those counters now and their returns are really impressive. The value of some counters are even 1.5 times higher than my initial investment and this return is yet to consider dividend return. So, the trick here is to buy solid counters at the right price and at the right time. I did not pay extra attention to my holdings after my purchases and they are all working hard for me. If I can, so can you.

I believe you might ask what am I investing now as the market is so "high" now. Well, I will talk about this in my later post. Stay tune.

Plus Or Minus

2011-05-15T14:51:00.000+08:00

Have you ever think of this? What is the purpose for you to be so busy, day in and day out? For your dream home? For your dream car? For your career advancement? Or for your children's education? I believe most of your purposes need money. The more money the better. And that is why you always think of money not enough. Is it really so or are you "too much focusing and magnifying"?

Now, beside money, what else do you get at the same time? Headache? High blood pressure? Feel depress? Feel tension? So, here is what you get:

Plus (+) Money = Minus (-) Health

Only you can judge whether it is justifiable.

As for my opinion, we should always strike the balance within our life. To me, money is important but not everything. There are many things in our life which are more valuable than money. In fact, some of them are priceless and can't be bought by money. Things like your health, life happiness, family togetherness and many, many more.

Our life is just like a balance sheet. By having more of one side means less to the other side. The equation just now "+ Money = - Health" is not a good picture to everyone, I believe. How about if you can let go a little on one side while gaining more over the other like "- Money = + Happiness"? The "- Money" is not asking you to spend or ignore money. Instead, it is an equation to asking you to slow down a bit to spare more time with your love ones or for your hobby. Happiness will in turn replace "- Health". Get it? Quite always, "minus" gives negative impression to people. But, sometime, it is not really the case.

From now, think about your plus and minus equation and stay happy always.

Wellbeing (Part 5)

2011-05-07T05:51:00.000+08:00

First of all, my sincere apologies to all my fellow readers as it has been quite sometime I did not have time on updating my blog. I have been busy recently as I have to travel overseas quite often. However, I never give up my way of sharing with everyone of you. And, of course, I would like to express my sincere thanks to my fellow readers.

In this new post, I would like to share the final part of Wellbeing, i.e. Community Wellbeing. Community can be defined as a social, religious, occupational, or other group sharing common characteristics or interests. To be more precise, Community Wellbeing is living in an area that is a good fit for your personality, family, interests and other pursuits.

At the highest end of the Community Wellbeing is giving back to society, just like giving a meaningful gift to a love one. However, have you ever think about our time is the most valuable gift at all time. Just imagine, after a day of hard work, what will you do after returning home? Will give be able to give some time to your family or get around with your friends with similar interest or just go back and sleep and wake up again on the next day for the same cycle? In which way do you feel more happy and meaningful?

After having the previous four Wellbeing with a mind of caring and sharing will make our life more complete than ever. Think about it.

Wellbeing (Part 4)

2011-02-15T10:30:00.000+08:00

Have you ever think about whether you have selected something that will provide net positive to your health or something that is net negative?

What we have been doing and eating are giving what we are now physically. By eating high cholesterol food without proper exercise will not give you healthy body.

In order to keep you physical wellbeing, you must:

have at least 20 minutes of physical activity each day. Preferably in the morning as this will improve your mood throughout the day.
have at least seven to eight hours of sleep. Too long or too short sleep will create burden to your body and definitely will not make you feel great.
have more natural nutritious food as much as possible in you daily meal.

I believe, by maintaining above 3 areas of "body maintenance", you will feel healthy and happy than ever before.

Keep it up.

Wellbeing (Part 3)

2011-01-23T05:49:00.000+08:00

Have you ever worry about money? Have you ever think about the purpose of money? Will you really happy if you got a lot of money with you?

Money is essential in terms of providing us essential needs like food, basic shielder, basic transport and basic clothes that keep us warm. In order to overcome the threat of illness, health care can be another basic need to us nowadays as well. Beside these, can money buy any WELLBEING to us?

May be yes. But this does not mean you can simply spend without control. To obtain WELLBEING, you have to spend it with value return. This value can be quantitative and qualitative.

For example, you may plan to have a holiday or two in a year with your family. This will create harmony among your family members. In addition, you may make friends during the trip while increase your life exposure at different places. This value can't be quantified but it really generate value to you like happiness.

Another way is to invest your money for your future. You have a plan and make automatic standing instruction into your investment accounts and, based on your plan, you know you will get certain amount of money to achieve your financial target which, in turn, also generate a peace of mind to you as you are less worry to your future and happiness will come along the way.

Donation is another way to create WELLBEING as well. By donating, you are not only increase your WELLBEING on gaining happiness on helping others who need help, you are also improving others' WELLBEING.

To sum up, do not keep all your money only to yourself. Invest it, share it or spend, of course it must be within your spending capacity, it, your WELLBEING will be improved and you will be very happy than ever.

Wellbeing (Part 2)

2011-01-02T05:52:00.000+08:00

Have you ever realized that somebody able to shape your expectation, desires and goals? What do you feel if you see a friend who is happy and keep smiling? Will you feel better or worse? Similarly, after a day's work, what sort of moods you are presenting to your spouse and/or children? They will be affected by your good or bad mood, definitely.

In this sense, to have a happy life and to improve your WELLBEING, your social life is playing an important part as well as yourself, as well as others, are spreading their feeling around that will affect each others' WELLBEING. In this case, would your friends and you rather like to spread happiness instead of the other way round.

Now, the question is how to improve our Social Wellbeing. According to the authors of Wellbeing, Tom and Jim suggest:

to spend six hours a day to socialize with friends, family and colleagues. The six-hour is on accumulative basis and not necessary during the free time. You may start to socialize during any business or non-business telecommunication, chit-chatting, email or other communication. Other social website is also a good way to improve our Social Wellbeing by send our regards and comments over it to our friends at no time. This will strengthen our network relationship.
to mix physical activity with social time. For example to have a long walk with your neighbor so that you can motive each other to be healthy while maintaining good social relationship. Everybody will feed happy by the end of the day.

So, what are you waiting for, start to communicate to improve your Social Wellbeing today. Make it an agenda for the year 2011. You will feel more happier than before.

In my next post, I will share my view on Financial Wellbeing. Stay tune.

Wellbeing (Part 1)

2010-12-15T14:42:00.000+08:00

What is the meaning of WELLBEING to you? According to Oxford Dictionaries Online, WELLBEING is defined as "the state of being comfortable, healthy, or happy". In other words, to achieve WELLBEING of our life, it is not restricted in only one or two areas. For example, say you have multimillion dollars in your bank account but hard work has resulted in your bad health. In this case, your WELLBEING is in question as what you have earn is being "contributed" to your doctor but not your life fulfillment.

There are five areas of WELLBEING we can look into. Namely Career, Social, Financial, Physical and Community. Be frank, the first time I realized these five areas of WELLBEING, I really can't connect each other or how each of these areas being interrelated that will affect my life. After I read Tom Rath and Jim Harter's "Wellbeing", I can imagine that I will have meaningless life if either one of these elements out of the picture. Therefore, for the next few posts, I will share my opinion with real life experience in order to have happy life.

First, for Career Wellbeing, ask yourself a few questions:

Are you happy with what you are doing in your job and/or business?
Do you feel lazy to go to work in every working day?
Do you feel nobody is appreciating your work and contribution?
Do you have problem to get around with your colleagues?
Do you hate office politics?
Do you have fussy boss?
Do you have less capable subordinates that always unable to meet your requirement and dateline?

As a matter of fact, these questions will go on and on and on. If your answers to these are negative, your Career Wellbeing is in question. Be frank, I have problems on all of the above and they really create problems to me. To solve these problem, we must switch our focus from negative to positive. In other words, think about what your current job is offering you. It:

Is a good pay job
Allows you to make important business decision. Of course, authority will come with accountability.
Enable you to learn various departmental function that, more or less, can be applied in your private life. For example: how to read financial statement, how to prepare budget, propose cost savings activities etc.
May allows you to show your superiority as you know more than any others who are at the same level.
Other departments members tend to consult you opinion before any decision is make.

Again, this list will go on and on and on.

So, this is what I am doing. Think of positive way. This will reboot my working passion which in turn I am creating my Career Wellbeing. I feel happy at work and everybody around you, including my boss, can feel it. Therefore, by the end of the day, as suggested by Law of Attraction, I will eventually get what I deserve.

I believe the same can be applied to you as well. If you have any other ideas on improving our Career Wellbeing, do share with us.

In my next post, I will share my view on Social Wellbeing.

Book Review: Warren Buffett and the Art of Stock Arbitrage

2010-12-07T07:55:00.004+08:00

This is another wonderful book from Mary Buffett and David Clark. Last year, I read their "Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage", many doubts on how Warren read financial statements are clarified. This year, I am further enlightened by how Warren benefits from the companies mergers, take overs, reorganization .... . The book provides very good insight on each condition and how Warren goes about it.

Steps mentioned in this book provide good step by step guide on how to. However, not all steps are feasible in Malaysia. For example, for friendly merger, Warren will buy subdominant company's share and sell short dominant company. There is no problem on the first part of the equation, i.e. to buy subdominant company's share, but the second part. Malaysian is not allowed to sell short in Bursa.

Anyway, it is a great book to own and understand how stock arbitrage is working and how to play it safe.

Happy reading.

Book Review: The Lazy Millionaire

2010-12-04T16:08:00.000+08:00

I bought this book at Popular Mega Book Fair in Johor Bahru. It is really a simple and straight forward book. The author, Marc Fisher, gives a number of good ideas on how to have your life nice and easy.

This book is divided into two parts. In Part 1, even though some concepts are straight forward, there are still might caught you in surprise. In particular, I like the Concept of Differential. Let's take an example. Say you are paying a month car installment of RM1,000/month to own a car. In order to maintain the car, you need to have car maintenance cost of, say, RM200/month. As car is depreciating in value, it generates no income to you but requires you to contribute some more. Now, we further assume that this car you are paying is your second car and you own it just because you like it. With millionaire mind, we may consider, instead of buying this car, to invest RM1,000/month into, say, property investment by taking a housing loan. Let also assume that you are able to rent out the property at RM1,000/month as well. It seems you gain nothing but, as a matter of fact, you are earning RM200/month in terms of savings on car maintenance if you opt to not to own the car. Got it?

The essence of the book is in Part 2 which shows us how to have easy life. I appreciate Marc's way of thinking. Just imagine, we have been busying from day to day, from night to night. Stop for a second and ask yourself a question, what is your purpose and objective of life? You might say you want to earn as much as possible for better future. Therefore, you need to sacrifice you time with family as well as what you actually love to do. Think again, by the time you reach the said target, will you able to slow down or will you still able to enjoy what you suppose to enjoy by then. I would like to quote a few sentences at page 110 of this book and may be it is time for us to really slow down and think what we actually want:

"If you still don't have time, and if you still never take you time, you are poor, it would seem. Yes, POOR, even if you have millions of dollars in your bank account, a huge house, and fancy cars.

You overlook the essential, the real beauty of life, and its true objective. In order to discover these things, and especially to be able to appreciate them, you need" time!"

In fact, your time is to be decided by yourself, nobody else. Your boss may ask you to submit a report in 2 days. It is up to you to get it done within a day or last minute. Therefore, whether you have time with you family or doing what you love to do, it is totally up to you. Remember, you will be rich if you have time for yourself.

Follow-Up

2010-10-30T19:06:00.000+08:00

Now is almost the end of the year 2010. Have you started to think about your agendas for the year to come - 2011? Well, before that, how about the achievement status of your 2010 agendas? Have you achieved all or needed some catching up? Or, you have no idea at all?

Plans are set to assist us to achieve something in our life. Because these something are important to you, you have designed road maps or plans to achieve them. However, if you do not follow-up your progress against your plan, you are actually planning to fail.

It is important to follow-up all you plans in order to carry out necessary action to counter any discrepancy. Timely follow-up will allow you to take action immediately with less hassle to ensure you plans are back on track. However, you will have no idea or find it difficult to narrow the gap between those discrepancies and you plans if you do not follow-up accordingly. Eventually, you might give up and give yourself another excuse to make them as your next year agenda, and the next, and the next .....

So, waste no more of your life. Life is really too short to waste. Therefore, allow your plan to create meaningful life for you. Do plan and follow-up timely.

Frugal = Stingy?

2010-10-17T05:42:00.000+08:00

Whenever I spend, I always ask myself a question: Is it my need or want? Is it worth for me to spend my valued money? Most of the time, my answer will lead me to avoid no-value spending. I believe this is the reason why I often heard from my friend who let the others know that I am a stingy person. Or, am I?
Some of my friends prefer to spend their weekend at karaoke and ask me to come along and join them. Well, I agree that right amount of entertainment and relaxation will make my life more healthier after a week of hard work. However, to me, the right amount might mean value creation as well. So, I might opt for once a month to karaoke instead of weekly while spending my other weekends and money on other value creation activities like reading as well as family gathering.

Therefore, being frugal is being thrifty. It is not an attitude on not spending every single cent BUT knows exactly what he/she is possessing and wisely use every single cent on his/her needs. In other words, frugality means we are enjoying what we have. If we do not enjoy what we have, it can be defined as waste no matter how much luxurious possession we have.

Frugal people get value from everything. So, start now, think seriously whether you are enjoying the thing you possess, buy and the value they created for you.

Determine the Entry and Exit Point of KepCorp

2010-10-05T07:00:00.002+08:00

A reader of my book, "Infinite Wealth", inquire about my view of Process #2 for KepCorp, a Singaporean stock.

Well, my first assumption is that he/she has completed Process #1 and qualified KepCorp as a good investment candidate for further study.

Next, I compile all required information in Process #2 and would like to summarize my view as follow:

Based on the summary table from Process #2, it can be clearly seen that majority indicators show “BUY” signal.
Do note that the gap between 20SMA and 50SMA is getting closer and less steeper. This could happened only when prices have been moving rather flat for quite some time. This is also supported by narrow Resistance and Support Price Level, which is only $0.15. In other words, the price can easily dip below 50SMA at any time.
Current price is slightly above Resistance Price Level with retreating market volume may means that the price might meet some resistance for moving ahead. Therefore, risks of entering KepCorp now is considered very high.
For the time being, the low risk entry price should be placed at $8.95, the Support Price Level. However, I suggest to put only a portion of your fund allocation at this price level as the risk for KrpCorp to retreat to $8.65 is still high. In other words, be ready to get out of position if the price dip below$8.95.

You may feel that rather depress for high possibility on making loss within such an extreme short period. Do not blame to yourself and accept the fact that the market is really so unpredictable.

However, there is still a way to overcome this. When you see the trend of 20SMA and 50SMA are moving side way or less steeper, the best strategy is to do nothing until the trend tells you strong signal on whether it is going up or down. The reason is very simple. Side moving or less steep SMAs show no trend. It can go up or down later on. The best trend of making money from share market is when SMAs are moving upwards steeply. The steeper upward the trend, the more impressive return will be.

Please note that the above is for discussion and educational purpose only. Do refer to my disclaimer in this blog and my book.

Good luck.

How Much do You Save for Yourself?

2010-10-02T19:48:00.000+08:00

We have been working hard, day in and day out. Suffering sickness due to work pressure and limited time with family. Have you ever think about the purpose of doing this way and what do you actually get?

Well, unless you are rich, the meaning of hard work may mean better income for better life. Life carries different meaning to each of us. She may work hard for her dream car; That husband and wife may work hard to fund their children education; He may work part-time to support his college tuition fee. But, stop and think for the time being. It seems like everyone of us are working hard for someone else as what we have earned will be paid to others. How about ourselves then? Nothing else beside those materialistic possession with big owing? It seems like very unfair, isn't it?

Be nice to yourself. You deserve to pay yourself first from your earning than anyone else. You may utilize what you have paid yourself for provision of your future activities like holidays, early retirement or further study. How much to pay to yourself first? You might ask. Well, set a rule of paying yourself a minimum 10% of you take home income. Allocate the balance of 90% take home pay for other life necessities.

What should you do with the 10% take home pay then? First of all, for those who do not have any emergency buffer, start to accumulate until it is equivalent to 6-month monthly expenses. This is emergency fund to meet unexpected end need. Unless it is emergency, do not use it and keep it as liquid as possible. After that, you may start to plan about your investment that generates better return to meet your other financial needs and future provisions.

