Debts

Some debts can deal a killing blow to your investment plan especially those related to credit cards or those which have very high interest charges. It’s advisable to clear those off FIRST before you put your money elsewhere. For example, if your debt’s interest rate is like 4-5%, but your FD return is only 2%, it means you’re actually losing money than earning money. If you can pump money into both sides, then fine. Just be sure never to neglect the former for the latter. Focus on how to stop losing money, then only to how to earn more money.

Insurance

This is equally important. Life insurance and medical insurance are very very important. I can’t stress this enough. There are people who only focus on how to grow their money that they neglect these 2. And when they’re hit with some issues which don’t allow them to work, their dependents will suffer since there’s no income. Or, when they’re hit with some serious illnesses but do not have the money to pay for their medical bills. In the end, they need to take out all their personal savings in order to pay for the medical bills. Yes, growing your money is important, but thinking about your dependents and the ability to keep you healthy are even more important (especially if your company does not give you a medical card). Look into what kind of life insurance you should buy here – How much insurance do you need?

Once you’ve given thoughts (and actions) to these 2, you can start planning the second step of your investment journey. Always remember that your investment journey will be greatly jeopardized if you are not able to generate income, or something else is draining your income away. So do take note. These 2 should be the FIRST thing you should look into while planning for your investment journey.

However, I do realize that sometimes people are becoming too fearful of something they don’t know. Just the other day, a friend of mine told me he’s going to venture into land investing. I asked why don’t he consider stock instead because the entry cost is lower. You don’t need so much money to go into stock investing and you definitely don’t need to get a bank loan for it. His reply was simple – “I don’t like to gamble”.

I think most people have the thinking that stock investing = gambling. Unfortunately, it’s not if you know what you’re doing and if you’re not trying to get rich quick. Based on The Free Dictionary, gambling is “the act of playing for stakes in the hope of winning”. This definition is somewhat similar to the definition of speculation: “Engagement in risky business transactions on the chance of quick or considerable profit.” And I often put these 2 together due to their similarities.

But to say stock investing IS NOT gambling, is kind of an understatement. Because there are a lot of stock investors who do speculate and gamble. These are normally the short-term stock owners. They tend not to keep a particular stock for more than few months. They do short-term buying and selling, and they trade a lot. However, when asked why are they investing in a particular company, most of them will not be able to answer you. Investing with uncertain future is, in a way, speculation. And as long as it’s speculation, it can be considered as gambling.

But this does not apply to stock investing alone. It also applies to other form of investing, be it land, property or stock investing. Truth to be told, this kind of method does help you earn a lot if you’re lucky but it is also very very high risk. I’ve burnt myself in the past due to stock speculation and it wasn’t a pleasant feeling. So easy come, and easy go. Just like how you can go buy lottery and if you’re exceptionally lucky, you will win a large sum of money.

However, if given a choice, I would encourage people not to speculate in stocks and never do all those short-term trading. It is too risky. If you want to invest in stocks, be prepared to spend an awful amount of time understanding the way it works, how the companies operate, the track records of the company’s management team, the prospects, etc. There are tonnes and tonnes of stuff for you to do research on. From there, you can shortlist some of the companies that you’re interested in and wait for them to drop to a price which you think is cheaper than the fair value. Then go in for those undervalued stocks. Invest and keep. But be prepared to keep them for 3-5 years (or even longer than that!). Yes, stock investing is about holding on to a particular stock for long term. If you’re trying to sell within few months, then it’s not really investing. It’s speculating.

So there you go, the myth of stock investing. As you can see, the proper way of stock investing is very different from what most people believe it should be. It’s not gambling at all. There are some uncertainties, but you make the decision based on your research and studies, not based on some unfounded rumors. And by far, it is also the best investing for me. Low entry cost, decent profit.

Just make sure you know what you’re investing in.

Well, to be honest with you, saving is not really that difficult. Even if you can only save 5% of your monthly salary, it is still good enough. The ideal case is of course to have 10% or more, but any saving is better than no saving.

So to get you started, here are some simple ways you can do to come out with that 10%.

• Cut down on your WANTs. This is important. The things that you want can be very expensive – fashion goods, gadgets, cars, etc. These things can take away a large sum of your money. Try to cut them down as much as possible. It’s okay to have 1 or 2 WANTs…. but a warning to you, don’t ever fall into the trap of having too many WANTs.
• If you always have no money left due to debts, then clear or reduce them as much as possible. Credit card debts should be the first to clear. Also, try to refinance your loans and see if you can get a better deal. Once your debts are cleared, you should have sufficient amount of money to save up – provided you don’t go get another debt!
• Start to cook at home. Eating out is expensive – the food, the parking and the fuel. Furthermore, it’s healthier too.
• Minimize expensive activities such as movies, clubbing, meals in posh restaurants, etc. For example, if you are a regular Starbucks customer, cutting down 1 cup of coffee per week can save you around RM 50 per month. That is already 1% of RM 5000 (average salary for Malaysians).
• Get some side income such as earning money online, get some part time jobs, freelance, etc. You need to sacrifice some time to earn, but I feel it’s worth it in the long run. But only do this if you are sure you won’t neglect your day job.
• Remove your credit cards. They can be helpful if you know how to use them but if you are the type of people who can get tempted easily, then stop bringing them out. Credit card debts are the type of debts which bring a lot of people down.
• Travel by public transport or car pool. You can really save a lot there, even though you need more time to commute.

