Investment Wealth Retirement – 3rd Edition

This article was originally published in February 2012 by GenX at http://www.ringgitwisefool.blogspot.com with the title Investment Wealth Retirement. The article was then shorten by the original author, i.e. yours truly, and republished at http://www.generationsxyz.blogspot.com. But both these said old blogs of mine at blogspot have been compromised with ads/scams and are deemed unsafe by me and google too.

So, I am republishing it here at GenX GenY GenZ Dotcom where all previous links to my old blogs removed and replaced with new links PLUS I also added new contents.

investment-wealth-retirement

INTRODUCTION

Today I will share with you guys the need to invest for retirement, but before I proceed any further I would like to stress that I am not a qualified financial consultant nor have I received any formal education in regards to investment nor have I any working experience in a financial institution. I am basically just writing my experience and thoughts and therefore just read for leisure and maybe you can learn something from it. This post is kind of for those who do not know how to save money or where to begin their investment journey. 

In my post titled GenX GenY GenZ at my old blog (link removed), I mentioned the following:

Prior to 1998, our economy was booming like nobody’s business and it was “easy” for Gen X to accumulate wealth where things were still relatively cheap compared to today. The younger Gen Y will find it harder to accumulate wealth with inflation taking its toll especially since most of them are into material stuff, thus spending their money away (with easy credit facilities being offered by banks and merchants which many don’t understand that they need to pay from their future earnings) than learning how to invest and make more money.

The average lifespan of Malaysians have increased over the years to about 75 years old. I guess the average lifespan will continue to increase with time with better health care and new medical findings.

malaysia-average-lifespan-life-expectancy

And in my posts titled Currencies Rolex No.8 at Ringgit Wise Fool (link removed), I gave an example on inflation where the same Rolex watch price has doubled that of 10 years ago and in my previous post titled Climate Disaster Prophecies, I mentioned how nature plays a role in inflation especially on food prices.

In my post titled GenY KPop Cakes (link removed), I gave examples on how I pamper my children with unproductive stuff and of them spending money as if my “backside Photostat money”. Many children nowadays are spoon fed where they are guided day in day out on their school work with tuition. That’s why so many of you GenY need to be spoon fed by me, hahaha.

With our lifespan getting longer, we would need to accumulate wealth early in our younger days in order to have prosperity later in life. But with the practice of live now earn later, we may not have adequate wealth later in life to enjoy longer period of prosperity with our longer lifespan. The road towards accumulation of wealth is also hampered by inflation which is also unpredictable like the weather. 

Now take note of this, the average lifespan of a Malaysian now is at about 75, it means that half the population of Malaysia will live beyond age 75. The official retirement age now is about 60. I have mentioned in my previous posts that with new technology in the medical field, our lifespan will increase in the future. For discussion’s sake, let us assume one retires at age 55 and lives up to age 80, that’s 25 years or a quarter of a century after retirement where one needs an income to sustain his/her expenses.

The sooner you start to accumulate wealth the better so that there will be adequate retirement funds to ensure you get to continuously enjoy prosperity until the day you die. So what I am trying to do today is to highlight to the younger generation by telling them about my experience and to make them aware of the importance of accumulating wealth early in life and hopefully they will start to think and invest for their future instead of practicing live now earn later.

This article is kind of long, you may want to bookmark this page now so that you can come back and refer to it again later when you have some time to spare.

RETIREMENT FUND

Well if you are a salaryman, then you would be contributing to EPF monthly.

On 30th September 2016, EPF announced that they have set the minimum target of RM228K for their members when they retire at age 55. Click here to read about it at Free Malaysia Today.

When I first published this article back in 2012, EPF policy back then was to ensure that we maintain at least RM120,000 in your EPF Account when we retire. In a matter of 4 years, EFP has increased the minimum target by RM100K!!!

Have you ever  wondered, with inflation, will RM228,000 be enough for you to survive for the next 25 years?

When determining your retirement fund for your daily survival during your retirement years, while you are still accumulating wealth, you should not take into consideration your house worth (unless you have more than 1 house for investment purposes). After you retire only you decide if you want to dispose of your house. What I notice is that old people do not like to move to a new place/home, and we may be the same when we are old. Therefore, by not disposing off your only house, you won’t get any funds out of it to utilize. And never rely on your kids for a roof above your head.

So how much do we need when we retire? It depends entirely on one’s lifestyle but the fact is there will be expenses arising from utility bills, home maintenance, car maintenance, food, medicine, medical care  and some kind of leisure activities like going for holidays.

Below are two hypothetical scenarios on how much our retirement fund can last. 

Case 1 – Retirement fund of RM228,000 (from EPF) deposited into fixed deposit/investment earning interest of 5% p.a. and  spending RM1,500 per month. No other source of income after we retire. Inflation rate assumed at ZERO. Retire at age 55 and expected to live till 80 years old. 

From Yahoo finance Calculator (click here), it works out that the RM228,000 will last you for about 20 years. So what’s going to happen for the balance 5 years that you are still alive?  

how-long-retirement-fund-last

P.S. we Malaysians are so lucky as we are not taxed when we deposit our money into Fixed Deposits. Countries like USA and Australia, interest earned from Fixed/Term Deposits are taxed!!!