So, treat yourself well, starts today, pay yourself 10% of your take home pay first and I guarantee you will soon feel how wonderful it is as you have just created yourself a peace of mind.

Fund Allocation for Life / Critical Illness / Medical Insurance

2010-09-22T07:45:00.002+08:00

In my previous posts on insurance planning, I have been emphasizing the importance of insurance as a protection tool to cover our financial aspects in any unforeseeable circumstances. Due to different in nature on different kind of insurance policy, I also advocate to spend less on insurance premium while getting the highest possible protect and invest the rest for maximum return.

Based on the above, we should treat insurance premium as an expenses and do not expect to get it back in the future. You may refer to my post on Purpose of Insurance for the logic.

Now, the question is, how much should we "spend" on insurance. Well, we have many lifetime commitments to fulfill while every commitment plays important role in your life. You will be unable to fulfill any of your commitment in case of incident that may affect your ability to do so. Therefore, as a general rule, allocate a maximum of 10% of your monthly take home pay for your insurance premium. Most importantly, work closely with your insurance agent on your insurance needs and how to meet these needs within your allocation.

The bottom line is, you need a good and responsible agent to get through all these.

Good luck.

My Reading List 2010

2010-09-18T11:54:00.009+08:00

Reading has been my favorite hobby for years. I feel down without holding a book during my free time; I feel being left behind for not learning continuously; I feel time will be just wasted by sitting in front of TV instead of a book. Anyway, I have set my target to read at least a book in a month and books' titles cover not only on financial aspects but also literary works. Following is my 2010 reading list so far:

1. "The One Minute Millionaire: The Enlightened Way to Wealth" by Mark Victor Hansen & Robert G. Allen

2. "The New Buffettology" by Mary Buffett & David Clark

3. "Road Map to Financial Freedom" by Yap Ming Hui

4. "The Da Vinci Code" by Dan Brown

5. "100 Ways to Save Tax for Individuals" by Richard Thornton

6. "The Lost Symbol (Robert Langdon, No. 3)" by Dan Brown

7. "Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Revised and Updated for the 21st Century" by Vicki Robin

8. "The Hunger Games" by Suzanne Collins

9. "Catching Fire (The Second Book of the Hunger Games)" by Suzanne Collins

10. "Law of Attraction: The Science of Attracting More of What You Want and Less of What You Don't" by Michael J. Losier

11. "Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth" by T. Harv Eker

12. "The Total Money Makeover: A Proven Plan for Financial Fitness" by Dave Ramsey

13. "The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich" by David Bach

14. "Cool Mum Super Dad" by Jamilah Samian

15. "Raising Happy Kids" by Rozieta Shaari

16. "Dividends Don't Lie" by Bill Wermine & Martin Wong

17. "Supercharge" by Martin Wong

The list is still going on. Most importantly, knowledge is our most important permanent asset and nobody able to steal it away from you. Use it to feed you mind and I guarantee you will not regret.

Happy reading.

How Do You Feel Today?

2010-08-29T05:45:00.000+08:00

I watched this video through You Tube and it makes me feel life can't be better than what you are now. Appreciate what you have and you are creating value for yourself. Nobody is useless. No excuse to be valueless. Trust yourself and be yourself.

Happy always.

Is Your Insurance Agent Still Around? (Part 2)

2010-08-25T19:52:00.000+08:00

During our chit-chatting, my wife told me that her colleague (hereinafter called Ms. A) is facing problem with her insurance servicing agent. While my wife has limited knowledge on insurance, Ms. A asked for her advice. Now, could you see the problem? The fact is, around us, there is a large percentage of public do not understand how insurance work. Therefore, it is the servicing agent’s responsibilities to ensure his/her client understand the nature of each and every policy before any commitment. However, how many servicing agents are actually caring their clients? Or are they caring their rice bowl?

I must admit that there are actually good servicing agents around. You must be very lucky if you meet one. This conclusion came from my years of experience. I did try to look for those that I used to believe were good agents. But, each and every time, they failed to achieve. They were either not providing any service or just disappeared in the middle of no way. Worst still, the direct service provided by some well-known insurance companies are almost in the similar nature. All this scenarios are what Ms. A is currently facing.

What can Ms. A does? Well, first of all, she should learn as much as possible those policies she intends to commit. By doing so, she is protecting herself from the “trap” or loophole set by those “irresponsible” insurance agents. As for how to identify those irresponsible agents, my experiences is, based on what you have learned and understand, ask your candidate agents some principal questions on each and every kind of policy. You will be able to get an idea or two about the quality of these agents from their reply. I used this method to test those agents from insurance and unit trust and the result might surprise you. Almost 99.9% of these agents can’t give me satisfactory reply on my questions. Most of them surprise that I actually know more and they claim that they want to learn from me. So, what do you think the quality of these agents? Can they provide you what you need to know and service you well?

After testing and you might find that quality of your agent is in question. Write to the insurance company directly, if possible, with evidence and request to change the insurance agent. However, you may still unsure the quality of the next servicing agent. Well, for this, the last resort is to DIY. That is, contact your insurance company directly for any insurance related matters and this is what I am doing now. I just don’t expect those servicing agents will treat you like your parents and will stay beside you whenever you need them.

So, be prepared, you might need your own effort by the end of the day to get the thing done. Learn to be more independent and your life will be less hassle.

My REITs Investment Performance as at 31-July-2010

2010-08-14T10:08:00.000+08:00

Refer to my previous post on REITs Investment Performance as at 31-May-2010, my REITs portfolio has grown another 0.8% in annualized return, from 21.1% to 21.9%, within 2 months. This impressive return are main contributed by outstanding yield from HEKTAR and AXREIT which are generating 32.7% and 44.1% annual compounding rate.

Accept the fact that other good counters in Bursa were actually performing much better than REITs. For example, my MAYBANK's holding was giving me a annual return of 67.3% as of 31-July-2010 for a holding period of a year and four months.

No matter you are buying REITs or other counters, there is, of course, another important factor that contributes terrific gain. That is buy them when they are really cheap. Majority of my current holdings were bought in early 2009 when market was so pessimistic.

As of my opinion, REITs is a good vehicle to generate stable and impressive income with relatively stable pricing. I might treat it as one of my income source during retirement. If you have extra fund (after consideration of emergency buffer requirement) and have no idea where to invest, instead of putting it in low risk low return FD, do consider REITs. Of course, some homework before any investment need to be done beforehand.

Good luck.

Infinite Wealth

2010-08-03T07:30:00.006+08:00

This is my first very own stock investment book to share my years of experience on countering unpredictable stock market movement.

As stock market is so unpredictable, I have designed a system that works well and enable me to receive an average 15~20% annual return, no matter how the market moves.

In my book, I will reveal my very own company evaluation system to identify fundamentally sound companies. With these shortlisted established financially sound companies in your list, I will also show my technique on spotting the right timing on entering and exiting for profit maximization.

The processes indicate in my book have been proven through years of pilot testing by using my hard-earned money. As get out the rat-race by my early 40s is my major financial target, sustainable passive income is a must. I must have a solid system to ensure that and here I have developed one. It works and I will like to share it with my fellow readers.

Do grab a copy at any major bookstore. Your inquiry, testimonial and/or comments are most welcome.

Happy investing.

How Much do You Worth? (Part 3)

2010-07-31T08:00:00.001+08:00

Do you have any idea how much of your income has been used for loan repayment? You will be able to by calculating debt servicing ratio by dividing your loan repayment with your net take home income. You should keep your debt servicing ratio below 35% of your net take home income so that you have enough cash to meet other end needs.

Life insurance is a very important protection tool. But, in view of limited financial resources you have, it is not advisable to have large allocation of your net take home income on this. As a rule of thumb, try to maintain your life insurance service ratio at maximum 10% of your net income.

Last, but not least, the Savings Ratio. We have been talking about pay yourself first. So, how much do you actually pay yourself. You will have some idea by dividing your savings over net income. The optimum ratio is subject to individual condition. But, as a general rule, a minimum of 10% shall be maintained.

There are, of course, many others ratio you can get to know more in depth about your financial health. Those listed in my post, which I believe, should be able to give you a general picture of your financial condition. After calculating all these ratios, what you need to do is to find and attack the root cause that lead you to unfavorable ratio.

Happy calculating.

How Much do You Worth? (Part 2)

2010-07-28T08:00:00.002+08:00

In my previous post, I have shared a simple formula on calculating your net worth. By having positive worth does not translate into good financial health. Just imagine, remaining healthy, it will be better to have regular medical check up so that any abnormal symptom can be taken care of at no time.

Have you ever wonder how much can your daily life go on without an active income? Well, a good way to examine it is to calculate the Basic Liquidity Ratio by dividing Liquid Assets with Monthly Expenses. Liquid Assets means those items which are cash equivalent (such as Cash, FD, Savings) but investment shall be excluded. If the ratio comes up a value of, say 5, it means your cash can last for 5 months of living without active income. Of course, we should keep this value as reasonable as possible. A too high value might not provide positive contribution to your financial health while too low will put your life in risk as life is full of uncertainty. As a rule of thumb, we shall keep the value at the minimum of 3. As for the maximum, it is totally depending on your life condition. Higher value may be required for those with uncertain income or vice versa.

Next, I would like to talk about Solvency Ratio. It is a ratio to check whether you are over exposing on loan or not. You can get the ratio by dividing your Net Worth by Total Assets. For aggressive investors, their loan exposure may be higher than those conservative investors. By having high loan will reduce your Net Worth and get lower Solvency Ratio. As a guideline, we should not have a Solvency Ratio that is lower than 50%. If it is, it means more than 50% of your assets are financed through loan. Any insolvency might put you at a great risk.

On my next post, I will share more ratios on evaluating your financial health. Stay tune.

How Much do You Worth? (Part 1)

2010-07-18T08:00:00.003+08:00

We able to know a company's financial condition based on its income statement, cash flow statement and balance sheet. A number of financial ratios can be generated from different items listed among these reports to identify a company's financial strengths and weaknesses. For individual perspective, the same can be applied as well. Now, ask yourself a question, do you know how much you worth? If you able to tell immediately, congratulation, you are on the right track towards or already achieve financial freedom. If you are not, it will be better to have one ASAP. Sometime, you will be surprise what your personal balance sheet will tell you.

To prepare a personal balance sheet, for the first step, is to have a list of your personal assets. These personal assets include cash, savings, current account, share investment, unit trust investment, property investment as well as all others that can be classified as your personal assets.

The next step, similar to the first step, is to identify all of your personal liabilities like housing loan, car loan, personal loan, credit card outstanding, short-term loan etc.

Finally, it is the time to calculate your personal net worth. The "magic" formula is to get the difference between your personal assets and personal liabilities. If the value comes out positive, wonderful, you are owning something that are really below to you. If the value is negative, you have to think of a way to rectify your personal financial condition immediately.

So, Net Worth = Total Assets - Total Liabilities. Have some this basic calculation now for the time being. In future post, I shall share more on how to analyze your personal financial condition base on your cash flow statement and balance sheet. Stay tune.

What & How to Do

2010-07-14T08:00:00.003+08:00

If you attended any seminars, courses or workshops before, you may have a number of questions on how exactly to carry out what you have learned afterwards. Don’t worry, this is normal.

As a matter of fact, seminars, courses and workshops are mediums on telling you WHAT TO DO but not so much on HOW TO DO. For example, a money management seminar may tell you that you need to save for your retirement but it may not advise you how to save; a workshop may inform you how to do but you may still doubt about the feasibility of it.

Only ACTION (“HOW TO DO”) brings you result (“WHAT TO DO”). Therefore, it is important to seek for and/or design your very own ACTION (“HOW TO DO”). The logic is very simple: what is suitable to other might not suit you as you are unique. You may need to modify what you have learned to go with your sole context but not follow blindly on what others are doing. If you make a mistake or two during the learning process, make them become part of your experience, continue to learn in order to further refine your ACTION (“HOW TO DO”).

So, time is short, start to design you very own “HOW TO DO” now. Your ACTION will lead you to your SUCCESS.

A Bee Or A Fly

2010-07-11T08:00:00.003+08:00

One day, a man laid the bottom part of an opened glass bottle in front of a window. He carefully put a bee into the bottle and started his observation. The bee kept hitting the bottom part inside the bottle where it could see the light. After a while, it gave up and rest in the bottle.

Subsequently, the man put a fly into a bottle. He saw the fly kept flying around in order to get out of the bottle. After a few second, it managed to fly away from the other side of the bottle. The man, therefore, put in another fly and it flew away from the bottle at no time.

So, what does this observation tell us? No idea? The moral is telling us not to give up easily but keep trying in different way. Learn from mistake. Just like those flies which kept trying to seek for the way out by flying to different direction. They changed direction if they tried and blocked.

On our journey towards financial success, isn’t it true that we should seek our own way rather than follow others? What suit others might not suit you. Do learn from mistake to refine your very own skill. This skill will be your permanent asset and nobody can take away or steal it away from you.

Starts do and learn now.

Is Your Insurance Coverage Enough?

2010-07-08T08:00:00.002+08:00

Recently, one of my cousins asked my opinion on whether she should cancel her life policy or not? She is married with 2 young children. This is really a one-million-dollar question. If she asks her insurance agent, I guarantee her agent will advise her not to cancel but top up some more because her life is invaluable. My experience tells me that her agent might not help her on calculating insurance need because her agent might not know how to or don’t want to help as, in her agent’s mind, commission earning come first. So, the only way she can do is to learn how to calculate her insurance need and act accordingly.

Life is full of uncertainty. None of us knows what will happen next day or even next minute. It is correct that life is invaluable. But, the fact is, we have limited resources to meet endless needs. That is the reason why planning, including insurance planning, is necessary.

So, how to calculate your insurance need? Following information is required for clearer picture:

Info 1: To get the amount of total liabilities, both short and long term, you are having. This is what you currently owe. Assume these liabilities need to be settled immediately if you are no longer around.

Info 2: To forecast your funeral expenses. At the current high cost regime, funeral cost may be a serious expense to your survivals.

Info 3: To forecast future family expenses, excluding you. In this step, you need to estimate the life expectancy of your spouse as well as the expenses on different stage of life. For example, your spouse’s family expenses might be high as children are still young but become less once they are growing older and become independent.

Info 4: To estimation your children education fund requirement.

Info 5: To estimate other needs, if any.

Please bear in mind that inflation need to taken into consideration within the calculation period for Info 3, 4 and 5.

Info 6: To study all of your current financial resources available, including all your existing insurance coverage.

Info 7: Estimate your financial resources growth

Now, you can start to calculate your y-o-y available resources after all debts and funeral expenses with your spouse’s future income versus expenses until the end of his/her life expectancy. If the balance shows negative, this means your insurance coverage is not enough. However, as we have limited resources, by increasing your insurance coverage, your insurance premium payment should not exceed 10% of your take home income.

Now, take a step ahead to create a peace of mind.

A Story to Live By

2010-06-29T08:00:00.000+08:00

Following is a story I received which I would like to share with my readers – to appreciate what we have:

There was a blind girl who hated herself because she was blind. She hated everyone, except her loving boyfriend. He was always there for her. She told her boyfriend, 'If I could only see the world, I will marry you.'

One day, someone donated a pair of eyes to her. When the bandages came off, she was able to see everything, including her boyfriend.

He asked her, 'Now that you can see the world, will you marry me?' The girl looked at her boyfriend and saw that he was blind. The sight of his closed eyelids shocked her. She hadn't expected that. The thought of looking at them the rest of her life led her to refuse to marry him.

Her boyfriend left in tears and days later wrote a note to her saying: 'Take good care of your eyes, my dear, for before they were yours, they were mine.'

This is how the human brain often works when our status changes. Only a very few remember what life was like before, and who was always by their side in the most painful situations.

Life Is a Gift

Today before you say an unkind word - Think of someone who can't speak.

Before you complain about the taste of your food - Think of someone who has nothing to eat.

Before you complain about your husband or wife - Think of someone who's crying out to GOD for a companion.

Today before you complain about life - Think of someone who died too early on this earth.

Before you complain about your children - Think of someone who desires children but they're barren.

Before you argue about your dirty house someone didn't clean or sweep - Think of the people who are living in the streets.

Before whining about the distance you drive Think of someone who walks the same distance with their feet.

And when you are tired and complain about your job - Think of the unemployed, the disabled, and those who wish they had your job.