Some may argue that the amount of money saved using the above methods will not be much….well, I think it really depends on your lifestyle. Also, I can’t stress enough that any saving, even 1% of your monthly salary, is better than no saving.

Just always remember to control your own WANTs. Know your limits, and your financial condition. Don’t wear a hat that is bigger than your head.

I think one of the main reasons is fear (or uncertainty). After witnessing so many economy crashes (notably the one in 1997-98, early 2000 and the recent 2008 crash), most people are feeling fearful. Well, to be honest, it’s not easy to see thousands of your (or your friends’) hard-earned money burning and feel nothing about it.

But sad to tell these guys….investment is a must whether you like it or not. Saving up is good but if you don’t invest, your savings might end up as waste paper few years down the road due to our inflation rate. So unless you really want to see your money ends up that way…you should really consider investing your money.

So what are the investment types that you can consider?

Fixed deposit - this is the simplest and the one with the lowest risk. But it is also the one with the lowest return. If you keep your money here and here only, fear not, your money will still be waste paper after 10 years or so. My advice is, only keep your emergency fund here.

Mutual fund - this is the most common and popular option for many people especially those that do not dare to venture into stock market. It is relatively safe but with minimal return. But then again, do bear in mind that you are paying the fund managers a substantial amount of money per transaction. That alone will minimize your return. True, it’s safer than stock market but don’t expect too much out of this. My advice is, treat this as your saving account and pump in money every month. Invest in a mixture of equity and bond fund.

Stock market - this is the so-called high risk investment type. I’ve been investing in this for few years now…. a lot of ups and downs really. But one important lesson I’ve learned during the March-8 crash ….. never ever speculate because speculating = gambling and in stock market, gambling is suicidal. My advice to you is to read up more about stock investing and invest only in blue chips. Defensive stocks like Telekom Malaysia is a good option since they give pretty good dividends. And be ready to put there for few years. Remember that short term selling in stock market is equivalent to speculation/gambling.

There are other options such as gold investing, money market fund, etc but I’m not very well-versed in those. That is why I never talk about them. So that’s another lesson for you – don’t invest in things you don’t know.

At the end of the day, I believe stock investing is the best option if you know what you are doing and if you can control your emotions well (the ups and downs of a stock market are not for the faint-hearted). But no matter which option you choose, it is still better than no investment at all. So start taking your first step – invest 10% of your monthly income is always a good start.

All the best.

p/s…. property investing is out of scope because it requires a substantial amount of money as compared with the options above.

And then I interrupted.

I said that it is true that this stock broker is a very careful person. But a stock broker is, after all, just a stock broker. He earns if you buy/sell and by telling you not to buy, he ends up not earning anything. But if you insist, you can still buy! Nobody is stopping you from that. The stock broker’s role here is just to give you his opinions and advice since stock brokers tend to get news faster than us.

To be honest, I rather not lose 1000 than not earn 1000. So having a cautious stock broker is always better than having a stock broker who always gives me wrong information.

Also remember that at the end of the day, stock brokers rely on news most of the time. You still need to do your own research before making a buy/sell decision. If you don’t do that, then don’t start blaming people (stock brokers) if things don’t go your way.

My answer is rather simple.

• Currency trading is trading and not investing. Just like day trading for stocks, you are trying to gain as much profit as possible within a short period of time.
  

  Source: http://forexarbitrage.eu

• You need to be lucky since luck plays an important role in any speculation. It’s not gambling, since you do observe the history of the currency and play by the rule “whatever that went down will go back up”.
• I never like to speculate too much since I’ve burnt myself pretty badly with stock’s day trading in the past.
• You need to pay extra attention to the global economy since the currency you are holding might be affected.
• I’m bad with timing the market which is quite essential for currency trading. You merely time the buy and sell time.
• The total return is not much unless you are willing to pump in A LOT of money, which I don’t have.
• Unless you are talking about engaging a real agent or actually playing with the index (I remember someone told me about this before but I’m not very sure), you will have to hold those foreign $$$ yourselves. And considering the fact that the amount can be rather big, you will need to keep them in the safe deposit box in banks. Those require you to pay a certain amount of money to maintain.
• Also, if you’re not using an agent or getting someone licensed to help you with the trading, you might not be able to react quick enough. For example, my friends mostly exchange the foreign currencies with money changer by themselves. The advantage is that they can trade anytime and in many places, but the disadvantage is that it is not very convenient especially if they keep those currencies in banks.
• Due to the current economy, the currency rate might not change much for another 6 – 12 months. It might further actually. And for trading, holding on to the currencies for too long kinda defeat the purpose. Remember that this is not investing.