Now, you think in 20 years time from now, will RM1,500 per month pocket money (approximately RM50 per day) will be enough for you to survive? If you say yes, you are just kidding yourself.

And once again, above example DID NOT take inflation into consideration. If I took inflation into consideration, the RM228K would not last more than 10 years!!! Today one bowl of Ippudo Ramen cost about RM30, in 20 years time, it would cost RM100 at least. I am sure you have heard from your grandparents that a bowl of noodle only cost less than RM0.10 in their younger days.


Case 2 – Retirement fund of RM1,000,000 deposited into an investment (e.g. fixed deposit) earning interest of 5% p.a. and  spending RM5,000 per month. No other source of income after we retire. Inflation rate assumed at zero. Retire at age 55 and expected to live till 80 years old.

This time using a simple calculator at Time Value (click here for the updated link), it states that one would be able to make 427 Monthly withdrawals in the amount of $5,000.00 and a final withdrawal of $4,717.51.

how-long-can-1000000-last-in-retirement

427 monthly withdrawals is equivalent to 35 years and 7 months which should last you until you are age 90 before you go broke. If you go to the next world at age 80, well at least you’ll leave some inheritance for your child or the balance amount can be used to subsidize your child’s cost in securing a burial plot and funeral expenses for you, I am not joking.

From the above 2 very simple examples, you can observe yourself that you will need more than a cool RM1,000,000 to enjoy prosperity when you retire especially if you are under 30 today. And you are to note that the above examples did not consider inflation which is inevitable. With inflation taken into consideration, the RM5K in 20 years time might only be equivalent to today’s RM1,250 (assuming it doubles every 10 years).

Update October 2016 – below contents before the next sub-topic are new:

So, what is the amount you really need to retire comfortably where you do not need to rely on your children and worst case have to put up with your daughter in-law’s nagging and insults!

Let me share with you a real life story. When I was still working, my ex chauffeur withdrew part of his EPF when he reached 50 years old and almost immediately spent it away. So, I told my former driver not to withdraw all his EPF money when he reach 55 years old as he’ll need it for his retirement years. He still works with my former company. Sometime this year, I met up with him again and asked him did he withdraw his EPF money and he told me he did so 2 years back. So, I asked him how much he has spent away and guess what? He had spent it all (more than RM100K)!!! How is he going to survive when he stops working I really got no idea.

I can’t say how much you need for your retirement fund, but if you are reading this, it means you are educated and I am very certain that you will have more than RM500K in your EPF by the time you retire. Soon, I will show you in the next sub-topic that with just RM1K a month deposited into fixed deposit/investment that gives you 5% returns, in 25 years time, you would have lots of money. So if you start saving/investing 20 to 30 years before you retire, and coupled it with your EPF, you would have more than RM1M by the time you reach the age of 55 or 60.

For for my case I need at least RM10K per month based on today’s money to maintain my current lifestyle (not including paying for my children tuition fees). So in 10 to 25 years time and taking inflation into consideration, I guess I would need average of RM20K per month taking inflation into consideration. So, how much money do I need now so that I can maintain my current lifestyle for the next 25 years? FYI, I’ll still be below the age of 75 years old in 25 years time.

From trial and error using the calculator at Time Value, I would need at least RM3,500,000.00!!!

omg-i-need-lots-of-money-to-retire

OMG!!! I need RM3,500,000.00 CASH today in order to maintain my present lifestyle until I reach 75 years old. Looks like in the very near future I will need to start disposing my non-liquid assets or else I will have no choice but to beg one of my sons to take care of me and most probably have to put up with my future daughter in law’s nagging (e.g. stop smoking) and scoldings (e.g. stop playing games on the iPad and go eat dinner now), hahaha.

But if my future daughter-in-law is a kind loving person and willing to entertain my unreasonable demands, then I wouldn’t mind staying at my son’s place and therefore not needing to dispose any of my non-liquid assets and I will then allow my son to inherit my non-liquid assets so that he will be a millionaire overnight, i.e. the day after I die, hahahaha.

Now, if you have lots of properties (non-liquid assets) and getting miserable returns (e.g. vacant land and/or rental returns just enough to survive), you are as good as broke. For example, you have 10 terrace houses worth RM10M, but if you are admitted into intensive care unit ward, those ten houses are useless as you won’t be able to dispose it in time to pay for the hospital bill. What we all need is CASH to survive.

If you have been following my blog for years, you’ll know that I fired my boss on 1.11.11 and thus stopped being a salaryman shortly after I turned 40. I was able to do so because I had achieved my goal of having more than RM1M cash in hand plus I do get dividends periodically from my shares. However, I have also told my followers that I will be broke (no CASH) by the time my youngest daughter graduates from Uni. But only for a few years as I would then reach 55 years old where I can withdraw my EPF (which is more than enough for me to get a new Bentley) and this time I get to burn the cash on myself. But if EPF revise the withdrawal age to 60, habislah ku.

