How-to: Match Your Unit Trust Investing with Your Risk Appetite

When it comes to successful investing, the smart investor will only consider potential returns after first considering the risks involved. There are many levels of risk. In the lowest spectrum of risk, products such as fixed deposits may give you guaranteed potential low returns, while products such as Futures and Options usually sit at the far end of the spectrum – highly risky, but with the potential of offering higher returns.

The above diagram represents a simplistic view of several common investment products and their risks. In this article however, we are going to take a closer look at the inherent risks involved in unit trust funds:

Lower risk

Money market funds

Money market funds offer lower risk, and also lower returns as these funds invest in low risk money market instruments. However, they do carry the risk of being affected by interest rate changes.

WHO?

This Money Market Fund would be best suited for those who are looking to grow their emergency fund without risking their principal. These funds are also very liquid, making it easier to withdraw the money when there is an emergency.

Fixed income funds

Slightly higher up the risk chart are fixed income funds. These funds are usually made up of government securities, corporate bonds, and money market instruments.

Like its name suggests, an income fund aims to provide investors with regular income payments, but with less emphasis on capital growth. Fixed income funds can also help diversify an investment portfolio.

WHO?

This is a good tool for those who need regular income, such as retirees or those who need some help in boosting their passive income. It’s ideal if you’re looking for a little more returns and are willing to accept less security on your funds as well since they are more susceptible to market movements than the more secure money market funds.

Moderate Risk

Balanced funds

In balanced fund investments, investors are exposed to stocks, but with the risk being mitigated because a portion of the fund will be allocated to debt securities like bonds.

The objective of a balanced fund is to achieve the perfect balance of safety, income and capital appreciation by adopting a general strategy of investing in fixed income and equities. It is typically done by allocating 60% of the investment into equities, with the balance of about 40% remaining in fixed income.

WHO?

Balanced funds are recommended for first-time equity investors as they would get a taste of investing in stocks while still mitigating their risks. It’s also a great opportunity for investors who have always been very conservative to explore slightly riskier investments with potentially higher returns.

High Risk

Global/International equity funds

Equity funds are generally considered high risk but global or international equity funds mitigate some of this risk because they dive into different markets, which can help mitigate country-specific risks. The main difference between the two? A global fund invests in different countries including your home country, while international funds only invest in other countries.

WHO?

Investors who wish to delve into equity or other high risk investments, but wish to avoid specific market risks. These funds offer some great options for tapping into countries with potential for rapid growth. However, try to use these with other investments in other markets in order to benefit from its country risk mitigation aspects.

Equity funds

In theory, equity funds can generate higher returns compared to lower risk investments like fixed income funds, such as government bonds and cash.

However, equity funds are considered riskier or more volatile as they invest almost entirely in an equity market. There are different types of equity funds with different levels of risk, but equity funds should always be seen as risky investments.

WHO?

If you are an investor seeking aggressive capital appreciation and have a high risk tolerance, equity funds should be right up your alley. Interestingly, although high in risk, equity funds should still be in most investment portfolios but with allocations adjusted according to risk profiles. These would be ideal funds for those who want to have growth in their portfolios but have also taken steps to mitigate the risks accordingly.

Conclusion

When creating your portfolio, always determine the percentages to be allocated to stocks and bonds, which should reflect your tolerance for risk and ability to handle major market downturns. Your portfolio should also include all types of stocks, whether large or small, growth or value, domestic or international, dividend- or non-dividend payers as well as lower risk bonds.

Remember, always choose to allocate more assets in lower risk funds, and less on high risk funds. This will help create a well-balanced portfolio and reduce overall investment risk.

Happy investing!

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7 Easy Money Tips To Get In Shape Financially In 2017

Another year draws to a close and it seems like everyone’s got New Year’s resolutions on their mind.

To recap, 2016 has not been particularly (positively) eventful for Malaysians as many wrestle with the rising living cost and skyrocketing house prices.

