It would be good to share my thoughts on Personal Finance in general that apply to myself & also influence the advise that I provide. Of course there is always much learning (and unlearning) ahead.
I hold to the importance of a 6 – 12 months of expenses emergency savings fund (depending on age and life position).
All or most of this funds should be highly liquid in a savings/current/immediately releasable FD account. (For example, Maybank and OCBC offers high yield savings accounts with flexible withdrawals significantly better than most savings accounts).
Research has shown that it is easy to fall into debt & cashflow problems if you don’t have your emergency savings fund setup.
Any amount higher then that (especially if you don’t have any goals set for your cash) should be put to work as otherwise you are pretty much just losing money/barely keeping up with inflation (Malaysia official historical inflation rate: 3.7%).
On Fixed Deposits (FD)
While really secure, fixed deposits serve specific purposes to keep cash handy for:-
- Emergency savings
- Temporary parking space for cash earmarked for other goals
- Low-risk low-returns retirement cash accounts
Considerations for a FD would include
- Explicit protection by PIDM
- Rate of returns
- Reading the fine-print (as bank promotions can be misleading with additional requirements such as buying other products/putting certain amounts in another account with low interest rates) which lowers returns
On Envelops/Specific Purpose Accounts/Goals
Whichever method you use, it is important to have separate goals. Whether you actually have separate accounts for each goal, or divvy it up via a Excel spreadsheet or use envelops (hah). Each goal is to be for a specific purpose (i.e. holiday/travels, education funds, wedding plans, temp holding place for investment cash).
Your budget should be set before hand knowing your (hopefully positive) cashflow each month & how your funds are allocated.
Paying yourself first although becoming increasingly cliche still remains the top priority towards meeting your lifetime financial goals. At the start of each month, allocate your funds accordingly.
On Investments (in General)
I believe in diversification. To a small extent whereby you focus only on a handful of different investments (even 3 is sufficient). And seek to be an expert (or hire an expert) in that area. I like how Warren Buffet puts it to imagine you have a loaded gun with only 20 finite bullets in your lifetime. Make your 20 shots count.
Ratios are there as a guideline. For both simplicity & that it serves generally well as a guideline a 100 – age methodology would be recommended for high-risk VS low-risk investments. For example, when you are aged 30 put 70% in high-risk investments & 30% in low-risk investments.
When I first started out investing in shares, I (used to be) slightly wary about disclosing that I enjoy analysing companies, reading annual reports & doing shares analysis. This is as there is a (not very inaccurate) perception of shares trading as merely gambling in another guise.
I view shares investing as 2 very distinct categories whereby either:
- You actively trade
- You buy companies & as a shareholder hold on long term to the shares
With that being said, shares investing may not be for everyone. Although it is one of the best ways to invest. This is provided you invest knowing what you are going into with eyes wide open & knowing why you are buying a company at a particular pricing. Again Warren Buffet’s/Ben Graham’s methodology for shares analysis makes sense & cents to me.
Incidentally you should read Warren’s annual shareholders letters if you have not before even though you don’t hold Berkshire Hathaway stock but you learn a lot & receive value (in both educational & entertainment).
On Unit Trusts
My largest investment percentage was in unit trusts. Was. This is as unfortunately in Malaysia we lack true index funds, our sales charges (~5%) & annual management charges are too high (~1.5%). Dollar cost averaging helps. But if you want to invest in the equity market, buy shares directly.
Reasons I can think of to buy unit trusts
- To buy EPF approved shares (for those who are worried about EPF holding your money)
- To buy bond unit trusts (as buying bonds directly are expensive)
- To buy ASB/selected fixed-price Amanah Saham Funds (no tax, minimal charges, consistent returns)
If you must buy unit trusts, consider a low-cost online brokerage with much lower sales charges.
I used to believe that insurance was only for obtaining medical coverage & to leave money when I have a wife / kids.
I have become a little wiser since then.
Insurance’s primary purpose would be to protect myself. In case of disability or medical costs which are skyrocketing. Secondarily, it would be to provide for loved ones that depend on me to any extent. Thirdly, it would be to provide for planning purposes for retirement & passing away from ea
At different ages & different income levels we will have different needs. Sadly a few insurance agents are out only to make sales.
Know why you are buying. At what amount. And why.
Get medical first. Get Personal Accident coverage next if you are short on cash.
Get life & disability coverage. Get Critical Illness coverage as medical coverage has a number of gaps which are not covered.
Review your medical coverage every 3 to 5 years. Do not cancel a policy unless really necessary or if it’s really bad.
On Investment Advise
Seek an advisor who walks the talk. Someone who puts in his money into the same places that he is advising you to.
There are 3 basic forms of earning for financial advisors being:
- Time based: Charges you for time (i.e. RM300-500 per hour)
- Products based: Carries products & earns when you buy (e.g. unit trust, insurance)
- Asset based: Charges you based on the amount of assets he manages (~1% p.a. based on total assets managed)
Personally, I would prefer an asset based manager as they would be more interested in growing your assets & not push products that are not necessary for you. However, these are still relatively uncommon in Malaysia (unless you are very high net worth). For me, it also means that I may be pushing away lower disposable income clients or those who are currently in debt.
Thus I am now subscription fee based but with a catch. The truth is that I left my last salaried employment due to issues of ethics. After leaving & finding my “new” vocation, I pledged to be unashamedly ethical. I approach potential clients with a “your needs comes first” approach & disclose how am I linked with other companies/products. I help clients to manage their finances as my joy comes in helping people achieve their financial goals. And if there are any products/services you require that I offer, you are most welcome (but not in any sense obliged) to.