INVESTMENT FOR WEALTH

I hope the above paragraphs have caught your attention as to how much money you’ll need when you retire to allow you to survive. In order for you to enjoy your retirement years, you need to start saving and start investing the sooner the better. So the next time you are going to swipe your credit card for a new iPhone or golf clubs or a Louis Vuitton handbag, ask yourself do you really need the stuff and wouldn’t it be wiser to invest the money for your future. Like what I mentioned in my post titled Money Charity Love (link removed), you need money to make money and if you spend your money on unnecessary stuff then sure you end up having no money for investment or as I put it, no money no talk.

Fixed Deposits with Banks – The Slow and Steady Way.

Whenever you’ve got cash in hand, deposit it into your bank savings account and if the sum is like above RM1,000 transfer it to Fixed Deposit (FD). I know that the savings account interest rate is like negligible, but when I deposit money into my savings, current account and 1 month tenure FD, I am not so much interested in the interest earned but instead I’m ensuring that I have funds ready for my next investment.

Click here to read my article on Maybank GIA-i account where you can treat it like a Savings Account and at the same time earn interest rate equivalent to 1 Month FD.

I will now give you an example of depositing money into FD and the magic of compound interest. Say you deposit RM3600/year  (=RM300/month)  into FD every year where the interest rate is 3.8% p.a (as of October 2016, you still can get 4% with RHB 12 Months FD Promo).

At the end of the first 1 year you would have RM3600 x 1.038  = RM3,736.80

At the end of the second year you would have (RM3,600 + RM3,736.8) x 1.038 = RM7,600.92

At the end of the third year you would have (RM3,600 + RM7,600.92) x 1.038 = RM11,604.16

……….you continue to deposit RM3,600 yearly into FD with interest 3.8% and 

At the end of the twentieth year you would have RM106,576.42!

Wow, with only equivalent of RM300 deposit a month into an interest bearing account at 3.8%, at the end of the 20th year you would have RM106,576.42! Add this amount to the minimum RM228,000 in EPF, you will have RM334,576.42 by the time you retire. Remember the example above where RM228,000 couldn’t even last you until you are 80 years old.

Now, if you were to deposit RM12K every year (RM1K/month) into  FD earning 5% p.a., the amount would balloon to RM416,631.02 and RM601,361.45 at the end of the 20th year and 25th year respectively.

Want to be a million ringgit-aire (miilionaire if you got USD1M) in 20 years time? Let’s say the interest rate is 5% for FD, and to achieve RM1,000,000, all you have to do is deposit about RM30,000 yearly or RM2,500 monthly into FD. If the interest rate was to be higher, than you would need less amount or  shorter duration to achieve the RM1M mark.

So once again, from the above, you can see that with just RM300 per month in savings you can have RM100K in twenty years time and the more you deposit, the faster you’ll be a million ringgit-aire. So are you willing to go buy the new iPhone with an installment plan and sacrifice being a rich man in 20 years time? It’s your choice and only you can choose, and come end of 20 years time don’t feel sorry for yourself but instead feel like a fool because you failed to save money.

The present interest rate for FD in Malaysia is around 3% for 12 months tenure. You may get higher interest as banks are competing amongst themselves for funds from the public and have frequent FD promotions (click here to my Fixed Deposit PAGE to find the highest Fixed Deposit Rates in Malaysia currently). Do check the FD rates from different banks to maximize your returns from FD especially if the amount is substantial like above RM50K where an extra 1% in interest earns you extra RM500/year.

Before you go invest in other risker investment, ensure that you have adequate funds in fixed deposit or savings account for a few months to sustain your monthly expenses in the event of an emergency e.g. you are fired or you quit your job. Once that is achieved you may then go for riskier investments.

Stock Market – For Those Seeking Thrills

The very first book I read after I graduated and on the plane back to Malaysia was “Think and Grow Rich” by Napolean Hill which was first published in 1936! This book is a must read for all young people starting a career. It doesn’t teach you any short cuts to be rich but what it does is that it emphasizes the need for you to plan (short term, medium term and long term) for your future and you are to execute your plan(s) with determination so that you will reach your desired outcome. Put in this way, if you love money, when you eat, shit and sleep, think of how much money you want at what stage of your life and how you are going to achieve it, and when you are not eating, shitting and sleeping, go execute your plan. This book did influence me to set out a plan for my future and for the next 5 and 10 years, I wanted to be a project manager for a developer within 5 years and have a net worth of RM100K in ten years time. Got a job offer from ESSO too where the interview went on for an entire day with written test and they evaluated how we interact as a team, but it was not in my short or long term plan so I turned them down. Thinking back, if I had not read the book, maybe I would have joined ESSO and have tons of money today, haha.

think-and-grow-rich

So after reading the book, my planning was initially for ten years only until I met a CPA who quit his accountancy job with a public listed company to become a contractor. I asked him why he changed professions and he said that he wanted to be a millionaire by 40 years old and once you make your 1st million, the rest will come easy. But with my starting pay of RM1,500/month only (freaking low right and I have a Masters in Engineering), heck I could never be a millionaire by the time I am forty I thought to myself. So I went to buy books on investment and I must tell you they are damn boring until I read a book titled  “Stock Market Investment in Malaysia and Singapore” by Neoh Soon Kean. Well, the introduction was interesting and that kind of made me continue to read the book but half way only, hahaha. What I want to share with you is the introduction where Mr. Neoh highlighted the Tulip Mania and South Sea Bubble. You must go read about this two events in history before you go dive into the stock market as it tells you about human greed that has lasted for centuries. The way Mr. Neoh presented the two bubbles in his book left a deep impression on me and if you ever come across this book I recommend you read the introduction too.

