Risk Management

The second element of financial planning is Risk Management. In other countries, risk management is seen as an important element for everyone and have received good response from the people. However, this is quite different in Malaysia. Another term that is best described risk management is insurance. When Malaysian heard about insurance, the first impression is that the insurance agent is cheating money. Well, no doubt some of the agents approach you because of your money. Once they receive your money, you never see them anymore unless there are some new products. But you must be clear that the problem lies on the insurance agents and not on the insurance. This post might be a little offensive because it deals with accident and death. This is real life and I do not mind you shouting 'Touch wood' while going through this post. =)

Why insurance is so important? Just imagine if one day, suddenly Mr. A diagnosed with cancer. He does not have much money for the medical cost. If he has relatives or friends who are willing to borrow him money, then the situation is not so bad. However, if he does not have any insurance and none of his relatives and friends willing to borrow money for his medical cost, then what should he do?If Mr. A buys insurance policy (36 critical illnesses policy) from any insurance company, then his situation will be better. The insurance company will pay him a sum of money when he is diagnosed with cancer. The amount vary depends on your what type of policy you are buying. This will definitely lessen his burden at the initial stage when he can go for his treatment with the money he has. Illness can be cured easily at the initial stage rather than later stage right?

Actually human are very weak. Our lives are in God's hands. We do not know what will happen to us next year or even next minute. Illness, accident or death can happen on anyone at anytime at anywhere. This sounds threatening but this is reality. Someone might ask what can insurance do for us except giving us money? No doubt money is not everything but at least it can free you temporarily from financial crisis, at least it can help to reduce the financial burden of your love one at the initial stage. You will not feel how insurance can help you by reading this post. Maybe you should try and approach those people who really receive money from the insurance company.

There are various types of insurance products offer by the insurance company. It actually depends on the person on which type of insurance product should he/she buys. The rule of thumb when you are getting insurance is to make sure it covers the losses you need to protect. For example, medical and health insurance. This type of insurance will cover all or most if not all of your medical expenses you spent in the hospital as long as the insurance company acknowledges the hospital. Therefore, you do not need worry when you are admitted into the hospital. Those who do not have medical and health insurance or do not realize the importance of medical and health insurance will always agree to this saying, 'A person can died of illness but must not get sick'. This is because the medical cost is really scary!

People will realize the importance of insurance when they really need the insurance. However, most of the time, people will only realize the importance of insurance when they cannot buy the insurance due to the term and conditions. Thus, buy an insurance that can cover the losses you need to protect and make sure you choose the correct insurance agent.

Cash Management

As mentioned in my previous post, I am going to share about the 6 elements in financial planning. Therefore, I will share cash management in this post.



If you are lucky enough and have been given a bag of money, what are you going to do? Spend all the money you have in the bag to buy whatever things you like? Go for holiday? Invest the money? This is what happened when someone wins in the lottery. When someone wins the lottery, the person will first invite relatives and friends for meal. If got extra, then buy something he/she or the family members want very much or take the money and go for gambling. I would say this is the standard way how people spend their money when strike lottery. How I know? This is secret, cannot tell you. =)

If people who strike the lottery have to learn cash management, people who does not strike the lottery even have to learn how to manage cash. A research has been done in US on 602 people between 18 to 34 years old. About 24% of them spend more than what they earn and 31% just enough to pay their expenses. If you can still save 10% of your income, congratulations, you are a lot better than around 50% of the people in US.

The birth of credit card has actually worsen some people's life. No doubt we do not have to bring a lot of cash with us if we have credit card. However, when you are buying things with credit card, you do not feel the pain when you are buying. You will feel the pain only when the statement is sent to you. How true is it? Maybe you can check with those who rely heavily on credit cards.

