Starting Smart By Starting Right: 5 Investment Tips For Beginners

If you are frustrated with the returns earned from your savings accounts, perhaps it is time you consider taking your first step into the world of investing.

Tip #1: Planning

Before you start investing, consider your:

a. Financial goals

Set a clear goal of what you want to achieve by investing. You may set more than one goal. Are you looking to grow your money or generate income? For example, are you investing for your retirement (growth), or are you looking for a source of passive income (long-term)?

b. Time frame

After you have determined your goals, set a time frame for when you would want to achieve them. From there, you can figure out the rate of return required in order to achieve your investment goals within the set timeline.

c. Risk appetite

Understanding the risks, as well as your ability to stomach them (i.e. if you lost your capital) will have an impact on your financial strategy. If you want your money to grow significantly over a shorter period of time, be prepared to invest in riskier assets to achieve that growth. However, if the potential downsides are greater, you may have to consider realigning your goals.

d. Affordability

Be realistic about how much you can afford to invest. Assess all your liabilities, such as debts, insurance premiums and living costs, to see how much cash you actually can afford to invest.

ip #2: Always start with the basics

Often times, novice investors mistakenly believe that to make real money in the market, you have to invest in individual stocks. But that’s not actually true. There have been many investors who have made their fortunes using unit trust funds (UTFs) and exchange-traded funds (ETFs), and these vehicles are a great way to make investing for beginners an easier  process.

UTFs and ETFS tell you exactly which stocks you own and in what proportions, which gives you predictable exposure to the stocks of your choice. You can also adjust your risk level as you get closer to your goals.

Although avoiding individual stocks can be a smart move for novices, there is an alternative way for beginners to invest. If you focus on stocks that tend to be less volatile than the overall market, you can get specialised exposure to stocks that have promising long-term prospects.

Types of stocks that you should look for are blue-chip stocks, those which are offered by large, prominent, stable companies with strong competitive advantages trading at reasonable valuations. In the Bursa Malaysia Kuala Lumpur Composite Index (KLCI), the top 30 companies by market capitalisation are mostly banks, food and beverage sector, and telecommunications sector companies.

Tip #3: Invest regularly to minimise losses

It is impossible to pick the perfect moment to invest in or to beat the market. You will never consistently buy at the lowest point and you will never consistently sell at the highest. We recommend you improve your chances of maximising returns by drip-feeding your money into a fund on a regular basis (once a month), rather than investing a lump sum. This is also known as Ringgit cost averaging.

For example,  supposing you invest RM200 monthly in your UTFs or ETFs. When the market is up, your investment will give you less shares. When the market is down, your investment will give you more shares (due to the cheaper price). Over time, you would have averaged the cost of those shares and accumulated more shares. When the market goes up again, you will make more money.

Tip #4: Diversify 

Most investing beginners may not be ready to put a lot of money into their investments. However, channelling all your hard-earned money into just one investment, stock or company is not the best idea either.

The best method of protecting capital is to diversify, which involves dividing up your lump sum across a portfolio and investing those portions into a variety of companies, asset classes or global markets. As some markets fall, others will rise and cancel out the losses. How you spread your money will be determined by your attitude to risk. For example, cautious investors shouldn’t invest too much in equities. Instead, opt for bonds or money market funds.

UTFs and ETFs will provide automatic diversification even if you have a lower capital. Every Ringgit you invest gets split across different stocks, protecting your portfolio against potential catastrophic events that can hit an individual stock. These are good investment products for individuals who don’t have enough assets or experience to manually create a diversified portfolio.

You are never too young to start putting away a small amount of money on a monthly basis for investing. The longer you invest, the more money you can potentially make. That is the beauty of compounding interest. Despite the possibility of ups and downs in the market, by starting to invest for example, at 25 versus 35, you will most probably end up with more money because you started earlier and were able to take full advantage of the compounding effect.

Time is a key ingredient in becoming a successful investor and maximising the benefits of compounding interest. So start smart, start right and start fast!

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Why Most People are Not Saving Enough for Retirement

To retire or not to retire? I believe that is really not an option for most people. Retiring is only the privileged few, like, the 5% of the population who can really retire financially independent.


The majority of the people not only do not have the option to retire with financial independence, but they do not even have the option to retire at all. So, why is that the case?

We have to take a look at the problem. Assuming you start working at 25,most of us may start slightly earlier – and assuming you would retire from work at 55.