Click here to read about South Sea Bubble at Wikipedia

Mr. Neoh mentioned in his introduction that both the above events are examples of the Greater Fool Theory and Herd Mentality.

Herd Mentality is like you hear your friends and relatives making money in the stock market, so you jump  onto the bandwagon too without knowing what you are doing in the first place. When a herd of bison goes on rampage, they will just charge in random direction and even go over the cliff.

Click here to read about Herd Mentality at Wikipedia and click here on Herd Behaviour in Stock Market.

The Greater Fool Theory is where one buys a stock hoping that a next guy would be foolish enough to buy it from him at a higher price. But when there is no fool left to sell to, the stock price will drop as there is no demand and he’s left like a fool holding on to the stock that is worthless.

Click here to read about The Greater Fool Theory  at Wikipedia and click here on Greater Fool in Stock Market

With the introduction by Mr.Neoh, he went on to explain about Dividend Yield (DY), Price over Earning Ratio (P/E) and much much more but I only absorbed these two, hahaha. He also stressed that one must have discipline and buy low (when everyone else is selling) and sell high (when everyone else is buying).

So with this little knowledge I gained from Mr. Neoh, I dived into the stock market in 1991 after working for a few months, but I must say I already had RM6K saved from my years of Ang Pows as my capital. Initially, I bought shares that were paying high dividend with low P/E, but the thing was, at that time the economy was booming and most companies were making money. It was a bubble in the making and herd mentality had set in. Initially, when I went into the market, my target was to make 20% a year (high leh) from combination of capital appreciation and dividend yield. So when it did hit 20% capital appreciation I sold and guess what, the share prices rose further. So from then on I tended to be greedier by holding on and sell when I made minimum 100% from capital appreciation. I tell you, the mid-90s was the best time to make money where you can buy any counter and 90% of the time you would be making money. By 1996, I could make more than a thousand a day from the stock market, my pay then was below RM5K and my wife had quit her job after we had our second kid. Imagine, I can make 20% of my monthly pay in a day and I  can also burn a thousand Ringgit or more in a day without thinking twice. By early 1997 when I was still in my late twenties, my stock holding was valued at 6 figures from my initial RM6K capital and whatever money I had and the profit that I made from previous sales of my shares were dumped back into the market (i.e. balance of the money I did not burn in the process). I thought to myself and remembered what Mr. Neoh said and sold 80% of my shares. And shortly after I sold my shares, Tun Daim announced  that he played the stock market for pocket money and after that the market dived down as if there is no tomorrow, and if I had not sold off my shares I would have ended up losing money as the index went down as low as 70% off its peak i.e. say index 1200, it went down to 300 (see chart below).

But like I said above, greed has been going on for centuries, so when the market recovered in 1999, I jumped in again but the bull run was short lived and I didn’t sell all when I was making a profit, as I was hoping the market would go up further. I am still holding some shares from the 90’s and losing money on these counters and some of them are not even listed anymore!

And also because it was easy money in the mid 90’s, I burned away quite a substantial sum of the profits I made from my stock on electronic gadgets (i.e. PC, notebooks, handphones and pdas) and on entertainment. But I never learned, up to today still burning money on electronic gadgets like iPhones, iPads and MacAirs for the kids when we have like 9 perfectly working notebooks/PC around in the home plus they have Ninento Handhelds, Wii, PS and XBox for entertainment.

From the 21st century onwards, the market has not been as exciting as it was for me in the 90s. I went back to how I started to pick stocks i.e. I only bought stocks that paid high dividends and companies that I am aware off. One of the best stocks I picked was KPJ (good or bad times people still need to go to hospital and with medical insurance more people are going to private hospitals) where it has more than tripled and every time a stock reaches 100% capital appreciation I would sell it off or if I see potential in that stock, I will sell half and take back my capital. The last couple of years (referring to 2010 and 2011 – as I first published this article in February 2012), the market has been on an uptrend again and I have been disposing my stocks bit by bit which is just the right timing as my son started uni in USA in 2009 at the age of 17. I also bought Panamy (most of the electronic stuff in my home is by Panasonic and this company has an excellent record in dividend pay out for decades) in 2006 when one would get 10% dividend yield but sold most off it too early  and didn’t get to enjoy the capital appreciation which has almost doubled in the last 2 years 😦 

From 2003 onwards, I also started using my EPF Account 1 to invest in unit trust but locked in profit by selling 80% of my unit trusts in May 2007 when I felt that I had made enough i.e. profit close to 100% of my capital, the market went up further before sliding down in 2008. I am now (refer to early 2012 when this article was first published) considering selling off the balance 20% not sold in 2007 as the market is at an all time high where I am still making close to 100% profit but if I had sold the 20% in 2007, I would actually be making more after considering the annual dividend from EPF.  In 2008 when the market was in bear mode, the value of my unit trust if I had not sold would be about half of what it was in 2007. Investing in unit trust especially relating to equities is no different than investing in stocks. There is a yearly annual management fee on your unit trust besides the initial fee when you purchase the units. Anyway, it will be more than 10 years before I can actually withdraw from my EPF Account 1. So I am waiting patiently for the next round of bear market and then jump into buying unit trust again with my EPF Account 1, but no one really knows what will happen in the future and a bear market can last for 10 years too.