What need to be done when managing your cash? Well, one should have budget to manage their cash. Budget is a plan for saving and spending. Therefore, it will guide you on how much you can spend and how much you should save for the month. If you have cash machine that can print out money notes for you to do transaction legally, then it is really fine for you not to do any budget. But do you really have? When comes to budgeting, most of the people have fear on budgeting because they think that they have to sacrifice something when they are doing budgeting. This is not really true as you can still spend on anything you like as long as you have save the amount of money according to your budget. The money that you have to save is not RM 1 million or more, it is just 10% of your salary. Many great financial planners out there saying that pay yourself first before you pay to anyone and if you do not have enough to pay others, then make sure you can have your seond stream of income. What they mean by paying yourself is to pay yourself for the future instead of paying yourself now. In simpler term, it means that you should save money for future use instead of paying all your monthly income to house loan, car loan and others. If suddenly you need money urgently, at least you can still have

Budgeting is simply just a guide on how you should manage your income. How much of money should the individual save, invest and spend, maybe you can refer back to my previous post on saving. There are a lot of information of budgeting in the internet as well. What are you waiting for? Start your financial budget now. =)

Financial Planning

After sharing information that I have read in my last few posts, I think it would be better for me to share the fundamental of finance so that you can get a clearer idea.Therefore, I would like to share Financial Planning in this post.

Dream, dream, dream. Who do not have dreams? Everyone of us does have our dream. Kids dream of growing faster so that they do not have to study. Teenages dream of following the current fashion. Adults dreams of having a lot of money to buy their dream car and dream house. Parents dream of providing the best education for their children. Senior citizens dream of enjoying their retirement. We only have dreams and we dare to dream but most of us do not achieve our dream at the end.

Why we cannot achieve our dream at the end? Go for holiday, get yourself your dream car, get yourself your dream house are the dreams. However, all these things require money. That is the reason why everyone should do financial planning. Do you know how much do you spend and save daily? When we are still kids, we tend to save our extra money in our piggy banks. We put 20 cents, 80 cents, 50 cents and sometimes no cents inside it. Yes, the amount is very small, but at the end of the day, we can still have a large amount of money. Nowadays, how many of us still practising the saving habit when they are teenages and adults?

The purpose of this post is just to advise you to start your financial planning before it is too late. As I mentioned earlier, everyone has his/her dream. If you do not have any money for your dream, your dream will just stay as your dream. This concept is also highlighted in the movie. For example, the movie 'UP'.

In this movie, we can see how Mr. Fredickson and his wife have a dream. They dreamt of moving their house to Paradise Fall in South Africa. However, they faced financial problem to achieve their dream. Therefore, they worked hard to earn money in order to achieve their dream. However, Mr. Fredickson's wife passed away. Mr. Fredickson still kept the promise and moved the house to Paradise Fall. From here, we see that there is the element of financial planning. If Mr. Fredickson and his wife did their financial planning earlier and manage their finance well, it is certained that both of them can move the house to Paradise Fall together.

Financial planning is essential for everyone of us and it has six elements which I will share in my next few posts. Even Bill Gates and Warren Buffet, the top two richest person in this world are doing financial planning, who are we to say that financial planning is not important?Nobody will help you to achieve your dream if you do not help yourself to achieve your dream. Same goes to financial planning. Nobody will do financial planning for you if you do not do it yourself.

Investment Strategies

Investment is a vehicle for you to gain wealth. If you put your money in fixed deposit with annual interest 2%, the 2% that you earn is the wealth. If you do not invest it, then you’ll not earn the wealth. However, investment has its risk as well. During economic downturn, the values of shares will drop and you might suffer loss from your investment. Therefore, it is essential for you to decide your investment strategies.