According to our Malaysian latest mortality rate, meaning how long Malaysians live, it has been said that we live to about 75 years old. We are not talking about now, so let’s take it further, about 20 to 30 years later although Malaysians will certainly live longer. Let’s say we retire from life at 85.

We can separate our life phases in to these two distinct phases called:
Accumulation phase – This is from when you are 25-55, or your working years.
Consumption phase, which is from 55-85 years old.

Do you see the problem? We have thirty years of working and thirty years of not working, meaning we will be consuming our savings. It simply means that each year of our working life, we will be actually saving for each year of our retirement years. At this point you cannot afford not to miss a years of savings because for each year of saving that you miss, you may not have enough for your retirement.

There’s another problem: How much do we save while we are working? Assuming all of us employees and you have EPF. If we have EPF we put aside 11% while our employer tops up another 12%. So, we get 23% going in to our EPF every month.

However, when we retire, we would need,  a minimum of 50% of your last drawn salary. However your last drawn salary may be our highest income, assuming RM10,000. So, we would need about 50% of that, which would be RM5,000. Imagine why this is a problem. We need 50% but we are only putting 23% while we are working. That means there is a shortfall of 27% or more than a quarter.

EPF statistics(2011)  say 50% of retirees spend their entire EPF savings within 5 years.  This is the problem.

courtesy KCL

How the Poor, the Middle Class, and the Rich Think about Investment

How the Poor, the Middle Class, and the Rich Think about Investment


The poor don’t invest because they don’t have money to invest. They spend all their money and forget about investments. The funny thing is though, although they have no money to invest, they have money to gamble. They have money to buy lottery, they have money to buy 4D and 3D, go to Genting and gamble a few thousand Ringgit, travel with Star Cruise, drink alcohol and smoke.

For all these money-burning activities, the poor have money. When it comes to investing, they have no money.

Now, the middle class is actually where most people you see or meet are. The middle class say, “Investing is Risky.” Every time people say investing is risky, they actually mean that speculating or gambling is risky. Most people cannot differentiate between speculating and investing.

Understanding about the difference between investing and speculating is very important. If you still cannot differentiate, then just follow this simple definition. -anything that can make money and can lose money is gambling or speculating.

Investing, if you do it the right way, you cannot lose money. This doesn’t mean that you never lose money, but as a whole you cannot lose money. Just like in a casino. If you are a casino owner, you may lose at individual rounds, but as a whole if you combine all the tables and bets, you cannot lose.

As for the rich, instead of saying, “Investing is risky,” the rich will say, “Not investing is risky.” Why do you think the rich would say so?

Inflation eats our money away. If you don’t invest, your money will be eaten by inflation.
So, why is not investing risky? Because if you don’t invest, your money will be in your savings account, or FD, or EPF where you look for all the guaranteed things and so forth, plus all your money will be eaten by inflation.

Secondly, you face another risk which is “you don’t have enough money” risk – the risk of having not enough money. You don’t have enough money for your kids’ education, not enough for your retirement, maybe not enough for your parents’ hospital bills in the future and maybe your own hospital bills in the future as well.

If you talk about insurance, the insurance might be so costly that you could barely afford to pay for it unless you plan to work for life. Even if you plan to work for life, you still face another risk: Whether people will still hire you when you’re old, and whether you can still work or not when you’re old. In that sense, even if you don’t invest you are facing many risks, which is why, to the rich, not investing is also a risk.

Another risk of not investing is that your money will grow too slowly. What if got you into an illness and cannot work anymore? When you cannot work anymore, all your financial goals are not met, and you have financial liabilities.

So, investing actually expedites financial security if you do it the right way. Not speculating or gambling – but Investing.



courtesy KCL

Malaysians fret over financial preparedness in retirement

Some 94% of Malaysians believe that having enough money to live on during retirement is important, a survey found. However, only 60% of the respondents who believe so say they feel adequately financially prepared for retirement while another 34% feel they are not when they are out of the workforce.

 The survey on The Future of Retirement: The Power of Planning was conducted by Cicero Consulting for the HSBC group. It covered 17,000 respondents in 17 countries, with 7,300 from Malaysia, Singapore, China, India, Taiwan, Hong Kong, South Korea, Saudi Arabia and the UAE. The survey aimed to explore changing attitude towards retirement and are financial planning. According to the results, Malaysians grasp the fact that they need to plan and prepare for life after retirement. They tend to worry about not having saved enough to cater for unforeseen circumstances and the cost of ill health, with 68% of the respondents saying that they are either very worried or slightly worried about their financial preparedness in retirement.