Update October 2016: I have sold the balance 20% of the unit trust mentioned above a few years back, can’t remember when. The money was redeposited into EPF and have been enjoying more than 5% returns (EPF dividend) since then.

Below chart kind of summarize the above:

klci-chart-1990-to-2010

Last year (referring to year 2010 when the market was really bad)), I wanted to buy Maybank at RM3.78 (like the No.8) but my broker advised me to get it at 3.70 as he reckoned it would go down further at that time, usually I would just buy at seller price and sell at buyer price but on that day I listened to my broker and the price never reached RM3.70 and next day shot up and I got pissed off and did not bother to call my broker to purchase MBB after that and missed the fantastic MBB uptrend. If MBB ever goes below RM4 again, just buy buy buy.

So from the above, the points I would like to highlight are as follows:

1) In a speculative market i.e. bull run, you have to lock in profit before it runs out of steam which will be sudden and without warning (actually you can see the warning signs – e.g. an old aunty who never played stocks suddenly wants to enter the market).

2) Don’t be too greedy (see, I said too greedy and not greedy, greed is good or else you won’t be investing in the stock market but too much is bad, hehe), set a target to sell and cut losses if the market is going down.  Always remember about the Tulip Mania, South Sea Bubble, Heard Mentality and The Greater Fool Theory.

3) Timing is extremely important to maximize profit – buy low sell high – easy to say but hard to predict when the market is at top and bottom. That is where Technical Analysis tools are of great help to assist you in making a decision.

4) Invest in high dividend and good company stocks, preferably in company/industry you have knowledge about.

5) Don’t let your emotions get the better of you, if you think the price of a share is good, just buy it. And if the share is dropping i.e. bear market, cut losses early.

6) Always remember to buy low and sell high, because other than this, you ain’t going to make a lot of money.

Technical Analysis

I am not going to pretend that I am an expert in TA because I know nuts about it but I use Simple Moving Average as a guide (but most of the time I would buy based on emotion and hunch which may not be the best way).

ta-chart

5 Years KLCI chart with 50 days and 200 days moving average

From the above chart, you can observe that when the 50 days moving average crosses down the 200 days moving average, the market is in a bear market and when the 50 days moving average crosses up the 200 days moving average it confirms that the market is in a bull run. This is the simplest TA method around. For me, I would use 20 days MA, 50 days MA and 100 days MA to guide me. If both 20 and 50 days crosses the 100 days MA, then I have to reconsider my position. From experience you will find what method is best for you. Below is a chart showing 20, 50 and 100 days MA.

ta-chart-2

Investing In Gold

Once again, please note below contents were written in 2012.

Well, I don’t know much about investing in gold except that it was USD800/oz in 1980 and by 1983 it dropped to USD300/oz. I also buy gold for my wife and myself but not for investment but because we like it.  And we won’t be selling the gold we/I bought for money as the gold we have carries sentimental value. My wife and myself would most probably past it on to our next generation with the hope that they will pass it on through the generations, I guess that’s what the financial people term as Preservation of Wealth (not really, I am just kidding on the term) haha.

If you look at financial websites nowadays, you will notice that many people are mentioning the buzz word “Preservation of Wealth”.  However, you must note that most of these people writing financial articles are from US where they are experiencing recession (some even call it depression), high unemployment rate and depreciation of the US currency. Talking about unemployment rate, I got this chart recently where I subscribe to free chart of the day, it shows the unemployment rate for people with college degree is the lowest amongst those who have not earned a degree in USA. Yes, education is the best investment. My dad said his job was to provide me with an education and it now applies to me too, where I have to ensure that my children receive a formal education to ensure they have a better future. Many are like me where their priority is to provide their children with formal education and thus some buy Education Insurance Policies for their children and I will touch on this later.

unemployment-chart-education-is-the-bestl

Well, coming back to gold, since early March 2011 it is on the uptrend again the last time I checked. I don’t know much about gold but below is a link.  I must confess that I did buy gold coins in 2009 and 2010 just so that I would not feel like a fool if ever gold price reaches USD3000/oz! Or am I a fool to believe gold would go to that level???

Click here for real time gold prices. If you want to see gold price in MYR, click Spot Gold.

Contents below relating to gold updated in October 2016:

Well Gold price did not even come close to USD2000 before it started to drop in 2012. I guess I was a fool to think that gold price can reach USD3000/oz back in 2012, hahaha.

gold-price-high-10-years

The price of gold is currently about 70% from the peak in 2011 in terms of USD. But because our Ringgit has weaken so bad, the price of gold in Ringgit today (1st October 2016) is almost touching the all time high seen in 2012 (see chart below)!!!

gold-price-ringgit-malaysia

So based on the two charts above and assuming that USD versus MYR remains constant, if gold were to ever reach the all time high in USD again, my stash of gold will be worth lots in term of paper money, hahaha. If not, I guess I will just pass it to my children and instruct them to pass it to their children as a wealth preservation method, hahaha.