But before you think of pointing the finger or condemning another - Remember that not one of us is without sin.

And when depressing thoughts seem to get you down - Put a smile on your face and think: you're alive and still around.

The Strength of Mindset

2010-06-25T08:44:00.000+08:00

You are what you think you are. You can't be rich if you think that it will never happen to you.

You may have no idea what and how to be succesful in life now. However, believe me, correct mindset will generate action plan through continuous learning and various source of life experience.

Here is meaningful story about mindset:

A daughter complains toward the father, everything is difficult.

She finds it hard to cope with life, seem a problem just resolve, the new problem appeared again, she was tired.

Her father is a cook, bring her into the kitchen.

He goes toward first to pour into some waters in 3 pots, then puts on the fire..

Soon, water boiling.

He put some carrots in the first pot, put an egg into the second pot, put some coffee powder into the third pot.

20 minutes later, father off the fire, take out the carrot. Go to the scond pot take out the egg, and then ladling up the coffee to a cup.

The father turned to ask his daughter:

'Kid, what do you come in sight of?'

'Carrot, egg, coffee' She say.

He lets her come closer to touch the carrot.

She noticed the carot become soft.

The father lets the daughter take the egg, breaking it, peel the egg shell,this is a cooked egg.

Last, the father lets her drink a mouthful of coffee.

Taste to the very thick coffee, the daughter smile, she asked:

'Father, what does this mean?'

The father says three things face same adverse circumstances-boiling water.

But its reflection is not same.

The carrot, before put in to the pot, it is strong and hard, after putting into the boiled water, it become soft,become weak.

The egg is originally crumbly, the very thin outer shell protects the internal organs of the liquid, once the boiled water cook, the internal organs become hard.

The coffee bean powder then is very special, entering boiling water, they changed the water then.

We can learn how carrot,egg and coffee bean react in the difficulties and adverse circumstances. They can accept defeat, can become stronger, and even can change environment/surrounding.

The father say:

Your cannot change the environment, but can change yourself;

Your cannot change the fact, but can change an attitude;

Your cannot change the past, but can change the present;

You have no command over others, but can control yourself;

You can't predict tomorrow, but can hold on today;

You can't be doing smooth and well in everything, but can devote your best effort;

You can't change weather, but can change a mood;

You can't change facial appearance, but can emerge with smiling face;

Yes, the mindset is important compares with others.

Step by Step

2010-06-22T08:00:00.002+08:00

What are your dreams (financial targets)? Are you aiming for early retirement, starting you own business or having enough fund for children's education? No matter what dreams you have in mind, you need to plan in order to achieve these dreams within stipulated period. The amount required for each of your dream may be huge that may made you feel very difficult, or impossible, to achieve. Is it really true that you really can’t achieve them? If you think you can’t, you really can’t.

Therefore, the foremost important step to achieve these financial targets is to think positively. Think about how you are going to achieve them. I am going to share a tip that might help.

As you have known your targets, the journey to your financial goals need great effort and takes years to complete. Therefore, keep these final targets in mind and break it down in multiple small targets along the way. You will be surprised how easy it is. What you need to do is to plan your targeted amount each year to attain your final target years later. Second, put in your effort on achieving the target of the year. As the amounts of yearly targets are very much smaller than the final figures, you will find that they are very easy target to achieve. Next, closely monitor your targets on monthly basis against your yearly target. Do all necessary adjustment, if any, after monthly monitoring process. You will also find that by doing monthly adjustment is much easier than yearly. Isn’t it really simple?

So, think big but do it one small step at a time, you will find that life is really wonderful. Do enjoy your life.

Return of REITs

2010-06-19T08:00:00.000+08:00

There are comments that emphasize leverage works well on direct property investment but not REITs. Real estate leveraging means you are using other people’s money (such as housing loan from bank) to invest in properties. You may rent out your investment properties for rental in the expectation that net rental received (after installment as well as all related charges, expenses and/or opportunity loss) able to provide impressive return over your investment outlay.

For example, you may borrow $190k for a $250k double storey terrace house from a bank. That means your initial capital outlay is $60k with monthly housing loan installment of, say, $1.5k or $18k annually. You have rented out this property for a monthly rental of $2.5k or $30k annually. Assume there is no other expenses incur, this net annual rental received of $12k ($30k gross rental minus $18k installment) is generating an annual return of 20% ($12k net rental over $60k capital outlay). Very impressive, isn’t it? Please note that this return may be true only if there are no other charges (such as house maintenance) and/or opportunity loss (think about the condition like the property is left vacant after ex-tenant moving out while waiting for the next tenancy).

As highlighted in my previous post of “Direct Real Estate Investment vs. REITs”, there are a number of other aspects on direct property investment that need to be factored in. Just like all other investment vehicles, direct property investment is not suitable for everyone. For investors who would like to have exposure on property but unwilling to face the risks on direct property investment, REITs is an alternative.

How is the actual return of REITs? I have been investing in REITs since 2007 and the table above shows the return of my REITs investment.

For the weight average holding period of about 1.5 years, these holdings have given my 10% in dividend gain and 22% in unrealized capital gain as at 31st May 2010. By annualizing these returns, this portfolio provides a remarkable and straightforward annual return of 21%, hassle free (as fund managers will take care of all property investment related problems). It isn’t that bad, or is it?

As REITs are listed in Bursa, just like other counters, their prices fluctuate from time to time. Therefore, unlike real properties with relatively stable value, do not think of buying REITs through leveraging. It is just too risky. Another trick of buying REITs is, just like buying other share counters, to buy them when they are cheap, really cheap. Therefore, buy low and sell high strategy is applied here.

To properly diversify the risk, we should not put all eggs into one basket. Therefore, REITs can only be considered as part of our overall investment portfolio. The concept of asset allocation is applied here. To me, REITs only constitute about 4% of my investment portfolio so that I will be able to allocate my funds into other investment such as shares (which able to generate more exciting return than REITs), unit trust, gold etc.

Good luck.

Be a Great "Dreamer"

2010-06-15T08:00:00.001+08:00

What you are is what you think you are.

Sound weird? I used to think so but no more now.

According to T. Harv Eker, the author of Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth, "your inner world reflect your outer world. If you believe you are not enough, you will validate that belief and create the reality that you don't have enough. On the other hand, if you believe you are plenty, you will validate that brlief and create plenty of abundance."

So, what should you do? Well, first, you have to think what you really want to be and imagine you are what you want to be. For example, if you want to be rich, you first think about how rich you want to be. Having $1 million or $10 million? Next, imaging that you are having the amount you want to have now, what will you do? Buy a bungalow? Buy a Ferrari? Get the feeling on all these possessions. Feel the ease and happiness of having all these possessions. Now, continue these imaginations and get these great feelings, don't stop. Your mind will follow you feeling and generate action plan attain what you want.

For years, I kept dreaming of early retirement. But, I felt down every time when I realized that it is not easy to get my target amount within stipulated period. This down feeling pulled me backward and make me slowed down. By having this feeling, I really can't achieve early retirement. After reading a number of books on positive thinking, I have been imagining the great time I have during early retirement. The speed of moving towards my target, as a result, have been accelerating and I can feel it. It is really wonderful.

So, start to dream now.

Time for Yourself

2010-06-12T08:00:00.001+08:00

Have you ever wonder how much time do you allocate for yourself? I have roughly calculated mine. It surprise me.

I wake up at 5:30am daily to help my wife to prepare breakfast for kids and ourselves before school and work. I get out to work at 6:45am after breakfast and sending kids to school and arrive office at 7:10am. I start my work even though my official working time start at 8am. This is how a manager's daily working life starts.

Except 1 hour lunch, I keep working until 5:30pm. It takes me 40 minutes to get home due to traffic jam. I take 30 minutes to do daily routine cleaning maintenance over my house before I go for shower. My kids and wife arrive home at 7pm and we start to have dinner. I have to monitor my kids homework, tests and exam until they go to bed at 9pm. If I am not so tired, I will read newspaper and/or write my blog. At most by 10pm, I have to go to bed as I really can't stand it anymore.

What!? I just give myself at most 1 hour daily. Well, this is life. A rat race life. Now I am more firm towards my early retirement so that I can have more time for myself.

How about yours?

Contingency Plan

2010-06-09T20:48:00.000+08:00

You might have personal budget or financial plan. You might also follow your plan closely. However, do you ever realize that, most of the time, the result might not follow according to plan. This is because the return of your investment might not according to your plan. You are expecting your share investment to give you an annual return 20% but it gives you -10% due to unexpected market downturn.

Yes, market is very uncertain and nobody can precisely predict it. But this does not mean you should give up easily. You must regularly review your portfolio performance against your plan. You need to review your plan if your portfolio is not performing up to your expectation. It is especially importantly to have an contingency plan in case of any unexpected market turmoil. This require continual learning and practice.

For example, from experience, you might learn how to detect a signal or two that share market is going to crash. If you are a short term investor, you contingency plan might be to cash your position now. But if you are a long term investor, market crashes may be is what you have been waiting for and you are ready for it.

Therefore, a good contingency plan is able to cater any kind of market scenario. It creates a peaceful mind that you will know what to do rather than following herd. Therefore a good financial plan with a good contingency plan will further enhance your route to financial freedom.

Don't Try. Do It!

2010-05-26T16:11:00.001+08:00

I spent an hour to discuss with 3 of my subordinates after lunch hour today. The purpose was to follow-up the on-job-training progress of my new staff who only joined one and a half months ago.

During the conversation, I received many negative signals from them. Not because the job itself or the new staff but excuses, again. Taking this opportunity, I told them not to focus on micro aspect of those problems as, by doing so, they will only magnify those problems. They will feel very negative which lead to low morale. Instead, look at those problems on macro view. Meaning, think about how those problems could occured, identify the root cause and solve them one by one. In other words, stop justifying and blaming but think positively and take action immediately.

One of them replied that they will try. This, again, is a way of negative thinking as they were attempting to seek for the route to escape in case of failure. I, therefore, further counselled them that there is nothing wrong with making mistake. Most importantly is to learn from mistake as mistake will provide them a roap map to success. Also, I advised them not to use the word "try" but "do". "Try" will give them negative momentum but "Do" will provide positive feeling and motivation.

Doesn't it sound familiar in our route to financial freedom. We should learn continuously and learn from mistake. This can only be done when we "Do". Does it mean we should give up if we "Try" and fail. No. We shall sharpen our skill through the mistake we have make but not vice-versa. Discipline and positive thinking are our "fuels" towards our success in any aspect of our life.

Therefore, don't try. Do it.

Estate Planning (Part 2)

2010-05-19T08:00:00.003+08:00

To have effective estate plan, you should:

1. Prepare your will. I have shared the impact of a person dies without a will in my previous post that DISTRIBUTION ACT 1958 (As Amended in 1997) will distribute the estate according to the ACT. Is this what you want?

If you want to write a will, my advice, do not do it by yourself. You should get a good will writer to assist you. There are many law aspects which we, as a layman, might miss out. The duty of a will writer is to fill up this gap. A licensed will writer will advise special aspects that you need to pay attention to and their lawyer will draft the will for you.

You might think why you need to look for will writer but not the lawyer directly. You may, of course. But, please bear in mind that not every lawyer is expert in will writing. It is true. My parents did go to a lawyer for will drafting when I was a kid. At the end of the day, what they got were just a page of letter with a few words (nonsense). After I grown up and I checked their will with other lawyers I know and my parents only then realized that the letter is just a piece of junk. An very expensive junk.

When you search for will writer, again, do not just look for one but a few more. The more you listen, more knowledge on will writing you will get. You will be able to judge which will writer is good for you. For me, I did come across a will writer who is totally bias on telling you his own thinking of estate allocation but not yours. Kick this kind of will writer out.

2. Always review your plan in cases of divorce, death of a spouse, adoption, birth of each child, moving from one state to another, receiving a windfall, getting married or remarried.

3. Make a list of all your assets and all your liabilities. Your liabilities will have to be paid at your death. What's left over, minus administrative and probate costs, is what your beneficiaries will get. Decide who gets what, and in what proportion. Do it on regular basis as you do not know what will happen the next day or next minute.

4. Name an executor who will manage your estate from the time of your death until the time that your assets are distributed. This is a big job, so make sure the person has the time and the ability to do it.

5. Choose a guardian for your children, if any.

The above are general areas you need to pay attention when preparing estate planning. A will writer will advice in other personal aspect.

So, plan now.

Estate Planning (Part 1)

2010-05-16T08:00:00.003+08:00

What is an estate planning all about? It is your plan on how your assets to be distributed effectively with the least troubles. Please note that writing a will is only part of the process. Most importantly, as life goes on, the will shall be reviewed and updated according to your estate plan. If a person dies without a will, DISTRIBUTION ACT 1958 (Amended in 1997) will be applied. In other words, estates will be distributed according to the ACT rather than own wish:

The Distribution Act 1958 (As Amended in 1997)

In Part 2, I will talk about the steps on preparing estate plan.

Balance Sheet Of Life

2010-05-13T08:00:00.001+08:00

I received an email with very interesting description on life. I would like to share it with all my fellow readers.

Balance Sheet Of Life

Our Birth is our Opening Balance!
Our Death is our Closing Balance!
Our Prejudiced Views are our Liabilities
Our Creative Ideas are our Assets

Heart is our Current Asset
Soul is our Fixed Asset
Brain is our Fixed Deposit
Thinking is our Current Account

Achievements are our Capital
Character & Morals, our Stock-in-Trade
Friends are our General Reserves
Values & Behavior are our Goodwill
Patience is our Interest Earned
Love is our Dividend
Children are our Bonus Issues
Education is Brands / Patents

Knowledge is our Investment
Experience is our Premium Account
The Aim is to Tally the Balance Sheet Accurately.
The Goal is to get the Best Presented Accounts Award.

Some very Good and Very bad things ..
The most destructive habit....... ........ ....Worry
The greatest Joy......... ......... ........... ...Giving
The greatest loss........Loss of self-respect

The most satisfying work....... ......Helping others
The ugliest personality trait.......... .....Selfishness
The most endangered species..... ....Dedicated leaders
Our greatest natural resource.... ......... ...Our youth

The greatest 'shot in the arm'........ ..Encouragement
The greatest problem to overcome.... ........ ..Fear
The most effective sleeping pill....... Peace of mind
The most crippling failure disease........ .......Excuses

The most powerful force in life........ ............ Love
The most dangerous act...... .A gossip
The world's most incredible computer..... ....The brain
The worst thing to be without..... ............ ..... Hope

The deadliest weapon...... ....... ..........The tongue
The two most power-filled words....... ........ 'I Can'
The greatest asset....... .......... ........ ....Faith
The most worthless emotion.... ......... ....Self- pity

The most beautiful attire...... ......... ........SMILE!
The most prized possession.. ........ .....Integrity
The most powerful channel of communication. ......Prayer
The most contagious spirit...... .......... ......Enthusiasm

Life ends; when you stop Dreaming,
Hope ends; when you stop Believing,
Love ends; when you stop Caring,
Friendship ends; when you stop loving,

And

Relationship ends; when you stop Sharing...!!!

Are You Working for Your Future?

2010-05-10T08:00:00.001+08:00

Think about these questions. What is the reason for us to go to work in the early morning and return late, day in day out? You may say it is for earning more bucks or may be for career advancement. What is the purpose of having financial plan? It may be for comfortable retirement or able to send your children for overseas education. Whatever reasons you can provide for these questions, at the bottom line, you need to have money to work for you. But where is the money come from? Very simple, it will be from your savings. But the big question is, how to save?

Figure the question this way. How many hours in a month you work for yourself? In other words, after receiving your monthly salary, who do you pay first? Your bills or yourself? If you say you will pay yourself whatever left over after bills, it is really sad. You should ask yourself you are working for yourself or for your bills?

I believe you have heard of compounding effect. It has a best friend, named "time". The long the time, the more power the compounding effect is. Put it in the other way. If we could start invest as early as possible, it is actually taking less time to achieve our financial target.

Based on all of the above, be nice to yourself. Pay yourself first before any spending and payment. Invest it and let the compounding effect do the rest. It is really easy. Do you know if you save $5 a day, you will have a savings of $150 a month. If you invest this $150 monthly into an investment that generate 10% return a year, you will have more than $300,000 in 30 years or $900,000 in 40 years.

Therefore, the choice is yours.