In this post, I’ll share the investment strategies which are suggested by Alan Inn, the co-head of CIMB Private Banking. Although Mr. Alan’s suggestion is targeting on the institutional investors, I do think that individual investors can adopt the strategies as well. There are 3 recommended investment strategies. The first strategy is the investors should pace their investment in equities. Technical price charts suggest that in the short term, equities markets are headed for some corrections. This is because major markets are technically overbought temporarily. In order to understand this, you need to understand the theory of demand and supply. If the demand is high and the supply is low, the values of the things will increase. So assuming Share A is demanded by many investors but the supply is less, the price of share A will increase. However, there is no such thing as the share price will keep increasing infinitely. Once it reaches its peak, then it will come down. Therefore, the investors should pace your equities investments along with possible corrections to minimize the risk.

The second strategy is do not overlook China and Asian equities. According to some of the economists, China is expected to take the lead with US to lead all countries in the world to the road of recovery. With China’s strong fiscal-driven growth, rapid expansion of bank credit, low level of government debt, high household and corporate savings and the government’s willingness to adopt aggressive stimulus policy, these are the evidences that the China will be the first few countries to recover from global economy. Cooperation between China with other Asian’s countries, stronger growth rates and healthier financial position are the factors that Asian equities are expected to outperform the developed world.

Diversify portfolio via superior actively managed funds is the third strategy suggested by him. The investors are advised to diversify the portfolio and do not put all eggs in one basket. Once the basket drops, all eggs will be broken. Therefore, the investors can invest in conservative investment partially, moderate investment partially and aggressive investment partially. This will help to reduce the risks that are face by the investors.



Reference
Still not too late
Second half 2009 market analysis and investing ideas

Rich

According to one of the industry player, comparing the amount you have tucked away with that of individuals of your same age simply to gauge how “successful” your savings strategies are is not a good benchmark.

From the saying above, we can say that there is no need for you to compare yourself with others. Everyone has different income levels, different financial goals and different lifestyles. For example, if monthly salary of Person A is RM 2000 and monthly salary of Person B is only RM3500, the amount of savings for both persons might be the same. But in most cases, the saving amount of both persons will be different. Besides that, if one person likes to socialized around while another person prefers to stay indoor, their monthly expenses will be different and this would differ the saving amount for them. The status of life is also another contribution to saving amount. The living expenses for those staying in cities are different from those staying in villages. You can see it clearly when you compare the price of the food such as chicken rice, nasi goreng, noodles and others in both places. Of course if you compare the Gardenia bread in both places, you won't spot any difference. Generally, Malaysia enjoys one of the highest savings rates in the world at 34%. But do you know how much savings rates in US? According to the reference, during the economic boom that took place between 2005 and 2008, a credit-fueled consumer spending craze effectively brought the US savings rate to zero. So does this means we are richer than those in US? Then who is Bill Gates and Warren Buffet?

This concept applies to richness as well. Many people are pursuing richness in their life. But do we know how are we classifying as rich? If I have 1 million, is it means I'm rich? To Bill Gates, 1 million is nothing to him. But to those poor people, 1 million means a lot for them. There are a lot of people working very hard to earn money in order to become rich. But to most of them, they do not set a target amount for them to reach or even overpass. They just want to be richer than the person next door, the person they dislike and others. They end up working and working, working for their whole life in order to become rich.

Comparing your richness with others might be a good motivation for you to work hard. However, is it necessary??


Reference:
http://biz.thestar.com.my/news/story.asp?file=/2009/7/25/business/4381424&sec=business

Opportunities in Islamic Equities

Islamic Finance is getting more and more popular nowadays. Many investors are talking about Islamic equity market. So what is Islamic equity market? Islamic equity market is the equity market that is managed using Syariah laws, which means that the market is managed using Islamic rules. Although the market is managed using Islamic rules, this does not mean the market is only for those who are Muslims. The market is opened to all. With the effort of Malaysia to become a major Islamic hub, this has brightened the future of Islamic equities in the country. The raising of other Islamic countries such as those Islamic countries in the Middle East has attracted investors.