“In Malaysia, most respondents expect their savings and investments to provide for them in retirement, with only 9% relying on state provision as their largest source of income. While it is a concern that 12% do not know what their main source of retirement income will be, this is lower than in most of our surveyed countries,” stated the report. Twenty-three percent of Malaysian respondents plan to rely on savings and investments to provide for retirement, followed by 9% who cited stocks and/or shares investments, wages or salary from paid employment, and state pension or social security as their main source of income after retirement. Eight percent of respondents have their own individual personal pension scheme, while 4% of them plan to utilise their rental income or sell their primary residential property. Other means of retirement funds included selling assets tied up in property (3%) and support from children or descendants (2%).

 In terms of planning for their retirement financial needs, the survey concluded that Malaysians are the most prolific financial planners of all nationalities surveyed as 60% of Malaysian respondents consider themselves as active, self-guided planners, compared with only 22% of global respondents who say the same. “A greater onus will be put on individuals to prepare for their own retirement and, fortunately, Malaysia leads the world in financial planning behaviour: 84% of respondents have financial plans for the future. This remarkably high level suggests that our respondents are thinking independently and proactively about their future; especially since 60% of respondents are self-guided planners, who do not consult advisers,” the report said.

The survey findings revealed that those with a financial plan enjoy several benefits over those who do not. The benefits are not only in terms of greater and more diverse retirement savings, but also a more positive outlook and less worries about later life, according to the report. Younger people are leading the way in financial planning, with 86% of 30- to 39-year-olds having a financial plan compared with 81% of 50- to 59-year-olds, the survey found.

 This article appeared in The Edge Financial Daily, January 3, 2012.

Malaysians Not Ready To Retire

Some 94% of Malaysians believe that having enough money to live on during retirement is important, a survey found. However, only 60% of the respondents who believe so say they feel adequately financially prepared for retirement while another 34% feel they are not when they are out of the workforce.

 The survey on The Future of Retirement: The Power of Planning was conducted by Cicero Consulting for the HSBC group. It covered 17,000 respondents in 17 countries, with 7,300 from Malaysia, Singapore, China, India, Taiwan, Hong Kong, South Korea, Saudi Arabia and the UAE. The survey aimed to explore changing attitude towards retirement and are financial planning.

 According to the results, Malaysians grasp the fact that they need to plan and prepare for life after retirement. They tend to worry about not having saved enough to cater for unforeseen circumstances and the cost of ill health, with 68% of the respondents saying that they are either very worried or slightly worried about their financial preparedness in retirement.

 

 “In Malaysia, most respondents expect their savings and investments to provide for them in retirement, with only 9% relying on state provision as their largest source of income. While it is a concern that 12% do not know what their main source of retirement income will be, this is lower than in most of our surveyed countries,” stated the report.

  Twenty-three percent of Malaysian respondents plan to rely on savings and investments to provide for retirement, followed by 9% who cited stocks and/or shares investments, wages or salary from paid employment, and state pension or social security as their main source of income after retirement.

 Eight percent of respondents have their own individual personal pension scheme, while 4% of them plan to utilise their rental income or sell their primary residential property. Other means of retirement funds included selling assets tied up in property (3%) and support from children or descendants (2%).

   In terms of planning for their retirement financial needs, the survey concluded that Malaysians are the most prolific financial planners of all nationalities surveyed as 60% of Malaysian respondents consider themselves as active, self-guided planners, compared with only 22% of global respondents who say the same.

 “A greater onus will be put on individuals to prepare for their own retirement and, fortunately, Malaysia leads the world in financial planning behaviour: 84% of respondents have financial plans for the future. This remarkably high level suggests that our respondents are thinking independently and proactively about their future; especially since 60% of respondents are self-guided planners, who do not consult advisers,” the report said.

   The survey findings revealed that those with a financial plan enjoy several benefits over those who do not. The benefits are not only in terms of greater and more diverse retirement savings, but also a more positive outlook and less worries about later life, according to the report.
 
 Younger people are leading the way in financial planning, with 86% of 30- to 39-year-olds having a financial plan compared with 81% of 50- to 59-year-olds, the survey found.

 Source: The Edge Malaysia (http://www.theedgemalaysia.com/personal-finance/198731-malaysians-fret-over-financial-preparedness-in-retirement.html)