Is the Company You Invested in Conservatively Financed?

2010-05-07T08:00:00.004+08:00

In the normal cause of business, debts are raised for expansion. One of the purposes of having business loan is to exercise the power of leverage. That is, use small amount of other people's money to earn big buck. If this is the case, the business loan can be repaid easily. How about if the case that, in actual, it does not ended as per plan? In another scenario, there may be cases like too much debts being raised for over aggressive plans.

Imagine when you go to a bank to seek for a housing loan, what will the bank request from you? Proof of income, consistency of income source, income tax declaration as well as your current credit status with other financial institution are the must. When checking your credit status, the bank will check the repayment performance of you current loans as well as your total loan exposure. They will simply reject you if either one of these fail to meet their requirement.

Similarly, before investing in a company, we should also check a company's financial status to decide whether it is over or conservatively finance. First priority should be given to those companies that able to utilize their cash flow to finance the expansion instead of raising loan. Only cash rich companies can do that and this may means these are low risk companies, especially when facing any unexpected business environment turmoil.

It does not mean those companies have loans are bad. We should avoid over exposure companies by judging whether these companies are conservatively financed or not. As a rule of thumb, a good company should be able to have a ratio of 5 or less over its long term debt to current year's net earning. If not, drop the company.

Where to get these info then? Well, they can be obtained easily from respective companies financial statement, namely Income Statement (for net earnings) and Balance Sheet (for long term debt).

Happy searching.

Money Management

2010-05-04T08:00:00.005+08:00

Is one million dollar enough for you? Well, for some, one million dollar is too small while, for others, it is a day-dream amount. The sufficiency of this one million dollar is subject to the money management skill of each individual. There are people who earn millions, or even billions, a year but still claiming "money not enough". Only money management can provide the answer. In fact, money management should be considered more like a skill on how to spend money than how to earn.

Money management involves in how your set your budget towards your financial targets. It also involves in forecasting and how you carry out your budget (especially on spending) through effective monitoring. It needs your effort on recording every single cent you earn and spend. In other words, money management is actually giving you a road map to your targeted financial destinations.

There is only one way to sharpen money management skill. That is, keep practicing while talking to the people who are doing this, reading related blogs, books, articles and attending seminars. Make it become your habit. You will feel the joy whenever you find out that the distance towards your financial targets is getting lesser and lesser.

Happy managing.

Blame, Justify, Denial, Quit

2010-05-01T08:00:00.001+08:00

Have you ever observed how people react whenever they face the obstacle that make them difficult to move ahead further? Most likely, you will hear them complaining. Why are they complaining then? Simply because they are blaming, justifying or denying those unfavorable outcomes are not their fault. They are defending themselves.

So, what is the outcome of blaming, justifying and denying? People who are doing so are actually blocking themselves for further learning. They tend to blame others ruin the tasks that produce failure but not them.

As a matter of fact, there is nothing wrong from making mistakes. We should treat mistakes as chances for us to identify rooms for improvement. To positive thinkers, mistakes will stimulate them to figure out how to avoid those mistakes again. Mistakes do not make anybody ashamed but the defenders who think they are. Please bear in mind, if every time we blames others for any undesired happenings, we will never be successful in life.

The Choice is Yours

2010-04-28T08:00:00.001+08:00

I would like to share a story I have heard recently.

There were two men who wanted to learn from the famous Zen Master in Japan who was known to be able to answer any question. As they were approaching where Zen Master was, they had yet to prepare the question to ask. Out of the sudden, a man saw a low flying bird. He jumped up and caught the bird. When they were seeing the famous Zen Master, the man who caught the bird questioned the Zen Master to tell them whether the bird in his was dead or alive. The Zen Master stood up and bowed to the two gentlemen and said, "If I would tell you that the bird in your hand is dead, you'll let it go and claim that I am wrong. However, if I would tell you that the bird in your hand is alive, you'll squeeze it until it is dead and I would be wrong again. Therefore, the choice is in your hand."

As a matter of fact, the meaning of our life is given by our beliefs. In other words, your world will be meaningful if your have positive beliefs or meaningless if you have negative beliefs. Therefore, if we want to be successful, it is our responsibility to ask whether these beliefs will lead us to where we want to go or else why bother on holding them. The choice is yours.

Life is by choice, not by chance. We shall claim the ownership of our life instead of giving excuses that lead us to no way, or worst still, to failure.

Success or failure, the choice is yours.

eDividend

2010-04-24T09:31:00.003+08:00

I believe eDividend, which was proposed in 2010 Budget, is the most effective service to be provided to share investors.

For years, I have been worrying about loss of dividend cheque as a result of loss in mail as they are all sent by normal mail. Even though loss in mail is an uncontrollable factor to us, we have to realize that we will be penalized for the loss. We need to inform respective share registrar and pay a penalty of RM5 for cheque replacement even though it is not our fault. Thanks for eDividend, all dividend payment will be credited directly into our designated bank accounts. According to Bursa, the bank-in date will be the same as dividend payment date and we are safe on the risk of loss in mail, penalty and save petrol on going to the bank for cheque deposit.

The registration is now on and is FOC until 18th April 2011. There might be charges for registration after 18th April 2011. So, prepare a copy of your IC and a copy of your bank statement (for current account) or savings passbook and visit your brokerage company to fill up an application form. That is all. All your dividend will be banked into your account for payment after 1st September 2010.

Happy investing.

Are You a Victor or a Victim?

2010-04-22T08:00:00.002+08:00

I believe this is human nature. We blame whenever things are not going along the way we are expecting. Worst still, we sometimes tend to justify what happened.

For me, blaming and justifying are actions of giving excuses. In my previous post, I explained that excuses are providing “protection” on us not to learn from problems or mistakes. In other words, excuses are preventing us to seek for continual improvement. Under this scenario, people tend to claim themselves as victims. The bottom line, they are stepping backwards but not ahead. All they have “learned” are complaining.

To be a victor in our life, we have to be a warrior. A victor will learn from mistakes, refine his/her strategies or techniques to move ahead toward success. A victor will not give any excuse but keep learning for continual improvement.

So, are you a Victor or a Victim?

Four Factors that Affecting Your Route to Financial Freedom

2010-04-19T08:00:00.005+08:00

In my previous post, “What does Financial Freedom mean to you?”, I have highlighted there are 4 factors need to be carefully considered when generating financial plan with clear vision. These 4 factors are:

Available resources: We need to know where we are now. This information can be obtained from our personal balance sheet. In balance sheet, we can clearly see what assets and liabilities we are holding as well as our net worth. Also, we need to look into our personal cash flow statement to understand our fund movement as well as cash availability. In other words, we are getting information about our financial strengths and weaknesses. Of course, what we need to do at this step is to enhance our strengths and overcome weaknesses with clear goal in mind.

Time: Without time, any financial plan will not work unless we strike lotteries. But what is the probability of winning is the point here. To achieve financial freedom through lotteries is just like betting your financial future. I believe the more practical and certain way on achieving financial freedom is utilize your money and time to work for you. The power of compounding effect will help you through time. For example, if you invest $100,000 in year 1 with annual return of 6% p.a., you will double your money in 12 years.

Inflation: You may refer to my previous post on “Inflation Rate”.

Return: With consideration of available resources, time and inflation, we should seek for the best rate of return on investment towards our goal – financial freedom. Please bear in mind the following truths:

More resources available means lower ROI is required and vice-versa
Longer investment time frame means lower ROI required and vice-versa
Lower inflation rate means lower ROI required and vice-versa

Therefore, the condition of previous three factors will directly affect our requirement on ROI. With consideration of all of the above, lower ROI requirement may translate into less pressure in life. You will be happier as you are confident that you are on the way towards financial freedom.

So, start to invest now. Start as early as possible. Let the time and compounding effect work for you. There is one last reminder I would like to give is that you should structure your investment that able to generate return that is higher than your personal inflation rate. Otherwise, achieving Financial Freedom will be quite impossible.

Good luck.

What does Financial Freedom Mean to You?

2010-04-16T08:00:00.003+08:00

Ask yourself this question. What is the definition of Financial Freedom to you? Having millions of dollars? Having your dream cars or houses? I bet the list will go on. Now, calm down and think again. What does Financial Freedom really mean to you?

I would like to share my definition of Financial Freedom. For me, it means to have adequate financial resources to fund my requirement on good life. From here, I can conclude that the required financial resources are varied from individual to individual as each of us have different requirement on good life. Have you noted that there are two elements to achieve Financial Freedom? They are “good life requirement” and “financial resources”.

We need to define what are our good life requirements? It could be to have more time with family, less work pressure that lead to better health, to have more time to do what we like to do etc. In short, you want to have more meaningful life. Next, we should review our financial resources required on meeting our “good life”. The higher the quality “good life” we are targeting, the more the financial resources are required.

When all of the above have been identified, we should look at the discrepancy of our current financial resources against your target and generate a plan to narrow the gap. We should consider the 4 elements (i.e. available resources, time, inflation and return) when generating our financial plan. In the next post, I will share in more detail about each element.

Now, you may have your own definition on Financial Freedom, right? And you may realize your Financial Freedom may not need millions of dollars. It is totally nothing wrong with an individual who is having a frugal lifestyle and can achieve Financial Freedom by having a few hundred thousand but not millions dollars. Most importantly, we need to have clear vision on our good life, set it to become our goal and work towards our goal.

For those without a clear vision of goal, the chances on following other people’s goals are high. Please note that you should have your own life but not other people’s. Only you know what you need. So, set your “good life” goal now and make it to become your motive towards Financial Freedom.

Savings Plan, anyone?

2010-04-13T08:00:00.002+08:00

Quite often, I hear from my friends that they have bought savings plan for retirement and/or children education. When I inquired the reason for them to do so, the reply were either have no idea on investment or the insurance company will take care of them when anything happen. For a financial knowledge sound individual, these myths are disaster.

If you say you have no idea on investment, this means you have no idea what you are doing. In this case, how do you know what other people are doing on your money? Yes, insurance will take care of your beneficiaries provided you are covered under the specified incidence stated in the policy. As a matter of fact, majority of life protection insurance policies are providing the same, why savings plan then?

In fact, savings plan is exactly the same as life policy. The only difference is the name itself. I realize that a number of insurance companies like to give some very fancy names to their savings plans. But they are just the same as normal life policy. This is the fact. The function of savings plan is exactly the same as life policy. You pay premium (with “premium”) for protection. Your premium (with “premium”) inclusive all insurance charges as well as commission to insurance agent and only the marginal left over go into the so-called investment. For the investment portion, what insurance company normally does is to secure insured’s investment as much as possible to meet any claim. The investment style, therefore, will be very conservative which in turn generating low return. It is normal if you can get an annual return of three to five percent.

OK, now, you say your savings plan is protecting you. May I know in what sense then? Does it cover your purchasing power? I don’t think so. As I highlighted in my previous post, considering “Inflation Rate”, your personal inflation will be much higher than the national one. So, do you think a five percent return can cover your purchasing power in the future? As for education, inflation rate of normal college fee is in the range of seven to ten percent. Again, the return of your savings plan is out of the picture. By the way, if you are paying premium (with “premium”), your return will be much lesser due to lesser fund go to investment portion after all insurance charges and commission paid.

Savings for retirement and education are important. There are many ways to do it but using insurance is a very bad idea. What can we do then? If an individual does not have any dependant, no insurance is needed. Just save and invest for what is needed in the future. For a married couple with kids, insurance is important. What they need to do is to cover themselves thoroughly through term policy or investment-linked policy. These policies are cheap and invest whatever you can save from premium. As these policies give exactly the same protection as savings or life plan with extremely low premium, why bother the expensive one? Don’t know how to invest? Learn then. Don’t have time for investment? Squeeze it out then. You have the choice but no excuse.

To conclude, my advice is, think twice before consider buying savings plan as you have much better options.

Are we all millionaires?

2010-04-10T08:00:00.003+08:00

Have you ever realized that what is the amount of money that passes your hand in your life?

We received our petty cash from our parents during our school time. We worked part-time during holidays when we were in high school and university. We are now working full time and/or part time to earn for living. Do some calculation and you will realize that you have earned more than a million dollars by the age of 55. This figure is even before consideration of any increment of your income.

So, we are all millionaire, aren’t we? The question is, what we are actually now? If we do not do proper planning on our earnings, the chance of your earnings will go to anyway deliberately. You will not be able to control your money. In short, you earn million and spend million. So, the key is how much you can keep your earnings and let them work harder than you are. Therefore, money management skill is essential to everyone. Unfortunately, our schools do not teach us any money management skill. Therefore, we should invest our spare time to learn about it. I guarantee your return on this investment is invaluable.

The times are yours. The options are yours. Only you can decide whether you want to be a millionaire. Your decision will lead you to what you will be. Keep it up.

Option

2010-04-07T08:00:00.003+08:00

Since the day we born, we have to make decision. When cause and effect come into the picture, each decision we opt for will lead us to different result output. When we were students, for example, we have options on either studying hard or playing hard. If we studied hard, the outcome would be outstanding exam score with praise while we lost our playing time and vice-versa. In other words, each option will come with sacrifice in order to allow us to move ahead towards expected result.

Similarly, after we have grown up, we have to make a number of decisions by selecting different among different options. Our decisions have made us what we are today. So, be frank to yourself, until this very moment, are you satisfy with what you are now? Are you happy? Are you wealthy? Are you rich? Are you well educated? …. The list continues.

Therefore, if you are not happy with what you are now, you should review what you have done for years. Most of the time, your habits lead to what you are today and these are your decision to allow these habits to exercise their control over you. If those are not good habits (such as no savings, uncontrolled spending etc), you are the main cause of the result due to bad decision make. The solution, regain your power of control, opt for best options you can and always remind yourself that your decision now make what you will be in the future.

Ways to Become Richer

2010-04-04T08:00:00.005+08:00

I always am informed by my friends who keep complaining about money not enough. They are living in a life of paycheck to paycheck. Their happiest day of the month is the pay day and their face turn sour two weeks later. They blame employer, company policy, inflation, taxation etc in order to express their dissatisfaction.

Meanwhile, I attempt to explain to them the importance of money management skill so that they will be able to control their money but not vice versa. Sadly to say that they just give whatever excuses or reasons they can think of in order to allow them to live the same old way they want. For them, money management is totally redundant as they have no money to manage. As for my point of view, we have to see this problem from the other angle. That is, why you have no money to manage.

Based on my years of observation, following are some pitfalls I detected that keep people poor and poorer.

Don’t know where your money goes – As most people don’t keep track of their spending, they do know where they did spend. More often than not, they spend more on wants than needs which is a total disaster. One of the reasons for them to do that might be to impress others. What a waste.
Don’t have budget – Budget is a good guide on your expenses. It is your spending plan. Without budget will lead you to no way. Just like a traveler without a road map.
Don’t pay yourself first – This is the cruelest way you treat yourself. The meaning of pay yourself first meaning that you should save a percentage of your take home income first before any spending. The purpose of this savings is to create emergency buffer or investment. It means you are creating future security for yourself. If you don’t do that, good luck.
Lack of self-discipline – This is an extreme critical pitfall. You will fail even though you have budget to follow because of this pitfall. It can be explained in terms of lack of strong DESIRE. A strong DESIRE is mandatory to create strong SIGNAL to your SUBCONSCIOUS MIND so that it can generate FORCE to action. Please note that your SUBCONSCIOUS MIND will not respond on weak SIGNAL.
Not invest early – People who have mind of enjoy first should beware. Compounding effect is the most powerful tool in financial world. The only requirement for this is time. More time is given, more impressive return can be generated. In other words, if you enjoy first, you are not only wasting your money, also your time.
No control over debt – The debt here means “bad debt”, especially consumer debt. We should avoid it forever. Please refer to my previous post on “Debt – a Tool or a Woe”
No goal – It is impossible to have goal without DESIRE. Your goal must be REALISTIC and SPECIFIC. Say you have a DESIRE to visit Italy within next 5 years. So, your goal will be to have $10,000 travel fund to visit Italy by the end of year 2015. With this GOAL in mind, you are telling you SUBCONSCIOUS MIND to generate action plan. This is how GOAL works.
Lazy and close minded – A person’s potential can only be developed when he/she willing to step outside their COMFORT ZONE. Only when he/she is outside the COMFORT ZONE, the uncomfortable feeling will force you to grow until the new areas become part of your COMFORT ZONE. This can only be done through aggressive learning with open mind.
Not having frugal life – It is different from stingy. Being frugal spend on necessities only. Any want will be gratified.