On the economic front, the ringgit continues to weaken against the US dollar, retrenchment is set to worsen with more than 30,000 laid off as of September, and household debt has reached 89.1%, one of the highest in the region.

Under such circumstances, paying down debt and saving for your future might seem overwhelming. Rest assured, it is not impossible as all you need are tiny, manageable steps.

Below are seven quick and easy tips to help you get your finances in shape for 2017:

Resolve to learn something new

If you are one of those “I have no idea how bonds work” or “What is an ETF?”, then it is time to get educated.

You do not need to be an expert to gain a working knowledge of investment rules. Neither do you have to spend a fortune on study materials. Just choose a couple of things you do not understand and make it a goal to learn them. Most of the time, you can learn them for free on our site!

Perhaps try investing in high-risk unit trusts or a real estate investment trust (REIT) or even the different equities on offer. Investing in something different provides an impetus to learn something new while growing your capital.

Pay more than the minimum on your credit card

By now you should know that the term “minimum payment” is not an excuse to take your time to clear off that outstanding credit card bill.

Let’s break it down. Say, you greet 2017 with RM10,000 in debt and you are comfortable with paying the minimum, hoping you could still afford more of what life has to offer. Here’s how much interest you incur after paying off your debt:

Total outstanding balance on your credit card: RM10,000 Interest rate: 15% p.a.
	Paying just the minimum payment of 5%	Paying a fixed amount of RM800 every month
First payment:	RM500	RM800
Subsequent payment:	5% of outstanding balance	RM800
Total interest incurred:	RM3,157.92	RM943
Time to pay off:	6 years 11 months	1 year 2 months

Besides clearing debt quicker, you save RM2,214.92 in interest just by paying a higher fixed amount every month.

Remember: When it comes to paying your credit card, settling for the bare minimum makes you a slave to interest. It will also very quickly negate any investment returns you may be getting elsewhere.

Get insurance coverage

According to a study, four to five out of 10 Malaysians do not have life insurance and among those who have one, have insufficient coverage for their loved ones.

Life insurance policies are designed especially for those who have people depending on them financially, such as young children or elderly parents.

It helps ensure that those you care about will be provided for financially, in the event you are no longer around or lose the capacity to provide them.

There are different types of life insurance. For example, an endowment offers savings and protection while a life annuity works for retirement or tax-deferred wealth accumulation. The best one for you depends on your needs.

Medical insurance on the other hand protects you financially in the event that you are diagnosed with an illness or met with an accident. This covers your hospitalisation and treatment cost so you won’t fall into debt with the increasing medical inflation.

But besides acting as a financial “back-up”, insurance also provides tax relief. Tax payers can claim up to RM6,000 every year for life insurance, and RM3,000 a year for medical insurance.

Even those who already have coverage should check their policy regularly to avoid being underinsured. A policy bought 10 years ago with coverage of RM500,000 is not sufficient today due to inflation. Check your medical insurance coverage today.

Maximise that lifestyle tax

In his Budget 2017 speech, Prime Minister Datuk Seri Najib Razak unveiled the lifestyle tax relief – a combination of tax reliefs for reading materials, computers, and sports equipment – which Malaysians can claim on a yearly basis.

What can you claim?

The new lifestyle tax allows you to claim these items:

• Reading materials
• Newspapers
• Computer
• Sports equipment
• Smartphones and tablets
• Broadband
• Gym membership

The yearly cap for the lifestyle tax relief is RM2,500. Previously you could claim RM1,000 for reading materials; RM3,000 for computer but once every three years; and RM300 for sports equipment.

Despite the low-ceiling, you could still claim for items not previously available or discontinued such as your broadband subscription. Also, technophiles will love this one as it allows them to claim not just for laptop, but also tablets and smartphones. So keep those receipts!

Clear your PTPTN loan

According to the Department of Insolvency, the country is seeing an increasing number of young bankrupts as many of them are “burdened with study loans.”

Well, good news: under the 2017 budget, graduates get a 15% discount on outstanding debt for full settlement; 10% discount for payment of at least 50% of outstanding debts; and 10% discount for repayment through salary deductions or direct debt. These take effect from October 22, 2016 to December 2017.