Insurance

If you are like me, only wanting to go to private hospitals, then it is best that you get a medical insurance earlier in life when the premium would be “lower” (you can get a policy with the same premium in future but with less benefits). There are so many insurance companies offering medical insurance policies and not all of them are the same. Even from the same insurance company you can get more than 5 different policy proposals. I suggest that you always check out insurance policies from different companies; and for each company, ask the agent to give you 5 different proposals and email to you in pdf format so that you can study and compare the proposals in detail without the agent haggling by your side. After getting an idea of what is best for you (or if you’re not satisfied with the current proposals), ask the agent to do another one or more for your further consideration. Below is an example of what I mean:

An agent proposed to you a Medical Policy with  monthly premium of RM200 where the Life Insurance portion is for MR50K but you already have another separate Life Insurance Policy. So go ask the agent to revise the proposal to the minimum amount allowed for Life Insurance e.g. monthly premium maintained at RM200 but Life Insurance pay out reduced to RM20K and the “saving” from this portion of the premium is allocated to unit trust or hospital room allowance or whatever.

Nowadays, most Medical and Education Insurance Policies are linked to some kind of unit trust fund where the insurance companies themselves manage and make money from you as there are annual fees on the units. You have to be aware that investing in these funds are no different from investing in Public Mutual Unit Trust for example. If you choose equities fund for your investment, the value of the units in your Insurance Policy will go up and down just like the stock market and as such you have to apply the same principles you would apply as if you were investing in the stock market. See below where I have KLCI 5 year chart and PRUlink Managed Fund 5 year chart where it can be observed that the trend for both are similar. If the stock market crashes, the value of your unit trust (related to equities) will also take a  dive and if your child is entering college the year when market is at the bottom, you won’t have much  money coming from the fund. On the other hand, if market happened to be at the top, then you’d have lots of money coming from the fund.

prulink-versus-klci

Click here to Bloomberg to check out PRUlink Managed Fund Interactive Chart  

I made a damn stupid mistake (not once but twice) in my early working years when I bought AIA Life Insurance Policies for my older son and two years later for my daughter in the early 90’s. The fact is they don’t have dependents and why on earth did I buy Life Insurance for them! And I am so pissed off with AIA because when I signed up for the policies it was on the assumption that I only had to pay like 10 or 11 years (they call it Critical Years) based on the expected returns given by the agent/AIA where there should be sufficient money to cover the remaining years’ premiums. But come the 12th year, there isn’t enough money to pay for premium and up to today I am still paying premiums on my two children’s policies. However, Aetna-Universal (now ING) was more honest, I bought my Life Insurance with same critical years thingy and come the 11th year I no longer had to pay a single sen for the remaining years’ premiums and the policy is still in effect today and will still be until I die or when I reach 100. Point of this story – don’t purely decide on an insurance policy that is based on assumptions and always get proposals from more than 1 insurance company. Always ask questions and understand what is guaranteed and what items are not under the policy.

In 2005 I bought Prulink Medical/Education Insurance Policies for my two youngest children while they were still in primary school. The main reason why I bought the Medical and Education Insurance Policies for my 2 youngest children was because I don’t save money and would spend whatever cash I have and therefore it was like a forced savings to me and moreover I get like 27% discount from  tax relief; AND also in 2005, the market was like stagnant and I had a hunch that the market would go up sooner or later and hoping to cash in when the market is in a bull run before they enter college. But I did not expect it to be so soon i.e. less than 5 years from the time I bought the policy. So I sold part of the units in 2009 when the  market recovered and again early this year to lock in profit from the rise in fund prices. The money I got from my sale of the fund units were enough to cover the last 5 years’ premiums which I have paid. It’s like I’d got free insurance policy for the last 5 years but if the market goes up further then I’d be losing out. On the other hand if the market were to crash, I can buy back more units at a cheaper price and I would have made a wise decision. Only time will tell if I was wise or was a fool when I sold the units.

Some people may tell you that you would get better returns by simply putting your money in FD compared to returns you get from an insurance policy. Well this may be true (from example above, by saving only RM300 monthly and deposit into account bearing 3.8% interest, you will have RM106,576.42 in 20 years time). But the way I see it, I don’t buy insurance purely for the returns but as a fall back in an unexpected event (except for the Medical/Education Insurance Policies for my youngest children  where beside the medical portion to cover unexpected medical cost, I have more than 10 years before they enter college and as such, gambling that the market would go up and I make tons of money during a bull market and then lock in the profit).

When I bought my life insurance way back in 1992 (a year after  I started working), I was earning less than RM2.5K and had my first child. So I bought a policy for RM100K only because (1) I could not afford the premium for policy worth more than RM100K (2) RM100K was like equal to 5 years my annual salary and should anything happen there would be some funds for my wife and kid; and (3) I expected myself to have a net worth of much more than RM100K in 10 years (remember what I mentioned earlier about Think and Grow Rich influenced me to have a plan on how much money I want at what stage of my life.

