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

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)

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.

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

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.

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

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.

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)

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

Book Review: 20/20 Money by Hanson

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.

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

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.

Insurance: Protection or Investment?

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.

Book Fair

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.

No Excuse

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.

Investment: Do Your Very Own Investment Plan

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.

Money Management: Is Branded Equals To Extravagant?

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.

Money Management: Emergency Buffer

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?

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?

Money Management: Smart Kids

One day, my eldest son asked me out for fast food. I agreed to bring them on the coming weekend. My son further then asked, “Daddy, who will pay?”

What a smart kid. He will rather opt to drop the meal if I ask him to pay.

Be a good parent, we should always convey the right message on value of money. Most of the things can be bought by spending money but some cannot. For example, a family gathering is invaluable in monetary value but money is only a bridge for us to opt for a good place to achieve this purpose.

Money Management: Is rich equals to richness?

Yes, may be.

However, richness does not only depend on money but also our daily life.

So, what is life richness? It is how you plan your life to become more meaningful. It may be the case that you allocate an hour a day to chat with you family or to get around with you children. You may also allocate some time for yourself to do what you love to do. Or you may share you view with your friends about the book you just completed. Isn’t it will make you happy?

Live happily means richness but not necessary based on money. In fact, your happiness will provide you more energy to achieve your target. Keep it up.

Investment: Do you know what you want?

“Is now the right time to buy stock?”; “What should be the buy price for ABC stock?”; “What should I do if stock market is falling?”

I received these questions from my friend quite often. However, my reply to them is, “Do you know what you want?”

In our daily life, we are facing many problems. Some problems for us are just piece of cake as we have the capability to solve it. However, whenever you face problems that you have limited knowledge with, you will feel uncertain. In other words, if you do not know well about stock market, you will have a problem. Therefore, you will ask someone that you think he/she knows how. But how do you judge whether is he/she knowing what stock market is all about?

Well, only you know what you want. Keep learning and exercise what you learned. Knowledge will tell you what to do. More importantly, you should learn from mistake and avoid to making it again.

Money Management: Make credit card become your slave

Whenever you visit supermarket or hypermarket, most likely you will be surrounded by credit card “promoters”. You might ignore them. But, sometime, you might sign up with them after their explanation of benefits that you can get.

Some people who are unable to utilize credit card wisely will end up becoming a slave of credit card. Worse still, they might opt for “Balance Transfer” to avoid payment due. Pity them.

Investment: Rate of Return (Part 2)

“I have earned $5,000 from share investment!” Again, hold on first.

If your investment capital was $50,000, then the rate of return is 10%; However, if your principal was $500,000, the return is only 1%.

How to calculate it? Well the formula is ((V1/V0)-1)*100 where V1 is current investment value while V0 is your principal.

Let us take an example. Say your principal was $50,000 (i.e. V0) and you earned $5,000. Therefore, your current investment value is $55,000 (i.e. V1). The total rate of return will be ((55,000/50,000)-1)*100 which will generate a value 10 which means 10%. To make it more meaningful, we shall consider time frame into this calculation as well.

So, whenever there is someone to show off in front of you that he/she has earned $XXX from share investment, ask him/her about her investment capital first.

Money Management: Bookkeeping

Do you know how much you spent and saved every month? Do you know where did your money go? If you cannot give the answer right away, very high chance, you are working for money.

To be a master of money, you must know where your every single cent went. Only good bookkeeping habit will achieve this.

There are many money management software around that featured on helping you to record down your expenses and categorize them.

Advantages of bookkeeping will enable you to:
1. know your expenses on “needs” and “wants”. You should reduce or delay your “wants”
2. know how much do you save immediately
3. effectively allocating your fund for emergency buffer, investment or other financial items
4. have proper cash flow planning

I believe it does not need much time to do it while allow you to control your cash flow. Isn’t it great?

Local Bank Service

Today, I went to a local bank for online service. As I cannot get any information at the information counter, the receptionist brought me to a customer service manager. Again, the said manager cannot provide any information. As a result, he called his HQ for help.

He passed on the phone to me. I talked to his HQ for almost 20 minutes. Finally, I decided not to have online service with this bank. What happened was when I was on the phone, the other side just keep me on hold from more than 15 minutes as they also need to search for information I inquired.

By having this kind of service, what do you think our local bank’s competitiveness as compared with those off-shore bank?

Investment: Rate of Return

“Yuppy! My investment has given me a return of 10%!” It sounds great but holds on first.

It will be more meaningful if we consider the time frame of investment with this return. If the return of 10% took a period of 3 years to achieve, the average return per year is about 3% only. If it took a period of 5 years, it will be only 2% p.a. If this is the case, you may find that such return does not mean much.

Money value is actually depreciated in time. The value of $100 today will be greater than the value tomorrow. The logic is very simple. If you put $100 into your savings account today and keep it until tomorrow, the bank will pay you interest. In your savings passbook, the balance value will be $100.01 based on 3.5% p.a.

Under normal circumstances, if you are a conservative investor, you may use the bank’s one-year FD rate or inflation rate to judge your investment performance. If we are able to outperform this basis, we will be able to achieve our financial objective at a faster pace. For aggressive investor, we can adopt share index as a benchmark. In short, which benchmark to be used to judge your investment performance will totally depend on your risk going to be taken.

To calculate the average yearly rate of return, the formula is:
(((1+r/100) ^ (1/n))-1)*100

where,
r = total rate of return
n=investment time frame

For example, 10% rate of return in 3 years shall be calculated as follow:

r = 10 (i.e. 10%)
n = 3 (i.e. 3 years)

Therefore, the average annual return = (((1+10/100) ^ (1/3))-1)*100 = 3.228 (i.e. 3.228% p.a.)

Happy investing.

The photo was taken on 14th May 2009 at Guong Bok Kun (Seoul)

Money Management: Award yourself and enjoy your life

Some people think that the purpose of savings is for better life in the future while others might think of enjoying your life at no time. What should we do then?

Life is short. We should then properly plan our future without foregoing our life enjoyment. How should we do then?

In fact, we should treat our life enjoyment as part of our financial planning. Therefore, I suggest allocating 2% to 5% of your take home income for this purpose. Please do note that that this allocation is not part of your regular 10% take home intake savings plan. With this allocation, you will be able to fulfill what you want. For example, you may save it for your overseas trip next year or to buy your dream HIFI. By doing so, you will be able to enjoy your life while you are working hard towards your financial goals.