Say, Grad A is opting to repay his debt in January 2017 and chooses to do that through monthly salary deduction. He received full financing as his parents were BR1M recipients.

Bachelor of arts and social sciences majoring in communications at a private university/college			RM102,000
Type of Education Loan	Loan amount	Administrative cost	Repayment period (years)	Repayment	Total interest
PTPTN (Conventional)	RM102,000	3% p.a.	10	RM121,989.78	RM19,989.78

If he decides to pay through salary deductions, he gets a 10% discount for each payment made. For example, if the first month he is required to pay RM368.22, she now pays RM331.40. If he chooses the maximum loan repayment period of ten years, he pays an overall RM109,790.77. In this option, he saves RM12,199.01.Want to speed up payment? Read on…

Get a part-time job

Malaysians will still deal with the rising cost of living as they enter 2017 and one way to mitigate this financial burden is getting a part-time job.

Never short of options, among the easiest side-hustles is ride-sharing. With car ownership in Malaysia at the third highest in the world, according to the 2014 Nielsen Global Survey of Automotive Demand. So, you would probably own a decent car that takes you from one point to another.

Turn that into a money-making machine by just working six trips and four hours a day, you can earn between RM2,248 and RM2,373 through GrabCar or UberX. In a year, you can potentially earn anywhere around RM26,976 to RM28,476.

What can you do with that amount of money? Plenty. But let’s say you are struggling to clear that PTPTN loan,despite the discounts or want to speed up payment. . Here is how a part-time job with Grab or Uber helps:

PTPTN loan amount: RM70,000	Administrative cost: 3% p.a.
	Without ridesharing	With ridesharing
Monthly repayment:	RM427	RM1,510
Repayment period:	10 years	4 years
Total interest incurred:	RM13,718.68	RM4,524.92

Not only will you be able to clear your debt within four years with a side income and still have change to spare, you could save RM9,193.76 in interest!

If ride-sharing is not your thing, check out various freelancing gigs or even that barista opening at a local hipster cafe. The point is: hustle.

Establish a no-spend week (or weekend)

Incorporating a spending freeze into your budget is healthy on your finances. Do this by adding a no-spend week – it is a super way to save a little cash.

For example, this is John’s spending in a week excluding petrol and daily parking fees.

Groceries + dining out	RM500
Starbucks latte	RM36 (RM12 x 3)
Shopping	RM200
Movie ticket	RM9
Total	RM745

Establish a no-spend week once a month, and John saves RM8,940 in a year. With that amount, he can easily channel that money to unit trusts or even stocks and leverage on compounding to grow his savings.

Creative tips during a no-spend week

• Use up whatever that is left in your pantry.
• Download a podcast instead of going to the movies.
• Borrow a book from the library.
• Go for a walk or to the park with your loved ones instead of the happy hour.
• Clean your house and sell items online.
• Learn how to travel for cheap or even do a volunteer trip where you get free lodging and food.

And it all begins here and now

Reality is, most of us will usher 2017 with either some burden or debt to finance. While you can’t melt away the money tension with mere wishful thinking, there are and always will be ways to lessen its impact.

Start off by coming up with a plan that transforms your sources of stress into goals that can be achieved, step by step.  Commit to them and be disciplined.

Always seek to clear off debt as quickly as possible and make surplus cash work hard for you. These require some sacrifice, but nothing worthwhile in life comes easy.

To do this, don’t wait after recovering from the New Year after party, get started now and keep track of your spending and progress.

Good luck and Happy New Year, y’all.

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We Found What May be the Worst Time to Buy a Car

There are tonnes of advice out there on 

how to pick and buy a car.

But could there be a bad time to buy one?

As we all know, cars are big ticket items which depreciate in value over time. 

While some may argue that there are collectible and limited edition cars that 

have gone up in value, the majority of us don't have the luxury to buy cars such as that.