Then there are people having like few million ringgit in cash going out to buy Life Insurance for themselves worth millions when they are like 40 and above. I guess they just love their children and want to leave them more inheritance to show their love.

My wife and I also have medical insurance policies since 2003 and two years ago (in 2010) she had to go for an operation because there was an unidentified growth in her womb that may be cancerous and it is like a common thing where many ladies go for these kind of operations nowadays. Notice, I said may be and not will be cancerous. With more Malaysians going for medical check up (we get relieve for our income tax), I guess more of these kind of things are being detected. Once detected the doctors will recommend that one undergoes an operation to remove it and since most of us have got medical insurance, the cost factor is not taken into consideration. Anyway, with her Medical Insurance, all I had to pay was something like RM68 to SDMC, Subang Jaya and she even got “paid” by Prudential a few hundred ringgit for being hospitalized and a few thousand ringgit from her separate PRUlady Insurance Policy! But it is not about the money she gained from going for an operation but more on having an insurance policy to cover her medical cost in the event a need arises.

Now, you don’t go and buy insurance if you cannot afford it, more so if you’ve got no savings for a rainy day. Once you have committed to an insurance policy, you need to pay until the policy expires and this is a very very long time. If you fail to pay the premium, your policy might be terminated and whatever you paid in the past would be for nothing. Having said this, if you have a policy with money in the policy, you can always utilize it to pay for the premiums. Next time if you are in difficulty and cannot pay your insurance premium, do not ignore paying but instead go talk to your insurer and see what can be done to ensure that your policy continues. For example, if you have an investment link policy, you may be able to sell off some units to cover the cost of the premium.

Update October 2016 – I have terminated my 2 youngest children Education/Medical Insurance policies couple years back as they are now studying in Melbourne and have their own medical insurance. As for the amount of money in the “fund” for their education when I terminated the policies, well, let just say for my 2nd son’s case, it wasn’t even enough to cover 1 semester of his Private High School fee in Melbourne. My youngest son is now in Uni and my youngest daughter still in High School.

As for my eldest son and eldest daughter life insurance policies with AIA, both have matured and I have closed the accounts and got them Medical/Hospitalization Insurance policies in Malaysia even thought they have Medical Insurance in Australia; because those two are out most of the time with their friends late into the night (more like coming home in the early morning) whenever they return to Malaysia during their Uni breaks. Both are now above 21 years old and currently still in Uni in Australia. If you are interested to know more about my children achievements, where 3 of them are studying in world’s top universities – click here and read my article titled My Bragging Rights 2016.

CONCLUSION

The above are my experience and I hope you have or will be able to gain something useful from reading it. If you are young, the earlier you invest, the more you will have in your old age to enjoy prosperity. The next time you want to swipe your credit card for an installment plan, just think back how much more you would have in the future if you would instead deposit the same amount into FD (where interest is 100% guaranteed).

After I read “Think And Grow Rich”, I made a plan for 5 years and 10 years which I thought was a very long time to plan for. I was lucky that in the year I started work, I met the accountant turned contractor who told me that if I didn’t make my first million by 40 years old, it would be tougher after that. So I extended my desire by another 10 years and they were, be a project manager in 5 years time, to have RM100K in 10 years time and to be a millionaire by 40 years old. I did reach the goals I set out; but, I made a big mistake! I should have planned how much wealth I wanted at age 30, 40, 50, 60 and 70. Why stop at 40 years old and at million ringgit only? You see, if you set your goal higher, you will work towards it and if you kind of miss your goal by a little bit, you still have a lot, catch my drift? And once you reach your desire, there is no more incentive for you to work harder. Conclusion –  set your desire to be infinite and set higher targets to be achieved along the way and you have to work damn hard (luck also plays a part) to ensure your desire is met.

The Banks in Malaysia since 2010 have been offering various promotion rates for new funds deposited into Fixed Deposit with them. If you have RM50K and above, scout around to find the best rate in town. Usually the banks do not advertise their fixed deposit promotion rates in the website or newspaper, this is why I have a Fixed Deposit Page to make your life simpler. As I mentioned in the earlier paragraph on FD, with RM50K and 1% interest difference, you can earn extra RM500 a year which makes it worthwhile to go find out which bank is offering the best rate in town.

And do not ever buy electronic gadgets if you are going to buy it with an installment plan especially if there are interest charges, by the time you finish paying for it, the gadget would be obsolete. I keep stressing on this in all my post because I am telling you from experience i.e. buy it today and tomorrow another more advance and cheaper model is launched.  If you have spare cash (after you have saved more than enough for a rainy day and your investment is showing profit) then maybe it is okay that you go burn your money and indulge in the latest electronic gadget/toys. What’s the point of having so much money if you can’t once in a while reward yourself (the ladies don’t have this problem as they reward themselves very often with new shoes and handbags all the time). Having said this, if you love money more, go invest the money and get joy in seeing your money grow instead of rewarding yourself with temporary happiness.

