How much is “enough”?
“How much money do you actually want to earn?” is a very common question. And the typical response is “Until I’ve earned enough”.
But how much is “enough”? 50k? 200k? 1 million? or just $1 more than the amount you need? Without defining what does “enough” mean to you, it’s very difficult for you to set your financial goals. So the first thing that you need to know before doing any financial planning is your definition of “enough”.
I’m not going to guess what is your answer. 
So I’ll just assume you are like most people I know, and your definition of “enough” is to be able to retire comfortably, without having to worry too much about money when you’re no longer working.
If that’s your definition of “enough”, then I have a few tips which might be able to help you achieve your goal.
- Go for conservative investing. When choosing a type of investment to put your money into, always go for conservative type of investing. Say NO to short-selling or active trading (be it stocks or funds). Go for those which are safer, but have lower returns. Index fund is a good option while FD (interest rate is too low at the moment), and stocks (too risky) are not.
- Pay attention to the cost of investment. Most investment types need you to pay a certain amount of money for their services – especially stocks and mutual funds. Pay close attention to the amount of money you need to pay for such things. Because most often than not, these fees will greatly reduce the amount of earnings you get from your investments.
- Minimize spending. It’s okay to get your WANTs every now and then but always take into consideration your financial goals. Will buying item A has any negative impact on your financial goals? Will it slow down your overall progress?
I think these 3 simple rules will be able to help you in achieving your “enough” and enable you to live comfortable upon reaching your retirement age. I can’t say that it’s going to work 100%, but I really believe it WILL help you to move closer towards that direction. But bear in mind that, these 3 simple rules are not going to make you rich…. they will only be able to make you achieve “enough”…. just enough for you to live comfortably.
p/s….. conclusion, if you are looking to achieve “enough” (as in enough to live comfortably upon retirement), you should avoid going to risky investment types such as property and stocks, and also avoid spending too much on services such as those incurred by mutual funds.
Property investment: business vs residential units
For those who are new in property investing, this is perhaps one of the dilemmas that they always face – whether to invest in business premises or to invest in residential units.
Normally people would invest in residential units because they tend to be cheaper (generally speaking) and there are also more options for them to choose if compared with business premises (shop lots, office units, etc). However, they may change their mind once they realized that the profit margin tends to be higher for business premises.
Yes, you CAN earn more by investing in business premises, sometimes significantly more than investing in residential units. But, as with everything in this world, there are pros and cons to each of them.
Business premises
+ A good tenant can easily helps you to pay off your loan and at the same time, helps look after your unit for a long period of time. For example, banks, and franchised outlets.
+ If you happen to buy the unit in a very good location, you can expect to earn more than 40%. For example, those who bought a shop lot in Kota Damansara when it was first launched could easily earn a 200-300% profit now.
- Most anchor tenants like banks are pretty hard to get. Most of the time, it is the property developers themselves who are able to engage them as tenants.
- Business premises tend to be priced higher than residential units.
- Maintenance fees and the utility charges are also priced higher for business premises.
- A lot of speculations are involved when investing in business premises. You invest in one place at a cheap price, and hoping that the location will become popular in the near future.
Residential units
+ Priced lower than business premises.
+ Maintenance fees and utility charges are sometimes lower (certain properties fall under the commercial rates though).
+ Easier to find tenants as the demands are higher for residential units, as long as you don’t ask for ridiculous rental price.
- Your tenants are easier to run away especially for those renting out their apartment or condominium units. I’ve seen tenants moving out in the middle of the night (just spent 2 or 3 hours) without their landlords knowing it.
- Although demand is high, the supply for residential units is also very high especially when most of the units are controlled by property investors.
I’m not sure if this gives you a clearer picture of which type of property investment you should go into. I sure hope it does. Anyway, there could be more pros and cons to each of them. But in general, all I can say is that investing in residential units is for the beginners and perhaps those more reserved type of investors. If you have the financial backing and are okay with high risk, then go for business premises. High risk, high yield. Just be aware that if the location you’re investing in failed up pick up momentum, then your investment is as good as gone.
As for me, I’m not that big a risk taker. I prefer to have a slow and steady growth, with minimum speculation. That’s why I personally feel that investing in residential units is more suitable for me.
Hope it helps.
Fixed Deposit (FD) rates of banks in Malaysia (November 09)
In August, I compiled a list of Fixed Deposit rates in Malaysia HERE. Here’s the update for the month of November 2009.
|
Bank |
1 month |
3 months |
6 months |
9 months |
12 months |
| 2.00 | 2.10 | 2.20 | 2.30 | 2.50 | |
|
2.00 |
2.00 |
2.00 |
2.00 |
2.50 |
|
| 2.00 | 2.10 | 2.20 | 2.20 | 2.50 | |
|
2.00 |
2.05 |
2.10 |
2.20 |
2.50 |
|
| 2.00 | 2.10 | 2.10 | 2.10 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.10 | 2.10 | 2.10 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.10 | 2.10 | 2.10 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 | |
| 2.00 | 2.00 | 2.00 | 2.00 | 2.50 |
If you refer to the previous rates in August 2009, you will notice that there’s no change to the rates at all. But many people are saying that our Bank Negara will increase the interest rate soon, considering the fact that our economy is slowly recovering. I’ll post up an update to this list of FD rates once there’s any changes to the interest rate.
Hope it helps.
Budget 2010 Real Property Gains Tax (RPGT)
Note: this post was written purely based on my personal opinions.