While we are always concerned about its resale value to ensure we retain 

maximum value, could there be a time that purchasing a car would significantly

cost you more in terms of depreciation as compared to other times?

How Does a Car's Value Depreciate?

First of all, a car's value depreciates based on the amount of time and years

 it has been used. Beyond its age, it is usually evaluated based on the mileage

 and the basic condition of the car. Cars that have run a higher than average

 mileage tends to fetch lower prices. Cars are usually gauged based an average 

of 20,000 kilometers a year.

That is the same number of times a car using fully synthetic oil goes through 

a service, every six months or every 10,000 kilometers. Which add up to a year's

 worth of usage. Cars that have been in accidents depreciate in value quicker as well. 

Despite having it fixed and not visible to the naked eye, car dealer inspections 

tend to always find the defects due to a prior accident.

Highest Depreciation Timeline

A car is registered based on the year it was purchased. Therefore you could 

lose out significantly in terms of value if you buy your car in December. 

As when it crosses over to the following month, it would be considered a year old. 

Imagine picking up a brand new car on the 31st of December, being all set to 

take on the new year in style. One day later despite all the style in the world, 

your car is going to be a year old based on its registered year.

Go on to motortrader or Carlist.my and checkout some of the postings. 

You would notice that it advertises using the year and not based on the month 

and specific date it was bought.

Upside of Buying Late in The Year

Despite buying a car towards the end of the year sounding like an unfavorable 

condition due to the reason above, this is when most car dealerships give you 

the best deals to encourage a sale. In some cases, all the free car services, 

extended warranties, free tinting and added features that come along with the 

car may be worth the purchase.

Sometimes you may even find the upside depending on an individual's situation. 

For example, if you were in your retirement years and you have no intention of 

switching cars beyond this purchase, you could take advantage of the special 

deals and pay less for a car you wanted to buy. Not to mention you could trade-off 

your old car before it falls over into the following new year too.

If you are intending to purchase a car in the near future, check out our 

comparison tool for hire purchase and pick one that works best for you.

Have any comments regarding this article? Tell us in the section below.

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What To Do With The Falling Malaysian Ringgit?

December 15, 2016

 

Forex, Money Management, Ringgit

Written by Aaron Tang

As I’m writing this, the Malaysian Ringgit is trading at a pretty low level: 1 USD = 4.46 MYR

It seems to be sliding lower and lower every week. And it’s getting worryingly close to its historical low: January 1998; 1 USD = 4.885 MYR.

If you can’t (or too young to) remember, that was back in the days of the Asian Financial Crisis. Malaysia and many of our Asian neighbours lost a lot of money (and confidence). South Korea, Indonesia and Thailand had to borrow money from the International Monetary Fund (IMF). Malaysia imposed strict capital controls, and fixed the exchange rate at 1 USD = 3.80 MYR for a couple of years.

The good news is that we have recovered from that bout of ringgit tumble.

The bad news is that the ringgit is in for another decline. And while we probably can’t do too much about it now, here are some ideas on what you can do to preserve the value of your money.

1. Park your money in “safe” local assets

On paper, it looks like we’re doing terrible. The ringgit dropped more than 6%alone in November 2016.

If you travel overseas a lot and use a lot of branded, imported stuff — I’m sorry for your pain.

Domestically though — it’s a less direct link between the falling ringgit and a painful life. For example, if you’re doing all your spending locally, on local products and buying from local producers — you won’t feel the impact of currency drops immediately. The RM10,000 you have in the bank is still RM10,000 — as long as it’s used within Malaysian borders.

If you’re still worried about your ringgit losing value though, you could consider holding less money in the bank, and investing more in good local assets.

Cash is always going to be affected by currency fluctuations and inflation. RM3,000 might have bought you a nice Coach handbag from Suria KLCC in 2015, but you might need RM3,300 in 2017.

But say, you buy an apartment to stay in. It’s a hard asset — it’s still your home regardless of currency fluctuations. You can still sleep in it at night.