Tan Sri Zarinah Anwar, Securities Commission chairman, strongly believes that the Islamic equity market offers strong opportunities for growth. In her speech at the London Sukuk Summit 2009, she shared with the audience that the instrument such as Syariah-compliant exchange-traded funds, real estate investment trusts (REITs) and structured products are attracting strong interest. The interest is so strong that there are some conventional REIT had converted the conventional structure to one that is Syariah-based.

Definitely there are reasons why Syariah-based structure is adopted in the company. According to Axis REIT Managers Bhd chief executive officer-cum-executive director Stewart LaBrooy, the Syariah-compliant status will enable them to broaden the pool of investors. Besides that, it will help to attract the investment from Middle East countries. China-based Xingquan, which is the first company from China to list on the Malaysian stock exchange also applied for and receive pre-initial public offering Syariah-compliant status for its shares. This will attract those individual or institutions investors who are seeking Syariah-compliant investments. If we look around, we can see that there are many companies are going for Syariah-based structure. For example, Public Islamic Bank and Takaful are the companies which are Syariah-compliant.

The companies have seen the future of Islamic market and they are targeting on it. Certainly they have analyzed the opportunities and risks before they make any decision. They will not make any decision that jeopardizes the company. If you are still new to the market and have the intention to invest, why not consider investing in Islamic equity?


Reference
Opportunities in Islamic equities, The Star. (7 July 2009).

Investing in China

As we know that the world is facing the economic crisis currently. One of the questions arises is which countries will be the first few countries to recover from the economic crisis. Many people would like to know so that they can invest in those countries for long term investment. According to the reference, China economy is among the top 10 world powers whose economy has expanded in recent months. This has been proven by its Gross Domestic Product which grew by more than 7.1 percent in the first half of the year. With its strong growing GDP, this has made it the first major country to emerge from the current global slump and it is poised to take over Japan as the world's second-largest economy perhaps by late this year. Besides that, the BRIC (Brazil, Russia, India, China) concept introduced by Goldman Sachs in 2001 again strongly suggested that investing in China is promising. According to Goldman Sachs, over the next 50 years, Brazil, Russia, India and China could become a much larger force in the world economy. If the expectation of Goldman Sachs is true, the future of investing in these 4 countries is bright.

However, another question arises. How can individual invest in other countries like China, India and others? There are many ways to invest in foreign countries. One of the ways to invest in those countries is through mutual fund. There are a lot of funds introduced to the market so that the investors can invest in other countries and these funds are professionally managed by the fund manager. If you are interested to invest in those funds, just contact any financial planners especially unit trust consultants for more information.

Although investing in China seems like a good opportunity, the investors should still be aware of the risks investing in the countries. For example, the exchange rate risk. In this example, we assume 2 RenMinBi (currency of China) can exchange for RM1. If RenMinBi appreciates and RM depreciates after certain periods of time, in this case we assume 2.5 RenMinBi can only exchange for RM1. Therefore, our profit might shrink or we might even face losses. There are other risks such as the rules and regulations that does not favor foreign investors, political risks, market risks and other risks that might affect our investment in foreign countries. There are even some economists who think the future of China is not promising.

If you read a lot in newspapers, then you can know there are many opinions from various parties. Thus, if you would like to invest in foreign countries, it is important for you to do some research before you make any investment.

Reference:
China economy growing again while US limps
http://biz.thestar.com.my/news/story.asp?file=/2009/7/26/business/20090726090400&sec=business

Three key elements in savings

In my previous post, I have actually discussed on Saving. However, I read this article and I think this post can be considered as an updated version of my previous post. :)

According to licensed financial adviser Jeremy Tan of Standard Financial Planner, everyone should set aside 20% to 30% of one's net income every month for savings. This is only a rough guide and it actually depends on each individual.

According to him, there are three elements in savings which each individual should have so that you will not face any problem in a rainy day. The three elements are emergency fund, life-risk fund and investment fund.