The Malaysia government has recently announced Budget 2010. To be honest, there are not much good news for this time’s budget. But whether there’s bad news or not, it is really up to you to decide.
Anyway, for this post, I will talk about one of the most talked about changes – the reintroduction of the Real Property Gains Tax or RPGT.
From BERNAMA:
The real property gains tax (RPGT) will be fixed at five percent on the gains from the disposal of real property effective 1 January 2010.
Reiterating this on Sunday, Second Finance Minister Datuk Husni Hanadzlah said that the rate imposed is irrespective of the holding period and the category of the owner.
However, exemptions to the individuals are given as follow;
* The level of exemption is increased from RM5,000 to RM10,000 or 10 per cent of the chargeable gains, which ever is the higher;
* Gifts betwen parent and child, husband and wife, grandparent and grandchild; and
* disposal of a residential property once in a lifetime.
To be honest, there are pros and cons here.
Pros:
- This will deter property investors from acquiring too much properties. Most often than not, the property price fluctuates because of flipping and holding activities. If a place is too crowded with property investors, the price will go up and down pretty fast. This is quite bad for people who are looking for a place to stay, and not investors. So by having this, it will limit the property investors’ activities, thus keeping the property price under control.
- Lesser property investors also mean the number of mortgage loans defaulters will decrease.
- More people would be able to purchase properties for their own stay since they don’t need to fight with so many property investors anymore.
- There could be a number of good bargains on the secondary property market from now until end of 2009. Existing property owners might want to offload their properties without incurring the 5% tax, and due to the competition, it could end up as a buyer market where the sellers are more willing to bargain.
- The fluctuation in prices for properties in prime areas will be minimized. This is because the demand will drop due to the big property gain often associated with properties in prime locations. Remember the more profit you gain, the more tax it’ll incur, and the more tax it incurs, the more property investors would avoid it.
Cons:
- Unfortunately, despite what the government wants, I believe the property price will still increase. The secondary market will have to include the 5% RPGT. As a result, a property which is selling for 500k now as compared to 300k when it was first bought, would cost additional 10k in 2010. As for primary market, the price will also go up because home buyers would turn to new properties instead of the expensive secondary market.
- Luxury property developers would take a hit. A 1,000,000 condo in Mont Kiara (bought 3 years ago at 700k) would cost an additional 15k in RPGT if the owner decided to offload it in 2010. That is quite a huge amount. That’s why I believe the luxury property projects would take a hit due to this RPGT especially when most of the buyers are property investors who would want to maximize profit.
- Some property investors are foreign investors who are investing their money in our country. By implementing this, the foreign investors might stop to pour in more money into our property sector.
- The banks are likely to increase their interest rate as the economy recovers, and this will be worse for those home buyers who have to pay for the extra 5% and then pay the higher interest rate.
Many people say that the reintroduction of the RPGT is not really helpful but I believe there are pros and cons to everything. The main question here is whether the cons far outweigh the pros and whether this RPGT is really able to achieve what the government is trying to do – to make homes more affordable to the middle and lower income groups.
Feel free to post up your opinions on this. Again, this is based purely on my opinions and views.
Should you switch your mutual fund often?
Some people always wonder whether they should switch their mutual funds often. In other words, trade them often. Well, I think it depends really. I know there are people who are very much into mutual fund trading just like the way stock traders trade their stock units. And with the help of online system, trading your funds has never been this easy before.
But irregardless of how easy and simple trading it can be, the sole question remains – should you switch (or trade) your mutual fund often? For me, it’s not recommended. But this is just my personal opinion. Don’t come after me if things end up differently for your case.
Anyway, here are the reasons why I do not switch my fund often.
- I’m lazy. Yes, I admit it. The amount of research needs to be done is hugeeee. It’s even worse than stock trading. Because for any single fund, you are practically looking at few stocks or an entire industry in general. In stock trading, you only need to look at few companies that you know about.
- The service charge is high especially if you are changing from equity fund to bond fund. But even for standard fund trading, the service charge is high. Do bear in mind that the amount you are trading is pretty huge too.
- Mutual fund investing is more like a savings account for me. And well, I don’t go changing my savings account from one bank to another. So it’s the same concept. I pump in money every month, and just leave it there. Once I need it, I will get it out.
- Mutual fund investing runs on the concept of dollar cost averaging. It means you buy the same unit at a lower price in order to average out the units you’ve bought at a higher price before this. So if you are going to switch it around….doesn’t that defeat the purpose? It’s just like buying the stocks of a single company at different pricing VS buying different stocks at different pricing. That’s not dollar cost averaging in my opinion.
- Last but not least, if I really want to switch fund often, I should just spend my time, efforts and money into stock investing since it’s a lot easier to monitor. The rewards are bigger too (so are the risks).
So yeah, those are the 5 reasons why I don’t like to switch fund often. Most people I know have the same reasons of not switching their funds often. And there are also those who don’t like to trade at all, be it stocks or funds. To them, it requires too much time. But either way, there are more people who do not like to switch their mutual funds often, as compared to those who always switch around. Yes, there’s no doubt that you might be able to earn more by switching around – it’s the same with short term selling in stocks. But the risk is also there.
At the end of the day, it depends on your objectives to invest in mutual fund. Are you looking to earn some quick cash and are willing to face some risks? Or are you just treating it as some sort of a savings account? The answers to these few questions will determine whether you should switch your mutual fund often.
Hope it helps.