In accounting/bookkeeping language, both Asset and Expense are Debit Balance item.
If you owned a property worth RM500,000 - do you really own an asset or an expense?
Actually, both are right since both are Debit Balance. Sound confusing....
Suppose, the ideal ROI for you is 5% (using EPF last 10 years as benchmark), the cost of using the property (as if you are renting it) is RM500,000 x 5% = RM25,000 per year or RM2,083 per month. On top of that, you still need to pay insurance, quit rent and assessment as well as the maintenance.
Can we expect another round of big appreciation like what happened is the past 10-20 years in next 10 to 20 years? Hard to predict.
Malaysia is well known of having slowing population growth especially amongst the Chinese. Can you predict the future supply and demand?
More residential properties will be purchased for investment purposes rather than primary place of shelter. Look at China, supply in certain cities is more than demand for next decade or more.
So, it is not surprising that many old folks with empty nest (no more children staying together with them) will opt to sell the big house and move to lower cost of living places or smaller house. Keep the money for retirement as the "cost of owning an expensive house" is high as per above illustration.
Lastly, property is still an ideal investment but not the perfect and sure-make-money investment. I will still buy another but with careful planning to avoid property-rich-cash-poor trap.
Thursday, August 12, 2010
Buy Term Life, Invest The Difference
Many research indicates to “Buy term and invest the difference” which is what I plan on doing. But I’m still curious, if the wiser choice is to buy term, then:
Who actually buys whole life? Why?
Reply from someone, very interesting.
Click here for a case study using my own age and expectation, comparing Term and Investment-Link Product.
There is no one fixed rule for everyone, else all financial advisors and consultant will be redundant.
Who actually buys whole life? Why?
Reply from someone, very interesting.
A rule of thumb:
When you select TERM insurance, you are RENTING the coverage.
When select a whole life policy, your are BUYING the coverage.
You have to decide what type of coverage is right for you.
Keep in mind that TERM rates increase annually or in increments (5 year, 10 year, 20 year, 30 year) and at some point, the rates will be higher than you will want to pay…so, you go without it.
Most folks get the idea of “I’ll buy term and invest the difference” yet they fail to “invest the difference” and as they get older, with the increase in the term insurance, they have LESS to invest.
With whole life insurance, the payments will stay the same for the entire period. Not a bad deal for youth as it keeps the cost of life insurance low, and protects their “insurability” in the future.
Good luck and I hope this helps.
Click here for a case study using my own age and expectation, comparing Term and Investment-Link Product.
There is no one fixed rule for everyone, else all financial advisors and consultant will be redundant.
Retirement killers
So, you have prepared for it since age 25.
Beware of the retirement killers, even if you are well prepared, if you have not prepare for it, do it now.
Killer # 1 - Cracking your nest egg before retirement.
Killer # 2 - Spending your retirement money way too early.
Killer # 3 - Having no clue about how much to save.
Killer # 4 - Spending your retirement savings too fast.
Killer # 5 - Wrong asset allocation.
Killer # 6 - Health problem / medical cost
..... and the list goes on....
Beware of the retirement killers, even if you are well prepared, if you have not prepare for it, do it now.
Killer # 1 - Cracking your nest egg before retirement.
Killer # 2 - Spending your retirement money way too early.
Killer # 3 - Having no clue about how much to save.
Killer # 4 - Spending your retirement savings too fast.
Killer # 5 - Wrong asset allocation.
Killer # 6 - Health problem / medical cost
..... and the list goes on....
Should I save for retirement?
Do you really need five reasons to save for retirement? Probably not, but in case you did here are five very good reasons why you should start saving, even if it’s not for retirement, right this second.
1. Time Is Your Friend
Time will smooth out the ups and downs of the stock market and it will, when combined with the power of compounding, means greater and greater returns down the road. At 10% a year, $100 today will become $110 next year, $121 the year after, and $672 in 20 years. The longer you have, the more it will grow.
2. Old Habits Die Hard, So Start An Old Habit Today
Still bite your nails huh? Yeah, me too, that’s why they say old habits die hard so why not start an old habit today by saving for your retirement? In five years it’ll be old hat and in ten you won’t know what to do if you didn’t save a percentage of your pay into a retirement account.
3. Save Now Or You Might Not Be Able To Later
Habit...
Build a habit of saving or build a habit of spending...
If you don't save now, what are the chances you will be saving later???
4. Don’t Put Off Until Tomorrow What You Can Do Today
Just a call, many financial advisor will be ready to serve you, either fee-based or product-based.