So, check yourself whether you have inherited these pitfalls. If so, rectify it at no time. Your bright future is waiting for you.

Debt – a Tool or a Woe

2010-04-01T08:00:00.002+08:00

Nowadays, we keep receiving message from public media that encouraging us to buy things on credit or do credit card balance transfer. In other words, these activities have more or less stimulate consumers to buy anything they want (but not essential need) by raising consumer debt. In this case, are we using debt (credit) as tool to get something that we don’t really need?

Under this scenario, almost everything we own does not actually belong to us. What can be foreseen, however, is that for those who poorly manage their money may find themselves keep digging the debt hole bigger and deeper. Until the day that the hole is so deep that it can’t be covered at all, everything will be repossessed. So, what is the ending of the story? You own nothing but consumer debts. Your merchants and bankers will chase you for payment. You have no other option but to keep working hard, day and night, to pay off these consumer debts.

Is debt an absolute woe? Well, not exactly if you raise debt based on investment return point of view. For example, you may raise debt with bank to buy an investment property for rental income. If the balance of rental income is positive after all necessary expenses as well as loan payment, this debt is actually helping you to generate positive cash flow.

The bottom line is that, similar with how we evaluate the value of our money spent, before raising any debt, think twice is it a “need” and/or it will generate positive return that further enhance your cash flow. Most importantly, say “NO” to consumer debts as they do not generate any good to you.

Income Protection Policy

2010-03-29T08:00:00.002+08:00

You may already have life policy, medical policy, critical illness policy, PA etc. However, do you have Income Protection Policy? Well, an Income Protection Policy is an insurance that cover certain percentage of your yearly income (as declared during the commencement of the policy) to be payable in case you are temporary or permanently disable.

You may ask, is it necessary? You bet. Yes, it is. Every policy serves its purpose. A life policy will provide a kind “financial assistance” in case of love ones left; medical policy is claimable only after hospitalization; critical illness policy will pay you upon confirmation of critical illness so that you have fund for treatment; PA is claimable only upon incident caused by accident. Have you ever realized that if the above mentioned circumstances happened, you may not be able to work for certain period of time? Without regular income, your family’s daily life might be affected? Therefore, if you are the main income source for the family and in case any thing happens to you, you must have income protection policy to ensure regular income will still come in to serve this purpose.

Be frank, there are not many income protection policies around. Do inquire your insurance agent if their company is offering this policy. The one I got was from Hong Leong Assurance. The policy was offered quite some years ago. Its income protection not only covers upon loss of earning ability caused by accident but also critical illness.

Do shop around.

Good Financial Decision

2010-03-26T08:00:00.003+08:00

In our education system, there is no subject that teaches us how to invest or manage our money. However, our system may be is the best system to allow us to become a good employee. Even our parents are telling us to study hard and get a high pay job. As a result, in our subconscious mind, we all have been programmed like so. Does it mean that we totally do not know how to invest or manage our money? Well, not exactly. As a matter of fact, we are learning these skills from our parents.

In other words, those from poor or fair family backgrounds, chances of making good financial decision may be slim. They might lucky to strike once or twice to earn big by following the tips from their so-so educated neighbor but loss up everything after that. This is the reason why they remain poor or fair. To breakthrough this, we have to learn from the successful experts. Learn about their philosophy; learn about their method of investments; learn about their ways of thinking; learn about everything about them. So what do you need to do then? Very simple, just follow what they are doing and change the money blueprint in your subconscious mind. If they can, so can you.

Of course, I am not suggesting you to follow blindly. You have to learn the essence of their success and modify it to suit your context. Most importantly, choose the one that suit you most. For example, if you want to be successful in stock investment, you may study how Warren Buffet is doing; learn real estate investment concept from Donald Trump or Robert Kiyosaki. Again, I remind you that these gurus are not from Asia, you need to modify their concept to suit your context.

Good luck.

Decision

2010-03-23T08:00:00.002+08:00

After reading Chapter 8 of "Think and Grow Rich" which is talking about “Decision”, I totally agree with Napoleon about what he has emphasized.

You may recall in my previous post entitled “Investment: Do you know what you want?”, I stress that we should learn continuously in order to improve our confidence on investment as our investment knowledge grow. In other words, knowledge will allow us to make effective decision.

Napoleon concludes his finding that the riches are making decisions promptly and chancing these decisions slowly. People who do not have definite decision will allow opinions from the gossiping neighbors and newspaper to do the “thinking” for them. If this is the case, they have no DESIRE of their own.

I must point up that you are unique. You, and only you, know what you DESIRE. You should send a strong signal of your DESIRE to your subconscious mind and it will generate action plan for you to attain your result. Of course, as what Napoleon suggests, to ensure your DECISION remains unchallenged, you should keep it for yourself only. That’s right, keep your mouth shut while keep your eyes and ears open.

I totally agree with this strategy as I have similar experience. I do have friends who want to get something from nothing. Meaning, they ask you for investment tips without doing their homework. This is classified as NO DESIRE by Napoleon. Definitely, I have my own investment strategy and make my own investment decision. However, these are mine but not theirs. I will not share my DECISIONS with them as these DECISIONS are totally mine. That is the reason why I request them to ask themselves what they actually want. They will make their own investment decision if they able to answer this question to themselves.

So, make your own decision now.

To be Successful in Life

2010-03-20T08:00:00.003+08:00

Do you want you life to be normal? You will be if you follow ordinary crowds. So, what are ordinary crowds doing? Well based on my observation as well as after reading "Think and Grow Rich" by Napoleon Hill, they tend to:

have weak or stubborn mind. Meaning they are easily pulled up by anyone.
have life without purpose. They have no specific target. They have no yearly agenda to complete. What they want may be just to keep their job and get monthly pay cheque by the end of the month.
lack of ambition. That is, they are unwilling to pay the price to make their life ahead.
not have sufficient education.
not have self-discipline. If they are unable to have self-control, they will unable to control conditions
eat junk foods and lack of exercise
affected by unfavorable childhood influence. For example, he/she may hate money simple because his/her parents were divorced due to money conflict when he/she was a child.
not have persistency. He/she may have a good start with finish badly after first signs of defeat
have negative personality
like to gamble
have wrong mate in marriage. I did come across the counter measure on this. Please read my post that entitled “Do You have the Same “Frequency” with Your Partner”.
have wrong business partner. My wife has similar experience. She invested a café with friends more than 10 years ago but ended a year later simply because most of her partners were not aggressive on promoting their business.
superstitious
at the wrong vocation
lack of concentration
spend freely without proper control
lack of enthusiasm
intolerance
fail to cooperate with others
not honest
guess instead of finding out what is actually wanted.
limited capital. As a result, the chance on facing cash flow problem is high.

Therefore, we should attempt to minimize abovementioned shortcomings as much as possible in order to be successful.

Do You have the Same “Frequency” with Your Partner about Money?

2010-03-17T08:00:00.003+08:00

Have you ever realized the way of thinking will affect your result? Well, if you think positively, the chance of success is high and vice versa.

Now, let me put it in the other way. Have you ever realized the way of thinking of your partners (they may be your parents, boyfriend or girlfriend, husband or wife, son or daughter) will affect your result?

In other words, in order to success in your financial life, you and your partner must sing the “SAME TUNE” or the chance of failure will be high.

Just imagine if you are married with 2 children and you have financial targets such as early retirement and to have enough to fund for your children’s education. You setup the entire plan. However, what happens is, your husband/wife, who is not financial literate, is a crazy spender. What do you think the chance for you to achieve your financial targets?

I believe the key here is to COMMUNICATE. Tell your partner about your plan and seek for his/her agreement and commitment. Calm his/her uncertainty if he/she expresses his/her worry. The main purpose is to allow both of you to have the same “frequency”.

Talk to each other regularly about the progress, the obstacle faced and seek for solution together. Have regular meeting for this to understand each other more in depth and the destination of your financial targets are not far away.

Value of Money

2010-03-14T20:00:00.001+08:00

Lately, I discussed with my son about value of money. As he is a very playful boy, he never pays attention on how we, as parents, spend our money. Therefore, he is unable to tell us exactly how we go about. However, he did have a comment on that we will not simply allow him to buy anything he wanted.

“This is a good comment.” I reply, “Do you understand why we did that?” He kept quite with tears in his eyes. I know he was unhappy what we have been doing but have no choice but to accept unwillingly. This is because he did not understand the value of money. This is our responsibility, as parents, to let him know what value of money is all about.

This is an example I quoted to him and, finally, he understand. Let’s assume a bottle of mineral water cost $2. How do we judge whether that bottle of mineral water has a value of $2? If you are not thirsty, the $2 spend has no value because you do not need it. However, if you are very thirsty, by spending $2 for a bottle of mineral water is invaluable. In other words, the same thing may carry different value under different condition.

Therefore, we should always evaluate the worthiness of our spending; think twice before you spend; shop around first before we spend. Let us all be a smart consumer.

One of My invaluable Wealth: Family Harmony

2010-03-11T08:00:00.002+08:00

Have you ever realized that the communication among your family member is actually less than interaction with your colleagues, business partners or friends? Some of my friends use FACEBOOK to keep in touch with old buddies or friends. How about their family members? Well, I am not sure about them. But, for me, I am more concerning the relationship among my family members.

As an effort on promoting family harmony, I request my wife and my 9-year-old son to sit down together to have monthly family meeting at least once a month. In the meeting, I especially encourage my son to express his view on our teaching methods, his opinion on family matters, his feeling as well as his proposal and suggestion. The main purpose of the meeting is to clarify all doubts. All the rationale on action taken is clearly explained. The bottom line is that all family members understand everyone’s thinking and feeling to support family harmony which is invaluable in monetary term.

Have I achieved this objective? Well, I have carried out total 3 family meetings so far for the past three months and I observe attitude change of my son. He is more willing and daring to express his view and/or to clear his doubts. He understands the rationale of family policies. He becomes happier and confidence. I am glad to see these.

Have you talked to your family members lately?

Recommend Reading: “Stock Profits – Getting to the Core” by Michael C. Thomsett

2010-03-08T00:00:00.003+08:00

This is my second time to read this book.

Have you ever figured whether those figures published in companies’ annual report were as they are or manipulated? You may recall some cases happened in the US a few years ago about inflated figures were reported that resulted in tragedy to a number of investors. Therefore, from this lesson, investors should learn how to generate the true picture behind these figures.

The author of this book advices those reported net earnings shall exclude sales of fixed asset, ESOS, benefit plans as well as any non-recurrence item. It is because these items are one-off income or expenses and they are not part of company’s core operation. The net earnings after these adjustments is called core earnings.

It is interesting to realize that core earnings will produce totally different earnings and PE picture. The author illustrates these adjustments for a few listed companies in the US and shows shocking result.

This mechanism can be applied in Malaysia as well. What we need to do is to search those relevant items from the company’s annual report and get the core earnings to understand the company’s actual condition. I have been doing this for years.

Not sure how to go about it? Well, this book is providing step by step workbook for ease of operation.

Happy reading.

Is ROE the Best Ratio to Evaluate the Return of Investment Fund?

2010-03-05T00:00:00.005+08:00

A number of investment gurus have been talking about using Return on Equity (ROE) to measure the return on investors’ fund. It is a key measurement on a company’s profitability. However, it has practical limitation.

ROE is dividing net income by shareholders’ equity (SE) while SE is the difference between assets and liabilities. I.e. SE = Assets – Liabilities.

Say a company is having $3,000 in assets and $1,100 in liabilities. By calculation, SE will be $1,900. With net income of $250, the company is generating 13% on ROE ($250/$1,900).

Now, let us assume a company is also having $3,000 in assets but with $2,300 in liabilities. By calculation, the $250 net income will produce 36% ROE. So, can we conclude that this company is doing better as it has higher ROE with higher debts? What happen if a company pays off its debts? Its ROE will go down. Isn’t it something wrong somewhere?

To counter this problem, Return on Asset (ROA) may be more suitable to evaluate return. As a matter of fact, assets consist all the capital employed (both SE and liabilities) to generate return and it will be more meaningful.

As a rule of thumb, a company that generates 7% ROA is good but 10% is desirable and higher is better.

Recommend Reading: “Fire Your Stock Analyst!” by Harry Domash

2010-03-02T00:00:00.002+08:00

I find this book shall be kept beside fundamentalist at all time.

I first read this book 3 years ago. At that time, I was in the midst on refining my fundamental analysis skill. This book has provided me a good start by giving me step by step guide on how to go about. In particular, this book demonstrates an 11-step process for complete fundamental analysis. Namely:

1. Analyzing analyst data: Not on their buy/sell recommendation but their thorough research on the company and industry as a whole

2. Valuation: To identify a company’s implied growth

3. Establishing target prices: By using Earning Per Share (EPS) and Price Earning Ratio (PE)

4. Industry Analysis: To carry out thorough study on industry generalization, concentration and competition

5. Business plan analysis: Through brand identification, barrier of entry, distribution model, assess to distribution, product life cycle, revenue stream, productivity, number of customers, product/market diversification, acquisition, etc.

6. Management quality: To study the resume of the management

7. Financial: To carry out financial analysis. The book shows a number of important analyses to detect financial tricks

8. Profitability analysis: Main purpose is to evaluate management quality

9. Detecting red flag: Through some ratio calculation

10. Ownership: To evaluate the shareholding condition of a company’s key persons

11. Price chart: To support on the right time to enter and exit as market sentiment plays in short term

I would say this is a very technical book. Readers with basic understanding on financial calculation and account knowledge will find this book very logical.

Happy reading.

Purpose of Insurance

2010-02-27T00:00:00.002+08:00

What is the meaning of insurance to you? To me, it is something that protects me against any unforeseeable risk of life, illness or accident. That is all.

I know many people will ask their insurance agents about how much they will get back by the end of policy term. Well, my question, why is everyone so concern about the “residual”?

As I highlighted in my post Insurance: Protection or Investment, insurance should be treated as a protection tool but not an investment tool. At the end of the day, you have to pay more in terms of insurance premium so that the insurance company can invest the “residual”, if any, and get a not so impressive return, after considering inflation.

I believe the correct mindset shall be like this. Treat insurance as a protection vehicle. Consider your insurance premium as expenses that will never come back. Do not aim for any return from insurance. This in turn will save you from paying unnecessary premium. While this extra money is in your hand, you have more options than without. Get the picture?

So, right now, what are the policies that meet these requirements? The best will be investment-linked policy. Please do refer back to my previous post on “Insurance: Whole-Life Policy or Investment-Linked Policy” Part 1 and Part 2. Next, we can consider Term Policy. The last resort will be non-participating whole life policy.

So, do check with your insurance about these policies and understand them before any final decision.

Happy searching.

Is Your Insurance Agent Still Around?

2010-02-24T00:00:00.003+08:00

One day, I checked my life policies status through the insurance company’s online portal. At the end of the policy checking page, the portal shows the details of my servicing agent. I surprised to see that this column shows my policies are under company direct. First thing came to my mind was that it must be a mistake.

As I have not been contacting my agent for a long time, I called up the insurance company’s customer service department to verify. I caught another surprise that the answering officer inform me that my agent had been terminated by the insurance company and that is the reason why my policies are assigned under company direct. I therefore questioned the officer for the reason of not informing customer and they replied they did. I have 3 policies with this insurance company and now you tell me you had sent out all notifications but I received nothing. What the heck is all this? I further queried about the telephone number published under company direct as I found the number was very weird. The officer informed that the number was incorrect and read to me another telephone number.

Hey! What is all this about? First, the insurance company did not inform customer for the changing of servicing agent. Second, the telephone number shown was incorrect. How would this insurance company expect my beneficiaries to contact them in case of claim? Touch wood.

My advise, please do regular contact with your agents to know whether they are around. Second, check with your insurance company to ensure everything is intact. Don’t wait until last minute and your beneficiaries will be those who suffer.

My Thought after Re-reading "The Millionaire Next Door"

2010-02-21T00:00:00.007+08:00

I pick up this book, "The Millionaire Next Door", to re-read after my first read 9 years ago. The reason for me to re-read is to recap the ideas and findings about millionaire highlighted in this book.