But the most important reason why I am not into currency trading has to be the luck factor. I hate relying > 80% on luck factor because I can be quite unlucky at times. I rather spend my time doing analysis on the stocks of certain companies. That way, I will know whether I can invest in those stocks. I doubt there’s anything I can study for currency trading, except for the history of the currencies.

True, I still need to rely on luck factor when it comes to stock investing. But it’s not as critical and significant.

Still, it doesn’t take away the fact that there are people out there who are making big bucks with currency trading. Just that it’s not my cup of tea.

My advice to you is to understand it well before dumping your money in. Don’t do it just because Tom, Dick and Harry are doing it. Do it because it’s suitable for you. Oh, and stop buying those currencies by yourselves. It’s too troublesome and dangerous. Get some qualified agents to do that for you.

Here’s a useful link I found – Currency trading versus investing.

Hope it helps.

Well, better late than never.

To start your first journey through the world of stock investing (only applicable to Bursa Malaysia), you will only need a total amount of RM 10.

1. Open a Central Depository Account or CDS with a local stockbroking agency or banks. Just give them a photocopy of your Identity Card (IC) and RM 10 fee. This CDS account will serve like a deposit account for you to keep your shares.
2. Open a trading account with the stockbroker in Step (1). You will need to provide your income statements (or about 3 months of payslips) and fill up a trading form.

Once your application has been approved, you will be assigned a remisier (if you do not have any particular favourite) by the stockbroker and be given a trading limit.

Buying and selling shares

And that’s it! You’re ready! It’s as simple as that. But do bear in mind that for every transaction, you will be charged 3 fees – brokerage fees, clearing fees and stamp duty.

If you need more information or more detailed explanations, you can go to KCLau’s How to buy share in Malaysia.

Hope it helps!

But how much should you have? Some experts said 3 to 6 months of monthly expenses, while some even said 9 months to 1 year of expenses. In the end, it depends on you and your living lifestyle. Calculate the amount of debts or fixed expenses you have to pay in each month. They can be mortgages, study loans, food, rental, etc. The total amount will be your fixed expenses for 1 month. Now,  take that amount and make it 3 months to 6 months. For example, if your fixed expenses for 1 month is RM 1k, your emergency fund should be at least RM 3k. This is to ensure you can last for 3 months without any pay.

I know it’s not easy to have that amount of money all of a sudden. That is why you should start small. Get another savings account and pump the money in regularly. Only pump the extra money you have, after paying off your monthly fixed expenses. It could be 5% of your monthly pay, or 10% of your pay, whatever is comfortable for you. Start doing this every month and build up that emergency fund of yours. Preferably, that emergency fund should be inside an account which you don’t touch. You’ll defeat the purpose if you put your “emergency fund” somewhere but end up using it to buy something you WANT. Discipline is the key word here.

Once the amount has reached your so-called “target”, then you can look for other goals such as investment. Try to avoid touching your emergency fund at all cost and keep it as liquid as possible. Because in case there’s an emergency, you will want to take the money out as soon as possible, with the least damage or penalty incurred. In other words, you want it to be there when you need it. That’s why putting it into savings account is better than Fixed Deposit, stocks or bonds.

If you are very confident that there will not be any emergency in the near future, then you can take some of the emergency fund and pump it into low risk investment types such as Fixed Deposit. Make your money grow, without taking too much risk because if you don’t make it grow, it might become worthless few years down the road due to inflation.

That’s it! Simple right? It’s easier said than done actually. Remember that the key word here is DISCIPLINE. If you don’t have that, no amount of emergency fund will be able to save you when there’s really an emergency.

To summarize, here are the things you need to remember:

• Set up a target. How much do you need to survive without pay for 3 – 6 months? Take into account all your fixed expenses such as food, rentals, mortgages, loans.
• Start small. Deposit a little bit of your extra money into the emergency fund every month. The amount should not be significant as not to change your lifestyle.
• Put the money somewhere safe, somewhere isolated and somewhere you will definitely not touch. However, make it as liquid as possible so that you can take the money out without incurring any penalty or losses.
• Discipline. Your emergency fund should only be used for emergencies and not for you to buy that cool gadget.