5. You Will Regret It If You Don’t
Let guilt be your guide in this one… you know you should be saving, it’s just a matter of overcoming those obstacles you’ve put ahead of yourself. Let guilt be the bulldozer that knocks them all down because it’s very powerful and it only speaks the truth. You don’t want to be 30 and wondering why you didn’t save the last five years, or 40 and wondering why you didn’t save the last fifteen years, and you surely don’t want to be 60 with little in retirement savings wondering when you can actually call it quits. It’s never too early, it’s never too late, because you’ll only get older and you want to retire someday right?
1. Time Is Your Friend
Time will smooth out the ups and downs of the stock market and it will, when combined with the power of compounding, means greater and greater returns down the road. At 10% a year, $100 today will become $110 next year, $121 the year after, and $672 in 20 years. The longer you have, the more it will grow.
2. Old Habits Die Hard, So Start An Old Habit Today
Still bite your nails huh? Yeah, me too, that’s why they say old habits die hard so why not start an old habit today by saving for your retirement? In five years it’ll be old hat and in ten you won’t know what to do if you didn’t save a percentage of your pay into a retirement account.
3. Save Now Or You Might Not Be Able To Later
Habit...
Build a habit of saving or build a habit of spending...
If you don't save now, what are the chances you will be saving later???
4. Don’t Put Off Until Tomorrow What You Can Do Today
Just a call, many financial advisor will be ready to serve you, either fee-based or product-based.
5. You Will Regret It If You Don’t
Let guilt be your guide in this one… you know you should be saving, it’s just a matter of overcoming those obstacles you’ve put ahead of yourself. Let guilt be the bulldozer that knocks them all down because it’s very powerful and it only speaks the truth. You don’t want to be 30 and wondering why you didn’t save the last five years, or 40 and wondering why you didn’t save the last fifteen years, and you surely don’t want to be 60 with little in retirement savings wondering when you can actually call it quits. It’s never too early, it’s never too late, because you’ll only get older and you want to retire someday right?
Wednesday, August 11, 2010
Advantages of Whole Life Insurance
Read this for better understanding of the role of Whole Life Insurance in your financial planning.
Forget about rate of return if you don't even have a fund.
Forget about rate of return when your property is vacant.
Forget about rate of return if you don't even have a fund.
Forget about rate of return when your property is vacant.
Pros and Cons of Unit Trust Investment
Advantages of Unit Trust Funds:
Affordability
This is an obvious advantage - it does not cost much to invest in a unit trust fund. For an initial investment as low as RM1,000, and you can buy into a fund and get started. Some unit trust funds allow you to add monthly basis as low as RM 100 after the initial investment.
Diversification
As an investor in a unit trust fund you can access a wider range of securities than you could by investing on your own. With the amount of money you invested you can only purchase limited shares of a very few companies; but when pooled in a unit trust you achieved an immediate diversification - your money is pooled with other investors a like and get spread out over many companies: this provides you with greater purchasing power.
More important diversification reduces risk. Loses in some (invested) companies can be offset by gains made in other companies. You can further reduce your risk by investing in several trust funds across different sectors.
Liquidity
It is easier to buy and sell your units compared to investing directly in company stocks where price and opportunities depended on actual demand and supply of your share at any given time. With unit trust fund you can buy and sell at the published price of the fund.
Professional Management
Unit trusts are managed by a team of experienced professionals who manage the fund in an informed and organised manner as opposed to the individual investor who may invest in a random fashion. Investment decisions made by fund managers are based on extensive research and their own investment skills, and they continuously monitor the portfolio based on researched information.
Reduced Stress
The investor does not have to worry about personally monitoring his various investments - keeping an eye on their performance and deciding when to buy or sell. Instead he has the superior investment skill of professionals to do it for him. Unit holders receive interim reports every six months on the progress of their funds, the investment changes made and dividends paid, as well as the fund manager's opinion on the investment market and economy.
Access to broader array of financial assets
Unit trust fund managers can trade in investment products that are normally inaccessible to the individual investor, such as government and corporate bonds, which may be restricted to institutional investors. Some of these products are traded in large amounts, which limits the individual investor even when he has the opportunity.
Disadvantages of Unit Trust Funds:
Subject to market risks
Since unit trusts invest in marketable securities, they are of course, exposed to market movements. Diversification will help reduce the risk but it will not eliminate risk entirely. The prices of units go up and down, dividends may or may not be paid, and you may realise a gain or loss when you sell your units.
Not suitable for short-term investment
Unit trusts are an investment vehicle suited for the medium to long term. This is because the gains from the investment in unit trusts are not realised immediately. At best one could sell the units held once its price appreciates. However, the upward movement in price, being dependent on the movement of the market, is usually much slower than the market's movement.
The moderating effect of diversification also works both ways i.e. to spread the risks in the case of a market downturn as well as the rewards in the case of an upswing in the market. Dividends for unit trusts are declared on a periodic basis and the compounding effects would only be realised over time in a favourable market environment.