(Unless things get catastrophically bad and there are hungry rioters trying to break into your apartment. But in that case, we’re all in serious trouble anyway.)

High property costs scaring you off? You can start by investing in Real Estate Investment Trusts (REITs) instead — where you get the benefits of investing in properties — but need less money to start.

2. Park your money in USD-priced assets

This probably doesn’t make sense right now, as the ringgit is trading near its historic low. (But you can use this point to protect yourself from currency fluctuations the next time 1 USD = 3.2 MYR.)

Unless, of course, you think the ringgit is going to drop even lower.

Say you own an asset that is priced in US dollars. When the USD strengthens against the MYR, your USD-priced asset is also now worth more in ringgit. So technically, you’ve made a profit.

What are some USD-denominated assets people can buy?

• Gold is commonly described as a safe haven by investors. Personally, I’m not a fan of it (Warren Buffett even said gold is almost completely useless.), but many investors have used gold to hedge against currenc risk. There are a few Malaysian banks that offer investment accounts where you can easily buy gold. Check them out here.
• Silver is the precious metal that I prefer to store some value in. I’m no expert, but a basic way to tell when silver is overpriced or underpriced versus gold is to look at the Gold/Silver price ratio. Right now the ratio is about 71 (1 ounce of gold costs 71 times more than 1 ounce of silver). For most of the twentieth century, that ratio has been about 50. So I’m speculating that silver would go up. You can buy into silver here.
• I told my boss that I owned some Bitcoin, and she asked me if it was some kind of new get-rich-pyramid-scheme. So yes, it’s really new — and not many people understand it. It’s also highly volatile. But my Bitcoin account holds its value in US dollars. You can find out more about Bitcoin here.

This applies to other currencies as well. For example, if you believe that the Euro or SGD holds its value better than the USD — you can invest in assets which are priced in those currencies.

3. Make money in USD

So far we’ve been talking about defensive strategies. So here’s an offensive one: take advantage of the exchange rate and start making money in international dollars.

It’s not as difficult as it sounds.

Most of us are very familiar with the Internet, online banking and the freelance “gig” economy.

What are some valuable skills you already have that you could offer online? Even better — which skills could you sell internationally to earn US dollars?

Here are some examples: accounting, bookkeeping, graphic designing, Photoshop editing, digital marketing, proofreading, writing, blogging, video editing, animation, programming, website designing, admin support, and business consulting.

If you do not have an existing network of clients, you can always register and offer your services on websites like Upwork.com or Freelancer.com. However, these websites do charge a commission for every job you take up.

A couple of my Malaysian friends already do this for a living. One of my friends who does freelance writing even made five figures last month. The “weak” exchange rate helped.

4. If things crash – buy low

If you’ve been well prepared, this one’s for you.

Yes, I’m just as upset as the general population that the economy is doing badly, and the ringgit is depreciating. But if you have reserves, this might actually be the “perfect” opportunity for you.

The theory goes like this: Assuming things continue to go bad, Malaysia might end up in a recession. Like back in 1997, if the stock market crashes, assets would lose value, and a lot of people would lose money.

It’s not a fun time and I really hope it doesn’t happen. If it does however, markets tend to overreact. So that expensive Nestle or Dutch Lady stock you’ve been eyeing might actually become cheaper. A lot cheaper. You might be able to pick up other assets like property at a discount too — because a lot of people would be wanting to sell.

Of course, all the above is speculation. No one — not even famed Wall Street analysts — predicts things correctly all the time.

But if you have sufficient cash reserves, and the country goes through a recession — it might be time to bring that cash out and get some valuable assets for cheap. Plus, it never hurts to have reserves.

– – –

I hate to be all doom and gloom, but it looks like we’re going to be in rough times for a while.

However I also believe that behind every challenge lies opportunity. While we continue to be alarmed at the painful slide of the ringgit, we can also do things to prepare ourselves for tough times ahead. Maybe it just needs some creative thinking and willingness to change.

As someone wise once said, “You can’t control everything that happens to you, but you can always control the way you respond.”

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