By you saving a mere RM300/month deposited into a Fixed Deposit that pays 3.8% interest rate, 20 years down the road you would have accumulate RM100K. If you are entitled to deposit your money with ASB, then you would have much much more. There’s nothing magical about this compound interest, it’s all about discipline where you DO NOT withdraw your savings and go burn it on material stuff.

You should start investing for retirement the moment you start working because your EPF won’t be sufficient for your retirement years. While still working, you may have to withdraw part of your EPF to pay for the down payment for a home and may continue withdrawing periodically to repay your housing loan; thus, effectively, you will have much less in your EPF.

And if you did not save/invest in your early years, you may also end up withdrawing part of your EPF to pay for your child education; which means you will have much less for your retirement years too. I tell you, DO NOT depend on your child for your retirement years because he/she will find it even harder to save money in the future.

When you reach the age where you can withdraw your EPF (currently at age 50 and 55), DO NOT withdraw your EPF unless absolutely necessary. And if you need to use your EPF for survival, only withdraw the amount required and let the remaining balance continue to earn pretty good dividends. Why I say this is because, if you are broke when you retire, it means you are not investment savvy and got no discipline in controlling your spending. So, if you withdraw all the money in your EPF, the probability of you ending up broke again in no time is very high.

Once you have accumulate enough cash, say equivalent to 6 months of your monthly expenses, for you to survive in the event you are jobless, you can (should) consider investing into other forms of investments. And the one I would recommend is the stock market. But not any stock listed in Bursa Malaysia. My recommendation is only to invest in blue chip stocks that pays dividends (Maybank for example) AND more importantly you got to do homework on the company and not speculate. My recommendation is that you invest 10% to 30% of your cash into the stock market (at the right time of course). And you do not need a lot of money to start investing in the stock market. A couple thousand Ringgit will get you started. However, one thing for sure, DO NOT ever borrow money to invest in the stock market, that’s how many of the big boys ended up being bankrupt when the market crashed in 1998.

Investing in the stock market is all about timing. If you ask me, the best time to enter into the stock market is when Maybank goes below RM4. Always remember about the Tulip Mania, South Sea Bubble, The Greater Fool Theory and Herd Mentality when you become too greedy, this applies to all kinds of cyclic investments.

Before you dive into the stock market, read as much as you can on investing in stocks, and when you do enter you need to have discipline and patience. The best advise I can give you from my experience is not to chase after a particular stock but invest in stocks that pay you dividend and you are comfortable with  the company and there’s room for it to grow. And the best thing about investing in the stock market in Malaysia, and in particular blue chip stocks that pays pretty good dividend is that (1) you get income periodically (dividend) that is TAX-FREE; (2) there’s no capital gain tax; (3) it is liquid where you can convert your shares into cash in a matter of days.

Last but not least, there are many kinds of investment instruments out there in the market. The riskier the investment, the more money  you can make and also the more you can lose. My advise to you is, for riskier investments you better understand the risks involved and you must be willing to accept losses without causing you sleepless nights, and make sure you have adequate emergency funds stashed somewhere making money for you like FD. And if anyone promises you guaranteed returns higher than FD rates from an investment scheme, I suggest that you fully understand what it means by guaranteed and not to just accept blindly what is written in the brochure or listening to sales pitch by the salesman/agent  (his/her motive is to close a deal and not for your well being); just use excel  to do a quick calculation to confirm and compared it to FD (use same method I did when I showed you how much you will have by depositing RM300/monthly into FD at 3.8% interest).

And the reason why so many people do not save money for retirement and in debt is because all of us are chasing after “shiok sendiri” sensations. Click here to read my article titled LIFE – What’s It All About? Goal Is To Be Debt Free.

Also please click here to my Quickies/News Flash/ Really Shart Post PAGE where I posted many short articles (published in late September and early October 2016) on retirement, personal loans, education, etc.

And below are the Top Best of the Best Independent Unbiased Personal Finance bloggers in Malaysia 2016 and 2017 (as far as I am concerned) who willingly share with you for FREE on matters relating to wealth accumulation and retirement too. Check them out, you are sure to learn a thing or two which will benefit you immediately or in the future.

Mr-Stingy.com – he’s my internet buddy and a really good writer where his contents are straight to the point (unlike me where I will spoon feed you with so much details so that you can comprehend what the heck I’m trying to tell you, hahaha).

RinggitOhRinggit.com – not only is she gorgeous but writes fantastic informative finance related articles that are second to none (except maybe for credit cards where she recommended my blog, hahaha).

DividendMagic.com.my – want to learn about playing the stock market and retire comfortably? Check out this website where the author not only writes about stocks but have articles on personal finance too to assist you to save/earn money.

KLSE Malaysia/ck5354.blogspot.com – this is another superb blogger that has been assisting many on matters relating to personal finance matters since 2008!!!

And when you have the time, check out my freaking long winded articles below:

Click here to read my article titled Spending Away Your Children Future Inheritance

Click here to read my article titled Burning Away Your Fixed Deposit and Earning Gold Bars with Credit Cards

Click here to read my article titled Secret To Eternal Happiness

GenX 25 Another Personal Financial Tutorial by GenX

facebook logo.jpg Click here to GenX GenY GenZ Facebook Page

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