No custom-made service
Unit trust funds are not custom made for you specifically; however there are various funds available in the market for you portion your investments and savings to come as close as possible to match your financial plan.
For more info on types of unit trust fund please read Types of Unit Trsut Fund
And to understand better the type of investor you are please read What type of investor are you?
A Word about Costs Associated with Unit Trusts:
There are some costs to the investor of unit trusts. It is important that you understand the various fees that will be charged to you by the fund as they will affect your total returns.
The unit trust companies are allowed to charge three types of fees:
1. Initial service charge - this is usually built into the fund's unit selling price also known as front-end load;
2. Repurchase fee - this may be included in the fund's unit buying price; and
3. Management fee - this represents the company's fee for administering the fund and is directly charged to the fund.
In addition, there are also other expenses such as the trustee fee and brokerage expenses borne by the fund.
You as an investor should examine the fees structure of the various funds you are considering. Ultimately what is most important is the fund manager's competence. It is pointless to choose a cheap fund if it is managed by a mediocre fund manager, but a great fund manager may warrant higher fees.
Affordability
This is an obvious advantage - it does not cost much to invest in a unit trust fund. For an initial investment as low as RM1,000, and you can buy into a fund and get started. Some unit trust funds allow you to add monthly basis as low as RM 100 after the initial investment.
Diversification
As an investor in a unit trust fund you can access a wider range of securities than you could by investing on your own. With the amount of money you invested you can only purchase limited shares of a very few companies; but when pooled in a unit trust you achieved an immediate diversification - your money is pooled with other investors a like and get spread out over many companies: this provides you with greater purchasing power.
More important diversification reduces risk. Loses in some (invested) companies can be offset by gains made in other companies. You can further reduce your risk by investing in several trust funds across different sectors.
Liquidity
It is easier to buy and sell your units compared to investing directly in company stocks where price and opportunities depended on actual demand and supply of your share at any given time. With unit trust fund you can buy and sell at the published price of the fund.
Professional Management
Unit trusts are managed by a team of experienced professionals who manage the fund in an informed and organised manner as opposed to the individual investor who may invest in a random fashion. Investment decisions made by fund managers are based on extensive research and their own investment skills, and they continuously monitor the portfolio based on researched information.
Reduced Stress
The investor does not have to worry about personally monitoring his various investments - keeping an eye on their performance and deciding when to buy or sell. Instead he has the superior investment skill of professionals to do it for him. Unit holders receive interim reports every six months on the progress of their funds, the investment changes made and dividends paid, as well as the fund manager's opinion on the investment market and economy.
Access to broader array of financial assets
Unit trust fund managers can trade in investment products that are normally inaccessible to the individual investor, such as government and corporate bonds, which may be restricted to institutional investors. Some of these products are traded in large amounts, which limits the individual investor even when he has the opportunity.
Disadvantages of Unit Trust Funds:
Subject to market risks
Since unit trusts invest in marketable securities, they are of course, exposed to market movements. Diversification will help reduce the risk but it will not eliminate risk entirely. The prices of units go up and down, dividends may or may not be paid, and you may realise a gain or loss when you sell your units.
Not suitable for short-term investment
Unit trusts are an investment vehicle suited for the medium to long term. This is because the gains from the investment in unit trusts are not realised immediately. At best one could sell the units held once its price appreciates. However, the upward movement in price, being dependent on the movement of the market, is usually much slower than the market's movement.
The moderating effect of diversification also works both ways i.e. to spread the risks in the case of a market downturn as well as the rewards in the case of an upswing in the market. Dividends for unit trusts are declared on a periodic basis and the compounding effects would only be realised over time in a favourable market environment.
No custom-made service
Unit trust funds are not custom made for you specifically; however there are various funds available in the market for you portion your investments and savings to come as close as possible to match your financial plan.
For more info on types of unit trust fund please read Types of Unit Trsut Fund
And to understand better the type of investor you are please read What type of investor are you?
A Word about Costs Associated with Unit Trusts:
There are some costs to the investor of unit trusts. It is important that you understand the various fees that will be charged to you by the fund as they will affect your total returns.
The unit trust companies are allowed to charge three types of fees:
1. Initial service charge - this is usually built into the fund's unit selling price also known as front-end load;
2. Repurchase fee - this may be included in the fund's unit buying price; and
3. Management fee - this represents the company's fee for administering the fund and is directly charged to the fund.
In addition, there are also other expenses such as the trustee fee and brokerage expenses borne by the fund.
You as an investor should examine the fees structure of the various funds you are considering. Ultimately what is most important is the fund manager's competence. It is pointless to choose a cheap fund if it is managed by a mediocre fund manager, but a great fund manager may warrant higher fees.
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