As the contents of this book have been widely covered by many bloggers, I would like to present a checklist instead to allow us to detect our progress towards financial independence.

Check point #1: Are you PAW (Prodigious Accumulator of Wealth)?

PAW means you are an excellent wealth accumulator comparing to your peer. It is a kind of mathematical formulation. Basically, PAW is having net worth that is 2 times higher than your expected net worth while your expected net worth is dividing your pretax annual household income from all sources except inheritance by 10 times your age. If your net worth is less than 2 times or equal to your expected net worth, you are AAW (Average Accumulator of Wealth). Or, else, you are a UAW (Under Accumulator of Wealth). Therefore, to be a PAW is the sure way to achieve financial independence.

Check point #2: Do you live below your mean?
This is the prerequisite to become a PAW.

Check point #3: Do you live frugally?
It means you are focusing on what you need only. My view of being frugal does not mean stingy but to spend on whatever is needed and avoid unnecessary casual spending.

Check point #4: Is your girlfriend/boyfriend, husband/wife frugal?
It is important that your frugal life needs support from your close one. It will be quite impossible for you to become a PAW if your counterpart is a hyper-spender.

Check point #5: Do you have annual household budget?
Without a budget may means doing something without a plan. You will not able to know how much you should save and spend. You have no basis to measure your progress and evaluate your result. You have no clue how to move towards financial independence.

Check point #6: Do you know your spending on food, clothing & shelter?
As I have highlighted in my previous post, it is important to have bookkeeping on each item you spend so that you will know where were your money gone. If you don’t, you will be unable to effectively control your spending. How do you live frugally in this case?

Check point #7: Do you have clearly defined set of financial goals?
It must be done first of everything. Without a goal is just like a man working without spirit. You will be totally directionless. Your goals are your final destinations you want to be there.

Check point #8: Do you spend time on planning your financial future?
This may include how much time you have allocated to plan, furnish, review and fine-tune your financial plan. More time allocation for this, you will see your future more clearly and enhance your certainty to there.

Check point #9: Are you asset poor or cash poor or both?
I have been highlighting having cash on hand or in savings account will earn you almost nothing. Yes, nothing. It is advised to invest your cash in other assets that grow and generate returns. Therefore, the authors suggest wealthy people should be asset rich and cast poor. My suggestion, keep at most 6 months worth of your essential living expenses in cash as emergency buffer will be more than enough. Invest the rest.

Check point #10: Do you live in a high-status neighborhood?
If you are, good luck. This is because you will be most likely had to spend so that your status will be at par with your neighbor around. Will you still have the ability to have your expenses below your mean that lead you to PAW?

Check point #11: Are you driving luxurious car(s)?
If you are, good luck again. You might spend more than other lower class car owners in town. Hyper-spending will not lead you to PAW. My suggestion, we need quality but affordable car. How the quality and affordable are being defined is subject to you.

Check point #12: Do you receive EOC (Economic Outpatient Care)?
That is the support received from your parents. A person that keeps receiving EOC is more likely to be a hyper-spender, even though it is not 100%. Why a person needs EOC? According to the authors, it is due to his/her parents think that their son/daughter needs assistance to buy their first house, first car etc. If the person receives EOC has been well disciplined in spending, by all mean, give them. However, as parents, we shall not provide any EOC to those hyper-spending children. If we do, we are actually weakening the weak.

Check point #13: Are your parents frugal?
Children learn life principal from their parents. If we live frugally, our children will learn and put into action.

How many points in the list above have you achieved? If you have all, congratulation, you are on the way to your financial independence. If you have most of them, keep it up, you can do them all. If you have less or none, pick up this book and learn.

My final note for this post is that, as of my opinion, it is not necessary to have a few million to achieve financial independence. It is subject to how much your fund can generate passive income to sustain your expected lifestyle. Of course, you have to accumulate your fund before that. If you have goals and are a PAW, your fund target is not far away.

But …. If ….

2010-02-18T00:00:00.001+08:00

Sometime I feel much fed up when talking to my son.

He is 9 years old. Occasionally, we have discussion on how to overcome his shortcomings. As a father, I always try my best to influence him through proper reasoning. However, whenever suggestions are given, he always question me back by using words like “but” and “if”.

I welcome all positive questions from my kids as I believe this is an important process to learn. However, they may not realize that, if they use the word “but” and “if”, they are actually giving themselves excuses not to move on. This is a kind of negative psychological thinking. Words are really powerful that will have direct influence to your mind and your mind will send those signals to your body to act accordingly. You will not take action if you mind perceive signal negatively. That is why I restrict him for using these conjunctions when asking question or giving reply.

Similarly, for us, we need positive thinking to make us to move on. Any negative thinking will slow or even stop you and you will be the big loser by the end of the day. Start to think positively. Twist the question around whenever negative thought arise. For example, instead of let your mind tell you that you can’t make it, ask yourself back on how are you going to make it.

Efficiency and Effectiveness

2010-02-15T00:00:00.003+08:00

People keep talking about efficiency and effectiveness. So, what exactly are efficiency and effectiveness?

Assume a number of coins with different face value are thrown on the floor. 3 persons are requested to pick up as much coins as possible within the time limit, say 30 seconds. 30 seconds later, the result shows as follow:

1. A picked up five 5¢, five 10¢ and five 20¢. Total 15 coins were picked up with total value of $1.75.

2. B picked up one 5¢, one 10¢ and seven 50¢. Total 11 coins were picked up with total value of $3.65.

3. C picked up eight 50¢ with total value of $4.00.

Now, the question is who is more efficient and who is more effective? A is more efficient as he/she picked up most coins. C is more effective as he/she carried the highest monetary value even though fewer coins were picked up. Get the picture now?

Of course, the optimum way is to be efficient and effective. In the above example, the best case were to pick up fifteen 50¢ and make up a total value of $7.50. However, let us be realistic. In real life, it is rather difficult to both at the same time. If we are allowed to choose one among these two, effectiveness should come first.

Therefore, on the journey to our financial success, we should always focus on the effectiveness (how to) of our plan first and continual learning narrow the gap between efficiency and effectiveness.

Plan-Do-Check-Action (PDCA)

2010-02-12T00:00:00.010+08:00

Have you ever come across the idea of PDCA? Well, I got this idea during the implementation of ISO 9000 of my company way back to the year 1997. You may puzzle what the heck is this ISO going to do with financial planning? Anyway, the main point here is not talking about ISO but the idea of PDCA.

Plan
We always hear that if we “fail to plan”, then we “plan to fail”, isn’t it? Yes, it is and this is why planning plays extreme important role in our journey to success and it should come first in our financial planning. In short, a good plan will provide a clear road map that shows us where and how we should go.

We all have financial needs. Some of these needs require the support from certain monetary value that requires time to accumulate. Therefore, in our plan, we should first set the priority of these needs, set the time frame and decide how we are going to reach our “destinations”. Just like a road map that shows you how to get from point A, on what transportation, so that you are able to arrive point B on time.

Do
A plan means nothing without implementation. They are just wordings on a piece of paper or two. That is it. Therefore, we need to execute our plan in order to make it alive. Of course, at this stage, you should always bear your plan in mind as it always reminds you your target and time frame.

Check
After sometime, we need to review the progress of our plan. To be effective, it should be analyze on regular interval to ensure our journey is on the right track. For financial planning, we have to study, against your benchmark, the effectiveness of our asset allocation, the performance of our investment, sufficiency of insurance coverage etc on timely basis.

Action
Of course, your plan will give you some clues on which part need to be adjusted. Again, action of adjustment is required to ensure you are moving toward to your destination. The adjustment may not necessary only on your “how to get there” (i.e. your methods) and “when to get” (i.e. your time frame), but also “what to get” (i.e. your overall plan).

I have been practicing PDCA for years and it works. By having these steps in mind, what we need to do next is to refine the process through continual learning.

Book Review: Harmonic Wealth by James Arthur Ray

2010-02-09T00:00:00.006+08:00

This book does not share anything on how to make money. However, it teaches us how to attract wealth in all aspects, both monetary and non-monetary, in our life. The author, James Arthur Ray, emphasizes heavily on action to achieve wealth in 5 pillars of life. The 5 pillars are financial, relational, mental, physical and spiritual. He believes universe will give you what you want if you:

1. think about it, positively;

2. visualize and believe it, i.e. to feel it;

3. take action

The author calls these steps as “3 for 3” and the “Law of Attraction” will do the rest.

Lets me quote an example. Under physical pillar, you know that you are having, say, high blood pressure. In order to get rid of it, you must first think positively. Your thinking must be at “present”. If, in your mind, is thinking of “I will be cured from high blood pressure”, according to the author, you will continue to get high blood pressure. However, if you think that “I am very healthy now” and the universe will reply “your wish is my command”. Next, you start to visualize your life healthy lifestyle. Use your heart to feel it how wonderful it is. Subsequently, you should have action plan, like having regular exercise and medical checkout, towards this lifestyle you desire.

Well, I believe there is “Law of Attraction”. I recall way back to the year 1997, 13 years before this book is published, I bought my very first house. I put down 10% of down and loan with bank for the rest. It is not a low or medium cost house and, therefore, I enjoyed no special interest rate for the loan. Worst still, the rate fluctuated with the market. That is, interest charged to my housing loan was subject to the BLR then.

In 1998, Asian Financial Crisis hit. High interest charged made my monthly installment service totally nothing to my principal. In other words, I need longer loan tenor to fully settle my loan and this was totally not what I wanted. Therefore, I decided to settle my loan within 5 years of tenor. For me, no loan means total freedom. I kept imagine that. To achieve this target, I requested the bank to revise my monthly installment upward. I did not request to revise down even after the rate was softened as my target was set. I subsequently shifted the loan to an offshore bank that allowed me to settle, either partially or fully, any time I wanted. I dumped in most of my monthly take home income as well as annual bonus on regular basis. And you know what? I really fully settled my housing loan by December 2002. Yes, I did it. The feeling was so fantastic.

Even until now, 7 years after full settlement, I still can get the wonderful feeling then when I submitted my final cheque to the bank. Since then, I have been using the same approach on my other financial aspects. Only after reading this book, I realize it can be applied to other aspect in life. Most importantly, the author also shows how have them all in harmony.

I believe this is a book that worth reading for anyone who is targeting to achieve personal wealth in all aspects in life.

Asset Allocation

2010-02-06T00:00:00.002+08:00

What is asset allocation? It is a strategy in allocating your available funds to different asset classes. These asset classes may include stocks, bonds, unit trust, cash etc. It is a MASTER PLAN of your INVESTMENT PORTFOLIO.

This is a very important exercise before any investment decision. Why is that so? Well, just imaging, if you have $1,000 on hand now, what will you do? OK, now, you might start to think on how to effectively use this $1,000. You might want to buy books and CDs you always dream of; you might want to go for a short trip; you might want to settle your personal loan. The list will go on. It is pretty normal for a person to have unlimited wants with limit funds. Therefore, you need to set the priority of these needs and wants and allocate your $1,000 accordingly. In this scenario, after some thought, you may set aside 10% or RM100 for savings as part of your emergency buffer. Next, you allocate 70% or $700 to offset your personal loan as this will save you interest. Finally, you might want to allocate the balance for books and CDs to feed you soul.

Get the picture?

For investment, we do the same thing. We have to decide how to allocate our funds based on our age, time horizon and risk tolerance level. For example, if you are a conservative investor, by allocating 70% of your investment fund in share will be far too risky for you and, therefore, you might want to reduce your exposure on share to less than 20%.

It is not advisable to overdependence on one asset class or two. The magic of diversification won’t work this way. We should first understand the nature of each asset class. Stocks investment will involve higher risk than bonds and so forth. To diversify the risk of investment, we should invest in different asset class with, if possible, negative correlation. For example, the chance of higher gold price is possible when stock market crash.

There is no right or wrong asset allocation. Each individual should have his/her own unique asset allocation structure. As I highlighted earlier, it has to be setup based on age, time horizon and risk tolerance level. As a general rule, assume our time horizon for investment for 5 years,

1. an aggressive investor should have higher exposure on stocks investment

2. a moderate investor should have the balance of stocks and bonds

3. a conservative investor should have more bonds

Happy investing.

0% Interest for My Savings Account

2010-02-03T10:21:00.001+08:00

Yesterday, I went to my bank (a local bank) to update my savings passbook. When I checked the transaction of my passbook in detail, I realized that there was no half-yearly interest debited into my account as of 31st December 2009. I therefore proceed to the cashier counter for the answer. Unfortunately, the teller could not tell me the reason and requested me to leave my number so that they could call me after their investigation.

You know what? The teller did not call me back. I then called directly to the bank call center in the late afternoon. Again, they could not give me any immediate reply.

15 minutes after I called the bank call center, I received a reply call. The officer of the call center informed me that the bank would not pay any interest to "passbook" savings account if the balance is less than RM10,000. What the heck is this? Immediately, I questioned him for the reason of not informing customer about the changes of policy and his reply was "I am sorry about that!".

Beside unsatisfaction about the bank service, I am more concern on the purpose of putting money into savings account. I am not sure whether other banks are having the same practice or not. Anyway, in the current low interest regime, putting money into savings account is totally unadvisable as inflation will eat up your purchase power, sooner or later. Do not ever, never, think that savings with bank will protect your monetary value. Invest now to protect your future buying power. If you do not know how to invest, learn it now for your own good.

But, be aware that you should not invest your emergency buffer. It should be kept in liquid form. Since savings account does not do any good, you may search for money market fund with 0% loading and allow you to get you money at the shortest possible time after your redemption.

Good luck.

How Much Do You Need For Retirement (Part 2)

2010-02-03T00:00:00.002+08:00

For employees, it is a must to have EPF contribution. That is, 11% from employee (direct deduct from your monthly basic salary) and 12% from employer (12% on top of your monthly basic salary). I would like to put it as an important fund to support our retirement years.

On our calculation of retirement need, we need to how much will our EPF will be in order to get the whole picture. Shall we continue?

Step 8: Get the opening balance for your EPF account of the year (hereinafter called H)

Step 9: Estimate expected rate of return of EPF (hereinafter called I)

Step 10: Calculate the future value of your current EPF balance (hereinafter called J)

Follow this formula: H * ( 1 + I ) ^ A

Step 11: Get the current annual contribution to EPF (employee + employer) (hereinafter called K)

Step 12: Get your expected annual salary increment rate (hereinafter called L)

Step 13: Get the future value of annual contribution to EPF (hereinafter called M)

Follow this formula: K * z where z is (Vn-1*(1+I))+(1*(1+L))*(1+I)). Sound complicated, let us take an example.

Assume in Year 0 we have $1, annual salary increment is 4% and annual EPF return is 5%. By the end of year 1, the value will be (0*(1.05))+(1*(1.04))*(1.05)) = 1.092. Go on to year 2 and you will get (1.092*(1.05))+(1*(1.04))*(1.05)) = 2.2386. The calculation continues until the number of years to retire. Say the year to retire is 5, the calculation shall continue to Year 5.

Step 14: Sum up J and M and you will get total future value of EPF (hereinafter called N)

Step 15: By deducting G from N and you will get balance of capital required at retirement (hereinafter called P)

Step 16: Estimate rate of return on investment until retirement (hereinafter called Q)

Step 17: Get your current investment value for your retirement (shares, unit trust, etc) (hereinafter called R)

Step 18: Calculate the future value of your current investment (hereinafter called S)

Follow this formula: R * ( 1 + Q ) ^ A

Step 19: Get capital shortfall by deducting P from S (hereinafter called T)

Now, you should know how much you need to accumulate for retirement. Your next task shall be having action plan (investment planning) to get the amount.

Good luck.

How Much Do You Need For Retirement (Part 1)

2010-01-31T00:00:00.003+08:00

From previous posts on “Needs and Wants” and “Inflation Rate”, you have got the idea and understand the condition of your actual needs. If you have not done it, do it now as these are important components to allow you to identify how much you need for retirement.

To make it simple, I am going to list out the process in step by step for easy reference. Elaboration will be inserted when necessary to provide clear understanding. If you have any doubt, do feel free to leave your comment and I will strive to clear your query.

Step 1: To calculate years to retirement (hereinafter called A)

To complete this step, you have to define your targeted retirement age and subtract it from your current age. Some of you might target to retire at the age of 55 while others might opt for early retirement. You might insert any age you want to see the required amount for retirement. Of course, logically, the shorter the years to retirement, the more the retirement fund is required.

