Mutual Fund

Many people have asked me regarding unit trust and therefore, I would like to share unit trust in this post. If talking about unit trust, this financial product seems less famous than insurance in Malaysia. However, the comments that people give on unit trust is far better than insurance.

What is unit trust? Unit trust is a financial vehicle which the investors will invest the money into a fund and the fund (pool of money) will be managed by the professional. For example, Mr A, Mr. B and Mr. C invest RM1,000 each into a fund and the fund (RM3000) will be invested by the professional appointed by the unit trust company. The fund will be invested according to the objective of the fund set by the company. For example, the objective of the Public Ittikal Fund is to achieve steady capital growth over the medium to long term period by investing in a portfolio of investments that complies with Shariah Principles. Thus, the fund manager will invest the fund into those companies that can comply to the objectives.

Given detailed description of unit trust, what are the benefits of investing in unit trust? One of the benefits is the fund is managed by the professional. As mentioned in my previous posts, the investors are always advised to do research or their homework before investment. The investors have to study the background and the financial statements of the companies. If you have the time and expertise in doing the research, I would strongly recommend you to invest in stock market rather than unit trust. However, if you are not sure on how to do the research, why not invest in unit trust and let the professional team to invest the fund for you. You will not face any problem also if you are interested in investing in foreign countries. The professional will invest for you and you can just sit back and relax. Besides that, it offers diversification to the investors. Unit trust is a financial product to invest in different companies from different sectors which suits the objective of the fund. For example, Public Islamic Sector Select Fund invests in those Shariah compliant index linked, blue chip and growth stocks. A blue chip stock is the stock of a well-established company which has stable earnings and no extensive liabilities. For example, the blue chip companies in Malaysia are Maybank from Finance sector, Tenaga from Trading/Services Sector, IOI Corporation from Plantation sector. Recently most of the companies in Finance sector suffer huge loss compare to others. Therefore, if you only invest in those companies in Finance sector, I think you will know your fate. The loss will be reduced if you diverse your investment and unit trust offers this benefit.

With only RM1,000, you can start your initial investment with unit trust. After the initial investment, you can just invest RM100 for the same fund. It is only as simple as that. Does it means we can always obtain return from our investment? Actually it depends on the fund performance and the market performance. If both the market and the fund are perform badly, the investor will suffer loss as well. However, if the market and the fund are perform well, then the investor will earn the return. You can always check the annual fund performance. I have seen some fund actually generate return to the investors while some of the funds are causing loss to the investors. However, the risk of investing in unit trust is lower comparing to investing in stock market.

There is risks in doing any type of investment. No doubt there is risk in unit trust investment as well. However, if you judge from the benefits that I have shared, you can see that the risk is minimized. Besides that, if the market performance is bad, most of the investment tools will suffer loss as well. We should not ignore this factor. Thus, make your wise choice in deciding the investment vehicle. :)

Early Investment vs Late Investment

I have been encouraged people to do investment in my previous posts. Besides earning some part time income from my clients who invest with me, it is also good for yourself. I always encourage people to do investment at a younger age or early investment. Why? The reason is simple. I’ll use table to illustrate it.

I will use 2 persons as comparison. For example, Person A do an early investment and Person B do a late investment. Both person investment for 30 years. The annual return for the investment is 4%.

Person A do an early investment by investing RM1000 annually for 10 years. After 10 years, he decides to stop investing due to other commitment.

Person B does the same things as what Person A does. The difference is that Person B start investing 10 years later than Person A.

At the end, Person A invests RM 10,000 and he gets RM 27,359.13 while Person B invests RM20,000 and he gets RM 30, 969.20. You can see although their investment period is the same, the amount they invest and the total they return at the end are different. Person B receive around RM 4000 more than Person A but he invests RM10,000 more than Person A. What the conclusion? I believe you know it. No doubt I only assume that both persons keep earning from their investment which is impossible in reality. However, the main message that I wish to convey is we should start investment as earlier as possible. Instead of me nagging here discussing the figures in the table, maybe it will be better if you can look at both the tables and give some thought at it.

Investment is the only way you can make money as your slave instead of you becoming the slave of money.

Investment management

I have been missing for some time. Sorry about that. Currently I am working and therefore have to spend more time on work rather than maintaining my blog. For the time being, I will focus less on my blog because I do not have internet in my house and I am being monitored by CCTV in the office. Sad sad. Today, I will share about investment planning in this post. This post will be very general as I am still not up to the level yet to teach you how to earn guaranteed income from investment. Else, I am the same as those ‘Skim Cepat Kaya’.

Why investment is so important? Without investment, people will be working days and nights to earn money. However, is this the correct way? Shouldn’t we let the money to work for us rather than we work for the money? Human, as the most brilliant creature in the world, should have the intelligent to control money instead of being controlled by money. Warren Buffet has become the second world richest guy in the world through his wisdom in investment. Without investment, maybe he is just like us, working hard daily for more money.

There are many types of investment such as unit trust investment, stock investment, property investment, FOREX investment and others. Each type of investment has its advantages and disadvantages. This depends on the people as different people have different risk tolerant, time and money available. Thus, you should choose the investment vehicle that will help you to reach financial freedom at the end.

Unit trust is suitable for those who do not have much investment knowledge but wish to invest. What you need to do is just give your money to the professional fund managers and they will manage the fund for you. Besides that, diversification is another feature of unit trust. The fund manager will have an investment portfolio which he/she will invest in different companies either in the same industry or different industries. This will help to diverse the risk. Unit trust is an effective tool for those who would like to invest in foreign countries such as China, Taiwan, Singapore and others. There are funds available to invest in those countries. For those who would like to invest overseas, unit trust investment might be a good choice for them.

Stock investment is suitable for those who know the stock market very well. They should know what is dividend, PE ratio, EPS, technical analysis and others in order to help them to make a wise decision before they do any investment. They should always do market analysis themselves rather than just hearing from other stock experts. Even stock experts will lose money if they invest. It would be better if you yourself can do the analysis of the market and the experts’ advice and make the decision. As suggested by Warren Buffet, people should invest in those industries that they are good in instead of investing blindly or following people’s advice.

Property investment is also another investment vehicle that people are focusing on. In China, Taiwan and Hong Kong, those rich become rich are due to property investment. The well-known figure in property investment in Hong Kong is Li Ka Shing. What you can do is just to look for those potential properties that would appreciate. You can buy them and rent them to earn passive income. Once the prices of the properties increase, then you can sell them and earn the money easily.

Investment can help you to earn more money but it can also cause you to lose money. We always hear that no risk no gain. However, we should not forget that got risk got loss. Therefore, use your intelligence and wisdom while making any investment.

I found this article is quite useful and related to this topic. You can get more information here. http://biz.thestar.com.my/news/story.asp?file=/2010/1/16/business/5465232&sec=business

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

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

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. =)