That’s all from me. Hope it helps. Here are some articles which might be helpful for you.

• Why you need an emergency fund?
• Emergency cash – how to prepare with an emergency cash?
• How and why to start an emergency fund?

Over the past few days, I’ve actually approached some of my friends and asked them whether they know their net worth. It’s not that I want to intrude or want to know how much money they have. It’s more like I’m curious whether they know what is the meaning of “net worth”. Surprisingly, a lot of my friends have no idea what is net worth…and there are few who know but have no idea how to calculate it.

Therefore, in this article, I will talk briefly about the simple way of calculating your net worth.

A net worth for an individual is the total assets minus total liabilities, or in other words, your financial position. As for the net worth of a company, it is the so-called “book value” or “shareholders’ equity”.

There are basically 2 types of net worth. The thorough one, and the liquid version. To some people, your personal net worth means how long can you survive without a job during emergency…in other words, your net worth = the value of your liquid assets. However, the actual net worth calculation should be inclusive of your illiquid assets and also all your outstanding debts.

Here’s how you should calculate your net worth (not the liquid version).

1. List out all your assets ranging from your cars, real estate properties, factories, etc and group them under one category known as “major assets”. Give an estimation to the actual value of these assets. Try to be realistic because overvaluing such assets will look nice, but unrealistic. For example, a 7 years old Proton Wira should cost around RM 10k-15k, not 40k.
2. List out all your liquid assets such as cash, stocks, bonds, funds, and the balance in your savings account, current account and also your retirement account. Get the total and put them under a category called “minor assets”. Also, remember to take into consideration the taxes involved in selling your funds, bonds and stocks.
3. Next, gather all your smaller assets which you can sell for more than RM 500 each, such as watches, antiques, electronics, gadgets, home appliances, handbags, jeweleries, etc. Give an estimation of their actual values and park these under a category known as “other assets”.
4. That’s it. Your total assets have been calculated. And we shall now move on to the ugly part – the liabilities.
5. Start with your large liabilities such as the remaining balance of your housing and car loans. Those are pretty big amount. So start with those first and group them under “major liabilities”.
6. Next, check your other smaller liabilities such as credit card bills, student study loans, instalment plans, or any other debts you have. Total them up and group under a category called “minor liabilities”.
7. Finally, subtract the total amount of your liabilities from the total amount of your assets and you will get the amount which is your net worth.

Remember that your net worth can either be positive or negative. If it is positive then it’s good for you but if it’s negative, don’t worry so much. Work harder in 2009 and hopefully the next time you calculate your net worth, it’ll be positive.

Good luck and hope it helps.

As for Public Mutual agent, it is not about tips but commitment from the agent. Can your agent really commit his or her time? Is what your agent say relevant (more like advice than tips)? And is your agent efficient enough?

Those are few questions you need to ask yourselves before locking yourselves up with a particular agent.

As for me, I engaged my ex-supervisor who is a part-timer. She used to help me a lot in the past and I did not hesitate much then. But the end result is not really that pleasant.

• I told her I need to change my equity to bond. That was before the market crash. She told me not to do that because China funds are sustainable. I know China funds are better than some other equity, but I also know bond funds are better options when the economy is bad. To date, the bond funds which I was looking at have gone up quite a lot, but my equity funds have dropped nearly 30-40%
• I also told her to stop the auto debit in September. She said it will only take effect in October but until now, it is still the same. I was hoping to collect enough cash for myself to use and keep during this difficult period since I expect the equity funds to drop further in early 2009. Save up now, and use the money to buy more at lower price later.
• Also, I have no ways to know how much money I have invested after all this while and how much money I have left based on the current fund price. It’s important to keep track of the total loss or profit but I just don’t have the mean to do so since my agent doesn’t help me with that.
• It’s very hard to meet my agent since she no longer works in the same building as I do. There’s not much communication between my agent and I.

To some, these 2 might not be very big problems. But to me, I was hoping my agent will listen to me and do what I told her to do. If she is not free, then she can tell me and let me know how I can get it done by myself. In the end, I consulted my friend who is in Penang. Here are the solutions for point (2) and (3).

• I can call Public Mutual’s number if I want to stop the auto-debit or I can leave my bank account balance to be less than the auto-debit amount for 3 months, and the auto-debit feature will stop automatically. Or I can just go to the Public Mutual office (I know there’s one in Damansara Perdana) to fill in a form to stop the auto-debit.
• Go to the Public Mutual office and seek help from them to check your outstanding balance and how much you’ve earned or lost. They have the system to calculate that.
• If you want to change to another agent, you can go to the Public Mutual office and fill up a form.

As for my case, I will talk to my current agent first and will most probably change the agent to my stock broker uncle. At least he stays nearer to me and I do meet him quite often.

Hope my personal experience here can help you.