Step 2: To get your current annual income after tax (hereinafter called B)

Use only the actual monthly salary or income after tax and, if any, SOCSO only times 12. Do not consider bonus in simply because your bonus might vary from year to year. In addition, the process needs your estimated increment, if any. Therefore, it should be calculated based on your basic only.

Step 3: To get your current annual expenses (hereinafter called C)

You should have the figure now if you have done all the activities highlighted in my post of “Needs and Wants”. If you do not have one, do it now before going further.

Step 4: To get your personal inflation rate (hereinafter called D)

You should have the figure now if you have done all the activities highlighted in my post of “Inflation Rate”. If you do not have one, do it now before going further.

Step 5: To get estimated rate of return at retirement (hereinafter called E)

This is a tricky part. How should you get the rate of return? You may refer back to my previous post on “Investment: Rate of Return” to get some ideas. I have also included a comment about the details on how to calculate rate of return on irregular investment. Should you need further clarification, do let a comment to me.

Step 6: To get future value of annual expenses at retirement age (hereinafter called F)

Follow this formula: C * ( 1 + D ) ^ A

Step 7: To calculate capital required to generate income to cover annual expenses (hereinafter called G)

Follow this formula: F / E

Now, you should have the image on how much do you need at retirement. The figure shown in Step 7 has not considered the impact of EPF contribution, if any. The actual requirement shall be after deduction of your EPF’s future value and I will discuss it in more detail in Part 2.

Inflation Rate

2010-01-28T00:00:00.005+08:00

After reading my previous post, Needs and Wants, have you got the idea on how much you have spend on your needs and wants? Well, in order to know more in exact on the pattern of your spending, I suggest you to look into at least past 3 years records. Also, by doing so, you will be able to get your personal inflation rate.

So, what is inflation rate? It is a rate to calculate how the prices of goods are moving. If the rate is moving upward, we call it inflation. On the other hand, if the rate is going south, we name it deflation. Isn’t that simple?

OK, now, we always get the image that national inflation rate is between 2~3 %. Does it mean that your inflation rate is about the same? Don’t ever to think of that. You may surprise, after finished the exercise above, that your personal inflation rate is outpace national inflation rate. National inflation rate is calculated based on actual price movement with the weight assigned to each category. As for personal inflation rate, you weight on each category will be different from national. For example, when there is an increase in the price of sugar, the personal inflation rate for low sugar users will be much less than heavy users. Get the picture?

As you have categorized your spending into needs and wants, we require only needs portion to calculate personal inflation rate. The reason is very simple. Just imagine after you retire, will still have spare money on your casual spending or will you focus on what you actually needs?

Now, by dividing current year spending needs over the previous year and you will get the inflation rate. For example, your current year spending needs is $34,500 while previous year was $33,000, your inflation rate will be 4%.

(($34,500 / $33,000) - 1) * 100 = 4%

From this calculation, you should realize that, even if you spend only $125/month extra a month, you are actually creating 4% inflation. Wow!

So, go to work on your own inflation rate now and think about how to control it. Of course, in order to achieve financial freedom, one of the critical success factors is to learn how to control your personal inflation rate.

Needs and Wants

2010-01-25T00:00:00.004+08:00

How well can you differentiate your needs and wants?

Generally, needs are essential things that are so important that your life can’t carry on without them. For example, clothes, food, shelter and transportation are everyone’s basic needs. Without them, we will find ourselves starve, cold and difficult to move and you the consequences.

Wants are those desire items that do not even affect our daily life if without them. Items such as annual vacation, watching movies, having karaoke etc are classified as wants items.

As a matter of fact, needs and wants is just a little mind set difference. Yes, we need food to survive. However, we do not need very lavish meal. We need transport to take us from point A to point B but we do not require a BMW to do that. We need clothes to keep us warm but Dior is too much for this. Now you see the difference between needs and wants.

As human have essential needs and unlimited wants while have limited financial resources, proper planning is a must before going broke. In other words, we need to properly allocation our funds to meet our current and future needs first before any wants.

Now, the question is, do you know, for the past, how much did you spend on your needs and wants? Are all you needs fulfilled? Or you have realized most of your wants? The only way to realize this is to record down where you spend your every single cent. You may refer back to my earlier post of Money Management: Bookkeeping for details on how to keep track on your spending.

Only by understand what you have been doing, effective action plan can be carried out to rectify your spending habit. Remember, the bottom line is, to spend on needs and be frugal in wants.

Happy bookkeeping.

Comfortable Retirement

2010-01-22T00:00:00.003+08:00

Have you ever calculated how much do you need for your retirement? I bet some of you, even you have, might shock about the figures and wondering how to achieve it.

I recalled way back to the year 2003, I attended a personal financial seminar held at Genting Highlands. There were more than 500 participants and the ball room was extremely crowded. The topics covered goal setting, investment planning and estate planning. During the break of the seminar, I visited a road show counter outside the ballroom. Its notebook was setup to assist visitors to calculate their retirement needs. As I have been a savvy spender, the notebook inform me that I need more than a half a million Ringgit or so to retire even I have relatively low monthly expenses as compared with than others. I was shocked that how do I going to have a half a million Ringgit for retirement as my net worth then was very low. After buying more books on retirement planning, I realize that the figure was generated on the basis of constant principal. In other words, it is assumed that you use only the return generated without touching your principal.

Let us take an example. Assume your family monthly expenses after retirement are $3,000 and you are able to generate an annual investment return of, say, 5%. You will need $720,000 as of the time you retire. It is calculated as follow:

(Monthly Expenses x 12) / Annual Investment Return

= ($3,000 x 12) / 5% = $720,000

By having $720,000 as principal, it will generate $36,000 annually for your living expenses. This formula assumes that your monthly expenses and annual rate of return are constant. However, it is yet to consider inflation and taxation. As you have known, inflation and taxation are the worst enemy of our money. Therefore, you will definitely need more than a million Ringgit for your retirement.

As for me, I would rather opt for gradual principal deduction in my later years of retirement so that I do not need to accumulate so much for my retirement while I am still able to fund my other needs like children’s education. That is, during my retirement, I will use return generated from my investment in early years. While my expenses increase due to inflation and taxation in the later year, I will fund them by using my investment return and part of my retirement principal. However, the trick is, you should ensure your retirement fund balance is enough to support until your expected age. I will share with you how to generate such retirement fund figures in my later post.

To Move On

2010-01-19T00:00:00.005+08:00

It is a brand new year of 2010, what resolutions you have in mind? How are you planning to complete your resolutions?

It is very important to have your goals and objectives in written form. If you think it is not necessary as you can always remember it in mind, I bet you will never act towards your goals it is human nature. From my observation, human beings are rather passive if they have no motivations to move on. Motivations may include written goals and objectives as they act as a cue.

When your resolutions are in written form, keep it at an easy access place, like on your study desk, on the edge of your computer monitor, on your fridge etc, so that you will be able to retrieve it easily and as a reminder to you to move on. Or else, they will be just like what we Chinese called it “white elephants”. I always come back to my written goals as to remind me my targets as well as to review my progress. It really makes you move. Try it.

When setting your goals, they must be realistic and measurable. For example, you are targeting to have your annual investment return at 10% p.a., it is realistic and measurable than if you set your target at 50% p.a. while Warren Buffet is earning about 25% p.a. You want to keep your weight at 60kg from 70kg throughout the year. It is realistic and measurable than you want to keep your weight at 40kg. Unless you take extreme measure and still able to keep your overall health OK, it is very irrational to have more than 40% weight loss.

You may ask how to evaluate those immeasurable items. Well, it is totally depends on your own personal judgment. For example, you resolute to have at least 3 hours quality time daily with your family to obtain life happiness. 3 hours daily is measurable while happiness can only be judged by your own self. You achieve your objective if you feel really happy or vice-versa. Only you can tell your own heart whether you are happy or not.

Of course, your goals and objectives are still nothing without action. You definitely need action plans to allow you to move towards your goals and objectives. For example, think about how do you plan to do to achieve 10% p.a. return on overall investment? May be you can have higher allocation on share investment but definitely with higher risk. Can you handle? How do you squeeze out 3 hours a daily with you family? No OT? Be home timely? Or what else can you do to have 3 quality hours with family? Of course, these action plan shall be in written form as well.

For every goals and objectives, you should also give your self a date line to achieve. Should your Goal A to be completed by mid-2010 and your Goal B is an continual process. Write them down as well.

By now, you should have all your goals, action plan and date line set. Now, start action. Everyone has 24 hours a day. Not more, not less. Use it wisely towards your goals and objective.

Enjoy your journey towards your personal success.

Daily Expenses Control

2010-01-16T00:00:00.003+08:00

"Everything price up!!!". Yes, living expenses nowsaday is a big challenge to middle and low income earners.

Of course, there are many ways to minimize the impact. Some might opt for one more part time job while others may look for ways to spend less.

As for me, time with family is more valuable than part time job, I pick the latter.

I recalled June 2008 when the petrol price was revised upward sharply due to sky high international crude.  My travelling expenses shot up immediately. My counter measures, for short distance, I opt for cycling. No more hard pick up when traffic light turned green. No more unnecessary travelling. The main purpose was to save fuel. Some of my friends even modified their cars to NGV but I did not.  However, the impact of fuel price up was so huge that everything around us needs transportation to reach us and, therefore, everything price up.

One of my big achievement then was that I managed to reduce my electricity bill from about $50/month to $35/month.  Therefore, when TNB annouced tariff up on electricity, it did not affect me as my monthly usage was below 200kw. You might ask, how do I do it? Well, I strictly request all my family members to switch off whatever electrical items that are not in use. Not even at standby mode. It works and I am still doing the same thing now.

For my daily necessities, I survey through fliers, newspapers or any available source to seek for cheapest price for same items. Shop at one or two places instead of shopping around to save fuel. Reduce casual spending to minimum means less eating out and cook at home.

How do you control your expenses?  Please do share with us.

REITs (Part 2)

2010-01-13T00:00:00.003+08:00

Now, the next question is, when should you buy REIT? REIT Fund Managers report to Bursa its latest NAV on daily basis. As its NAV constitutes of the value of properties hold by Fund Managers, their value tend to be more stable than NAV of unit trust which subject to market value fluctuation of shares or bonds.

Therefore, the rule of buying REIT is to buy those reputable REITs with market price less than their NAVs. This is because, even the trust is liquidated immediately, the fund will pay its unitholders based on their NAV but not the market price. Therefore, if you are able to buy REITs that are less than their NAV, you are actually buying properties at discount. As I highlighted in my previous post, Direct Real Estate Investment vs. REITs, you only need to sell REITs when market prices are higher than its NAV, or else, hold them for dividend cheques.

In average, REIT in Malaysia is giving yield between 6~12%. All information about market price, NAV, dividend yield can be obtained from daily news paper or your online share investment portal.

Happy investing.

REITs (Part 1)

2010-01-10T18:00:00.002+08:00

In my previous post, Direct Real Estate Investment vs. REITs, I have shared my view on the goodness of REIT in which I do not require huge upfront capital for properties investment; I do not need to carry any debt; I do not need to seek for suitable tenants; I can sell my holding whenever I like as long as my selling price is matched in Bursa; my fund manager will collect rental from tenants and issue payment as dividend to me.

REIT can be purchased directly from Bursa. It is so easy. Its transaction cost is exactly the same as buying shares. Now the question is how we select the right REIT to invest.

Of course, we need to do some homework before putting our hard earned money into REIT. Just like unit trust investment, you need to know how is unit trust is operated, its fund objective and strategies before making any investment. Basically, the structure of REIT is the same as unit trust. The only difference is that majority unit trusts are investing in shares or bonds, both local and overseas, while REITs are in local and/or overseas properties.

Since REIT is pooling investors’ funds for properties investment, we need to know what properties they are investing in. Fund Managers may own shopping centers, office blocks, apartments, condos, commercial showrooms, hotels or any other commercial properties for rental income. Therefore, you should first to understand the nature of properties they are holding.

Next, you should study the location of these properties the Fund Manager is holding. As a rule of thumb, seek for REIT that is holding well-known popular properties. For example, HEKTAR is holding Subang Parade and STAREIT is having Lot 10. These are famous shopping centers around KL and are situated in the strategic location with lots of tourist and local shoppers around.

Of course, you need to check the occupancy rate of these properties. Only consistent high occupancy properties will ensure the sustainability of your dividend cheques that come to you.

Now, I have share my view on how to choose suitable REIT. In Part 2 of this post, I will show you how to decide when to buy.

Direct Real Estate Investment vs. REITs

2010-01-07T00:00:00.009+08:00

Well, a number of investment gurus, such as Robert Kiyosaki and Azizi Ali, advocate getting rich from real estate investment on the basis on its features like:

1. a kind of force savings

2. good in value preservation

3. appreciating in value in long term

4. regular rental income ……

Of course, there are many more advantages can be found in property investment. Also, a successful property investment needs to have good location and good tenant but it is not so easy to achieve both.

I bought my very first property way back to the year 1996, a year before Asian Financial Crisis. I rented it out for rental income then. I was fortunate enough to have the then tenant who was able to pay his rental on time without fail for his 4 years of tenancy. Meanwhile, I also invested in shop houses for rental. But, most of the time, the tenancy turned sour as those tenants ran away by owing their rental due to me. At the end of the day, I had to bear all related losses and seek for tenants again.

From my years of experience in property investment, no matter what method you use to filter your potential tenants, you just cannot predict what the tenant will be in the future. Meaning, they may be OK right now but not so in the future, may be due to loss of job or something. As a matter of fact, I am quite tire on following up all this.

By chance, I come to know REITs which are property trusts managed by trust managers. They are similar to unit trusts but we do not need to pay any upfront change. Further, you can only buy REITs from Bursa Malaysia. Yes, they are listed. In short, buying a unit is just like buying a share. The cost of transaction is exactly the same as buying shares, no more other charges. Its NAV is calculated on daily basis based on its fund availability and properties values. In other words, if the unit price is lower than the NAV, you are actually buying the unit at a discount price. Further, the dividend yields from REITs are very attractive as well. Some of my REITs investment are giving me 10~12% p.a. dividend yield.

Beside all of the above, you do not have the headache on seeking right tenant; you do not have to search for the right properties at the right locations; you do not need to huge capital outlay to own properties; you do not have to collect rental by yourself. Everything is taken care by trust manager. Also, by owning the unit, you are also part of the property owner, just like you are one of the bosses by owning a company share. Therefore, what you need to do is to sell your units when the unit price is higher than NAV, or else, just sit back and wait for your dividend cheque to come. Isn’t it wonderful?

Book Review: How You Can Get Rich from Swing Trading

2010-01-04T00:01:00.003+08:00

Even though I am neither a speculator nor a short-term trader, but I find this book is very useful in the sense of its ideas on identifying market sentiment to determine the right time to enter and exit.

The author advocates active trading by using technical indicators like short-term moving average, support & resistance, volume reading and trend analysis. As of me, I am totally against short-term trading. But for those indicators used in this book, they can be adjusted to medium or longer time frame to suit our prospective in terms on deciding the right time to invest.

From my experience of share investment, I believe, for most of those long term investors, you might have already found your way to seek for quality companies. However, you might also realize that, even though you have calculated your target price, the share price was never reaching your entry and exit price. It is simply because people in the market are trading irrationally. The share price does not necessary move according to its fundamental quality. Further, the market is also affected by other external factors such as investors’ psychological thinking which we have totally no control about. Therefore, in this game, majority will win. In other words, when the market mass is thinking negatively, the share price will go down regardless of the value of underlying company. Therefore, the methods introduced in this book allow us to have clearer picture on market sentiment and to have reasonable act accordingly.

Book Review: Warrent Buffett and the Interpretation of Financial Statements

2010-01-01T00:01:00.003+08:00

What a book! It mades the reading of Financial Statement become so easy and straight forward, from Income Statement to Balance Sheet and Cash Flow Statement.

As a matter of fact, I have been reading books on how to figure out Financial Statement effectively as I require myself to have the skill on identifying good public listed companies for investment. However, after finishing these books, most of the time, I lost in the middle of no way as there are just too many ratio and interpretation. This book, however, has totally change my view of Financial Statement reading. I do not realize that competitive advantages can be identified so easily. I believe serious investor so get one before any investment.