Emergency fund is set aside in case if you lose your source of income unexpectedly. For example, when the economic crisis hits the country, everyone has the possibility of losing the job. Therefore, it is always suggested that you have at least six months of your living expenses. So in case if you lose your job, the emergency fund will keep you going until you find another job.

Life-risk fund is the fund to be used when a person loses the ability to earn an income. For example, become paralyzed or ill. This can only be carried out by an insurance policy. Therefore, one should have insurance at least to reduce your financial crisis for a certain period if anything happens to you. According to Tan, one should ensure that the funds are equivalent to at least five years' annual income. For example, if you are earning RM 3000 per month, therefore, you should buy a RM 180,000 policy.

The third fund is investment fund. For investment fund, you should invest in the area which you familiar with instead of following what your friends say. Do some research before you invest because it is your hard-earned money. Invest in the investment that suits your risk preference. If you are a conservative investor, you should consider involving in conservative investment rather than aggressive investment.

Reference:

Three key elements in savings

http://biz.thestar.com.my/news/story.asp?file=/2009/7/25/business/4381424&sec=business

EPF

EPF?? What's that??

Some of use might dun really noe wat is EPF. EPF, aka Employees' Provident Fund, is actually a compulsory programme that provides retirement benefits for employee through management of their savings in an efficient and reliable manner. Currently, the employees contribute either 8% or 11% of their monthly income while the employers contribute 12% of the income. Therefore, we can say that each employee has saved at least 20% of their monthly income for their retirement. 

From the government's effort in making EPF a compulsory programme, we have seen that how important the role of everyone in preparing retirement plan. We should not take for granted that since our government has made EPF a compulsory programme, therefore it is unnecessary for us to prepare retirement plan ourselves. Although the Employees' Provident Fund (EPF) Board will declare dividend annually for the members, is the sum enough for the employees to enjoy the retirement life? This year, the Employees' Provident Fund (EPF) Board declare a 4.5% dividend for the members. The figure looks good during the economic crisis. However, according to past history, we can see that the dividend declared has been progressively declining since 1987. [This is the information that I get from wikipedia. Trying to get a more reliable source of information. Will update once i get the result]

So u might be wondering how should we prepare our retirement planning? There are a lot of websites provide financial calculator to help u to calculate the total amount that u need for retirement. U might b surprise when u calculate the amount. The following link will assist u in calculating the retirement amount that u need. 

http://www.publicmutual.com.my/application/calculator/retirement/ret.aspx

Get a scary amount?? Panic?? Calm down and relax. Wat u should do is to prepare urself a retirement planning and start executing the plan. Long-term investment might be a solution to start with. 

Savings

In my last post, I mentioned that one should have a total of 6 to 12 months of living expenses in the bank. Recently I came across this news in The Star on 19^th Feb 2009.

According to the latest findings from Citi’s Financial Quotient (FIN-Q) 2008 survey, only two in five (39%) Malaysians actually save. Less than 28% make and stick to a monthly budget. From the finding, Malaysians are reported having 11 weeks of savings in reserve. This means that Malaysian can live up to 11 weeks using their saving without any income. There are 21% of people whose saving would last for only for weeks.

From the survey, it is reported that a majority of Malaysians saved up to 20% of their monthly income which exclude the 11% in the Employees’ Provident Fund (EPF). There are 12% of Malaysians who do not save anything at all.

This is actually quite risky as if one were terminated from his/her job, he/she has to find the source of income within one month. One can argue that given the time constraint, then the person will go full force to look for the income. However, reality is cruel. No matter how well u plan, the activities do not happen as u wish. So why dun we prepare early??

If save too much money in the bank, the interest rate is actually quite low and u might b suffering a loss. If save too little money in the bank and the rest of money is put in investment, the investors might be suffering a loss in the investment. According to financial expert, one should have at least 6 months of living expenses as the savings to prepare and protect urself from any unforeseen activities. So have u prepare enough savings to sustain urself for at least 6 months???

Investment

Now we are facing economic recession. What will u do if u have extra cash? Put in the bank or invest them???