Happy reading

Is Unit Trust Investment Right For You? (Part 4)

2009-12-29T00:01:00.001+08:00

Some unit trust funds do declare dividends and unit splits to its unitholders. Please bear in mind that actual dividends received under the unit trust funds have been reflected in daily NAV and unit splits is just increase number of units holding by unitholders. Both actions, therefore, do not increase fund value as the price will be adjusted down by the same percentage declared. Worse still, if dividend is declared, it will incur personal income tax which will reduce unitholders’ return. In short, unless fund manager realize that the excess fund has limited investment opportunity, declaration of dividend for unit trust funds do not do any good for unitholders.

As only you yourself know what you really want and do not expect other people fully understand what you are thinking about. As unit trust investment is an operation on delegating your investment right to third party, namely fund manager, under trust, do not expect fund manager will act according what you intend to act. It is because they have deed of trust to follow.

For example, in the prospectus, it highlights the minimum exposure of the fund is 50% in equity. In case of equity market downturn, the manager can only reduce its equity exposure to the minimum 50% but not less than that. You therefore must seek for alternative way like sell your units or switch to conservative fund like bond fund.
Also, from the periodical investment performance report, you may realize that some of the counters hold by the fund manager may not be the counters you favor to but you just can’t control it.

Therefore, I strongly suggest you to carry out share investment by yourself as you will be in total control. Unit trust investment can be considered as a learning process in share investment or when you have limited capital. Once you gain enough experience on share investment or have enough money, by all mean, change your path to direct share investment.

Happy investing.

Is Unit Trust Investment Right For You? (Part 3)

2009-12-26T00:01:00.004+08:00

Dollar-cost-averaging is an effective way to reduce your holding cost by having fixed amount of invested at constant interval without consideration of price. This practice can be more effective in unit trust investment. In other words, with, say, monthly fix amount, you will buy more units when current month’s price lower and buy less unit when next month price higher. In average, your average holding cost will be lower than current market which means, for long term, your return can be ensured. The beauty of this method is that you do not need to care about what the current price is. What you need to do just buy on fix amount with constant interval. That is it.

Please take note that we do not need to pay so much attention on unit trust price, it does not mean you can apply the same strategy for share investment. It is simply because the nature of share investment and unit trust investment are different. Share investment involves in holding individual shares while unit trust investment is holding a pool of shares. Therefore, risks of holding individual share will definitely greater than a pool of shares. As explained in the early part of this chapter, a pool of share will bring the effect of diversification that will reduce the risk of price fluctuation while this is impossible to be achieved by holding individual share. Therefore, it is important to determine entry and exit point for individual share for profit locking.

Of course, the reward for taking higher risk on holding individual share will be higher. The logic is very simple – high risk, high return. Therefore, the return for unit trust will comparably lower due to diversification for more stable return. For those investors who are passive, no experience, conservative or no time, unit trust investment is definitely one of the best investment alternatives to have share investment exposure.

In Part 4, some tricks used by fund managers will be revealed and you should decide whether Unit Trust investment is right for you.

Is Unit Trust Investment Right For You? (Part 2)

2009-12-23T08:01:00.001+08:00

Since fund manager will invest the pool of fund on behalf of fund holders, even though initial investment requirement may not as high as direct share or bond investment, cost like initial service charge and annual management fee do affect investment returns. On average, the initial cost for local equity unit trust is ranging from 5%-7% and annual management fee is normally at 1.5% per annum.

Net Asset Value (NAV) is the actual asset value of the fund. It is calculated on daily basis and is an important figure for investor to understand how is the fund performed.

A number of professional bodies do have compilation of funds’ return table for investors’ general knowledge. One point of cautious is that the return shown in those tables are basically NAV to NAV basis. In other word, those percentage return shown in those tables are before consideration of initial service charge and, therefore, deduction of service charge from those return percentage is essential to reflect the actual picture.

Hence, unit trust investors shall first thoroughly read through the prospectus of the fund to ensure that the fund objective is the same as yours. For example, a conservative investor shall opt for bond fund or money market fund rather than aggressive growth fund. Secondly, unit trust investor shall study the performance history of the fund. As a rule of thumb, select the fund which is consistently ranked in the first and second quartile of total funds. Thirdly, as initial and annual management charges will seriously affect your unit trust investment return, choose only the fund with lowest cost.

In Part 3, I will share with you on how to effectively invest in Unit Trust if you decided to.

Is Unit Trust Investment Right For You? (Part 1)

2009-12-20T00:01:00.001+08:00

Unit Trust is a trust that the fund manager will invest funds from unit holder on behalf. The trust is build up based on deed of trust. It will start with a collection of a pool of fund from unit holders who are having the same investment objective. The fund will be under the name of trustee and managed by professional fund manager.
Fund manager shall in turn report to unit holders from time to time about the investment performance. In a nutshell:

1. You do not need to seek for buyer or seller
Unlike share market which you need to get transaction done only when the price is matched. Unit trust fund manager is always ready to sell you or buy your units anytime you want.

2. It diversify the investment risk through diversification
Diversification means fund manager will decide portfolio structure based on funds’ investment objective and allocate funds, to acquire shares, warrants and bonds from different sector, on behalf of unit holders to reduce investment risk. In other word, at unit holders’ point of view, one unit holding equivalent to proportionate of all counters invested by fund manager. The risk will therefore be diversified through holding of various counters in different sector which may be negatively correlated. This can happen when, for example, share market go down as share investors liquidate its equity investment in order to transfer fund into more safer bond market to minimize the impact unfavorable news to equity market that may lead to higher bond price. As a result, if a fund is holding a structure of 50% equity and 50% bond, the impact of softening equity market will be offset by gain in bond market which may lead to more stable return.

3. Manage by professionals
Your fund is managed by experience professional fund managers who must strictly operate under whatever outlined in the deed of trust. Therefore, unit holders are fully protected.

4. Affordable
Share investment requires minimum lot size to be transacted. Currently, 1 lot size is equivalent to 100 shares in Bursa Malaysia. In other words, you need to have a minimum amount of fund that equal to the value of 1 lot size to complete the transaction. For example, say a share of BAT is at $40. With minimum 1 lot size, you need to forge out $4,000 to acquire 100 shares of BAT.

On the other hand, the capital requirement for unit trusts rather minima. Most unit trust funds require $1,000 initial investment and $100 for subsequent investments. Some funds even have initial investment as low as $100. This definitely becomes the most direct alternative to share investment should you have limited capital fund.

In Part 2, I will share on how to select the right fund should you decide to invest in Unit Trust.

Insurance: Whole-Life Policy or Investment-Linked Policy (Part 2)保险: 终身保单或投资连接保单(第二部分)

2009-12-17T00:01:00.002+08:00

In this posting, I would like to compare the coverage and premium charge of these 2 policies as below:

It can be clearly seen that Investment-Linked able to provide better protection with affordable premium as compared with Whole Life. Further, if you are able to invest on the premium saved wisely, you will have very high chance getting better overall return than Whole Life cash value.

Therefore, the choice is yours.

这期，让我们来比较终身保单或投资连接保单在保障及保费的差异。

从以上的报表来看，投资连接保单能以低廉的保费提供最大的保障。若您能将省下来的保费加以投资，您的回酬将比终身保单的现金回酬来的可观。
所以，选择在于您。

Book Review: 20/20 Money by Hanson

2009-12-14T10:27:00.006+08:00

This is a book that I think every investor should read through first before any investment. It provides inside views of various market pitfalls that lead to poor decision making.

He highlights that human memories are wired for the short term and is very easily affected by emotion and some other external factors. Therefore, he suggests us do not trust our memory but only believe what you actually see with support of facts. As markets are full of “noise”, you will be very easily misled and make wrong decision.

Also, to be a successful investor, Hanson advises us that we should feel comfortable alone and fight that herding mechanism in us. Follow the herd will lead us for horrible investment.

Further, as media are actually only reporting history, in order to attract readers, data are distorted when they got reported. Therefore, reading whatever business news in our daily newspaper is actually history and has been factored in stock prices. Does not being mislead just by reading news headlines.

For actual investment, he recommends to focus on portfolio return rather than individual stock’s return. As long as your portfolio is performing well, keep it on. He objects regular trading as cost will eat up your return.

He further proposes to buy when there is bear market on the basis that (1) bull market is always come after, and, (2) bull market is lasting longer than bear market historically. He puts forward that we only sell when market is dropping more than 20% or, otherwise, we might miss out any money making opportunity.

Actually, I have been practicing one of his ideas for years. That is, stay away from the crowd and believe in only what I see. Reason being, from my own investment experience, people are easily misinformed without proper understanding. Therefore, educate yourself will definitely enhance your investment judgment.

Insurance: Whole-Life Policy or Investment-Linked Policy (Part 1)

2009-12-09T14:44:00.004+08:00

I believe many people are confusing in the sense that they have no idea on how to choose among different insurance policies. Should it be terms policy, whole-life policy or investment-linked policy?

In my previous posting, I explained that term is suggested based on its feature of affordable premium with great protection. Right now, for the first part of this title, I would like to share with you about the differences between whole-life and investment-linked policy.

Features of Whole Life Policy include:

whole life protection subject to cash value reserved
fixed premium paid and have to keep paying up to age 99 (Rule of Bank Negara)
change of premium means Sum Assured must be revised as well – regardless of cash value
able to enjoy premium holiday provided adequate cash value has been accumulated
able to adopt average premium throughout whole life, premium relatively higher in the early age of the life assured but cheaper in the later age
good for savings (subject to return projection) but provide limited protection

Features of Investment-Linked Policy include:

whole life protection but subject to cash value reserved
flexibility on premium to be paid and keep paying up to age 99
change of premium does not necessary means that Sum Assured must be revised as well – depends on cash value
can enjoy premium holiday provided adequate cash value has been accumulated
insurance charge is paid according to age. Therefore, cheaper at early age but higher at the later age
premium relatively much lower but able to provide immediate large protection. Meanwhile, by investing the premium saved able to provide better return as compare with whole life

In the next posting, I will share with you about which insurance should we opt for.

Insurance: Protection or Investment?

2009-12-07T13:11:00.006+08:00

Insurance should be treated as a protection rather than an investment tool. Insurance provides instant cash to the dependants of the insured, to help minimize the impact of unforeseen circumstances. Therefore, insurance is very important in terms of protection as long as it is not overused.

After reviewing your insurance needs, buying term insurance might be more advisable for instant protection. The rationale behind this is that term insurance is able to provide greater protection at a lower cost. Yes, term policy does not carry any cash value, but ask yourself the following questions:

With bonus cuts, how much cash value can a whole life or endowment policy generate upon maturity? Do you want to pay more premiums to get the same cash value as previously projected, or do you want to lower your cash value projection by paying the same amount of premiums?
If anything unfortunate happens to you now, is your coverage enough for your dependants to live on?

Therefore, generally speaking, immediate protection is more important than cash value upon maturity. Why bother to pay more and get less?

Past records show that equity and real estate investments provide better returns than any other investment tools. In fact, equity is more liquid than real estate.

When planning for retirement or children’s education, instead of buying an endowment plan, it is more practical to have enough term policy to cover your protection needs and then start equity investments such as unit trusts as soon as possible.

In other words:

After a detailed review of your insurance needs, change to a term policy to get enough protection at a lower cost to save on premiums.
Invest whatever you have saved on premiums into unit trusts or shares that will generate higher returns in the long term by practicing dollar cost averaging.

In summary, realistically set you objectives, and continuously educate yourself to have a better understanding of how each financial tool will help you to:

Spend less but get better protection (insurance planning)
Accumulate enough resources to cater to your financial needs (investment planning)
Have better wealth preservation (tax planning); and
Have effective wealth distribution (will/estate planning).

Of course, most importantly, bonus cuts by your insurer will then no longer be a concern to you.

Book Fair

2009-12-02T09:03:00.007+08:00

My wife and I visited Popular Mega Bookfair Expo in JB yesterday. May be it is school holiday, the center was quite crowded even though it was just a normal working day.

To exercise the spirit of continual learning, we bought quite a number of books that have cost us a few hundred dollars. By the end of the day, we felt very happy about what we got although we were all very tired.

We shared our purchase with our kids (they did not go with us as they were attending holiday classes) and they were very happy too.

From here, I feel more wealthy not in terms of monetary value but the happiness on getting and sharing.

No Excuse

2009-11-30T17:28:00.009+08:00

People like to stay within their comfort zone and that is why many people only can do the same thing again and again, year by year, without any improvement.

I always request my staffs to learn proactively in order to equip themselves to meet future challenge. However, most of the time, the reply I received were negative. They just gave as many excuses as they could just to escape from learning new things or exposure of new area of work. At the end of the day, I still have to settle most of the problems by myself. I am now still continued to couch them to have positive thinking and I hope the changes will come in one day.

Anyway, we shall always equip ourselves through continual learning. The prerequisite is giving no excuse. Please bear in mind that excuses are always the barriers to success.

Investment: Do Your Very Own Investment Plan

2009-11-26T11:41:00.008+08:00

Do you have any investment plan before you carry out any investment? Do you have a target what are you going to achieve with this investment plan? Well, if you do not have one, do it now, by yourself.

In my previous article which entitled “Do You Know What You Want?”, I emphasis that only you yourself know what you want. Say, you want to have annual return of 10% on share investment to fund your children’s educations, you should have an investment plan on how to achieve 10% p.a. For example, your plan might be first to shortlist those counters you interested in and identify the right time on buying and selling. In this case, since your plan is well defined, it will provide you a road map to achieve your target.

A good plan is the result of continual learning. You should learn more in the area of investment you are interested in. The more you learn and understand, more precise and effective plan can be generated. My advice is to do it yourself. Plans prepared by third party might not at your best interest. Do not expect other to do exactly what you want. This is because they need earning for their living and, therefore, the plan might be bias.

Quite a number of times, my friends regretted to have investment on this and that. When I requested them to elaborate more, I realize that the cause of wrong investment decision was simply due to lack of understanding. For the area you have limited knowledge with, you may easily believe to what those so-called “experts” say. Equip yourself with knowledge is the sure way to protect yourself.

Money Management: Is Branded Equals To Extravagant?

2009-11-24T16:26:00.006+08:00

Four years ago, I bought a vacuum cleaner from an electrical shop. To be frugal, I requested the lady boss to recommend more economical model. She suggested to a XXX brand which I never heard before and she claimed that many of her customers have been using that model without problem. Therefore, I bought one.

Within half a year, the cleaner totally broke down after using it for 2 times only. Since it is within warranty period, I send it back to the electrical shop for repair. They took 4 month to get the cleaner fixed but it broke down again 3 months later after it was repaired. Since the warranty period has over, I went to another electrical shop to buy another “branded” one. It is still totally functioning now after 3 years of purchase.

Here is another story. To save more, I once bought my leather shoes at a hypermarket. However, it totally worn up 5 days after. Therefore, I spent $200 to buy a branded leather shoes and I am still wearing it now 4 years after.

I am not encouraging for buying branded goods but we should learn how to become a smart consumer. Under certain circumstances, living frugally might end up to lose more.

Money Management: Emergency Buffer

2009-07-18T16:11:00.006+08:00

Life is full of uncertainty. Therefore, your life might be miserable without emergency buffer. For example, how long can you sustain your current lifestyle without a job?

Under normal circumstances, we should keep at least 6-month worth of living expenses as our buffer. If your monthly expenses are $2,000, you should have at least $12,000 as a buffer in you savings account.

If you do not have one, start now. Do not invest until the buffer is well accumulated.

Be prepared.

Money Management: Is rich equivalent to lots of money?

2009-06-24T19:40:00.005+08:00

Is a high income earner a rich man? Is a person who is driving a big car and staying in a big house a rich man? Is blue collar’s life hard as they are earning less?

Not necessary.

If you spend every single cent you earned and involve in huge credit card outstanding, the financial condition of this white collar is actually worse than those blue collars with savings.

Take an example. Say a white collar earns $10,000 a month. He will not have any savings if his monthly spending is at $10,500. He has no savings but need to spare another $500. On the other hand, a blue collar with $1,000 monthly salary, he will be richer than the white collar if his monthly spending is at $800. The blue collar will be able to save $200 every month while the white collar has to work hard to pay off his debt.

The bottom line is, high income does not mean rich. The true meaning of rich is how much you can save but not how much you earn.

Shall we plan ourselves to become “rich” man?