Last year, the government has assured that the money in the bank is 100 percent guaranteed. This means that the possibility of the account holders to lose the money in their account is almost 0%. Therefore, the risk is very minimal. However, should u put ur money in the bank? Let’s look at the table below and the value is based on 2008 December data. 

Interest (%)	3.5
Inflation (%)	4.4
Return (%)	-0.9

Interest rate is the rate that the bank offers to the clients. For example, if u put RM1000 in the fixed deposit which offers u 3.5% as the interest rate for one year, then the total amount u will get after 1 year is RM1035. 

Inflation is a rise in the general level of prices. For example, the cost of a machine is RM1000. If the inflation rate is 4.4%, then the cost of a machine is RM1044.

So from the example above, we can see that the RM1000 is the same value one year ago. However, after one year, the value of RM1000 is different. If one saves the RM1000 in the bank in order to buy the machine 1 year later, he/she actually needs to pay RM9 extra to buy the machine.

Therefore, should we juz take out all of money from the bank? According to financial expert, one should have a total of 6 to 12 month of living expenses in the bank. For example, if u spend RM1000 monthly, then u should have at least RM6000 in the bank. This is because if u were terminated from ur work, u can still afford to live for at least 6 monthly while u r trying to get urself another job.

If the extra cash will not be used in 3 years time, we should consider use the money for investment. There are many investment vehicles such as mutual fund and investment-linked insurance which can help u to manage ur wealth. Although there is risk that the investors might lose their money, in the long run, the investors still can earn back their money.

If u do not have any insurance, then u should consider buying investment-linked insurance which comprises of insurance and investment. The aim of insurance is to protect u n ur family when misfortune happens to u. At least there is a sum of money to help although the money might not b enough, it is still better than nothing.

If u do have insurance, u can consider buying the investment-linked insurance o mutual fund. It depends on u. Mutual fund is for investment purpose. There are many types of funds in the market which allow the investors to choose their preference. For example, some investors prefer to invest in China market, some prefer to invest in European market. Then the investors can choose the funds that cater their preference and needs.

Can we really invest during the economic recession?? Warren Buffet, one of the richest guys in the world, says that we should be fearful when others are greedy and be greedy when others are fearful. So wat’s ur decision after u read this post??? Hope tat it will help u to manage ur wealth wisely. =)

ISE rule

ISE or ISA?? Dun worry, this blog is about finance. So it is not ISA, it is ISE.

So wat does ISE stands for??? Income-Saving-Expense.

When we get our income, we tend to spend it first. Then we'll oni save the remaining. For example, if our income is 500 and we spend 450, then we'll save the remaining 50 in either bank account or else where. So the formula is 

Income - Expense = Saving

However, this rule is not really correct. Because if we have money, we tend to spend more. For example, if we see something we like, then we spend our money on the thing. I'm not saying tat we should not enjoy ourselves. Just tat we should have some limitation. If we enjoy now and we suffer later, is it really worth it? Y not keep some money first to make sure u can enjoy ur future life?? 

So the correct rule is

Income - Saving = Expense

Just imagine, one day if u r facing problem of income loss, at least your saving can help u. If u dun have saving at tat time, wat r u going to do? Borrow from family members o frens? Well, isn't it ur saving will be a better choice? 

This weekend is going to be long. Enjoy ur weekend. =)

First post in blogspot

Hi everyone,

This is my first post in blogspot. From the name of the blog, i think u can guess easily wat this blog is about. Yes, this is a blog on the financial tips for Malaysians. 

Currently i'm working part time as financial advisor (insurance agent + mutual fund consultant). I choose both of this profession because my love towards finance. To be honest, I love finance very much and love to know more ppl who are expert in finance. 

Hopefully this blog will provide useful information to u. I'll update this blog weekly (hopefully =P) by sharing any financial information which is definitely useful for u. 

Have a nice day. =)