Managing your savings is not only about planning for retirement. It could also be about a well planned child education, hajj fund, tax planning and other types of money management from assets to even zakat. THE CEO talks to to Ringgit Dan Anda host, Irda Rina, a licensed financial planner and adviser.
How would you know he or she is in need of a financial advice from a wealth planner?
Generally, everyone needs to plan their financial and wealth. As simple as how much is a suitable budget to spend every month, how much you need to save for an emergency fund and how much is the required sum of coverage for your wealth protection.
As complicated as how much you need for retirement and how much you have to consistently save now, all these matters are to be taken into account in order to achieve financial freedom at your target age, in ensuring that you have sufficient savings that is sustainable for the rest of your life. Wealth planners are also capable in diversifying your wealth, assisting with your plan for your legacy so that it is not only to be inherited by your loved ones without any hassle but also to explore if the wealth you left behind can benefit the society and your life in the hereafter. Frequently, people who are facing financial difficulties will be desperately looking for solutions and very in need of financial advice from the financial planners. Those who are eager to grab the investment opportunities will actively seek alternatives and require fair and non-biased financial advice from us as a financial and wealth planner.
However, if you are living comfortably with what you have now without any issues on debt management and adequate savings for emergencies, you probably are not really keen to seek financial advice. But, how would you know that it is truly sufficient for your entire life and family? Maybe you think you have managed your finances wisely and always keep on track, but how can you be sure that there is no better way of managing it? A well prepared legacy planning can ensure your financial goals will be easily met at your target age and perhaps draw in better opportunities if you let the experts examine your financial track and draw the proper plan. Why settle if you have an option in maximizing potentials of growing your wealth without discounting on the risk and uncertainties? And perhaps, you may achieve your financial goals earlier than you expected.
What are the options one has when it comes to investment?
In this digital era, there are vast opportunities and various options of investments. Whether the investment is for short term gains or for long term objectives. From low risk investment instruments to high risk instruments, liquid investments or less liquid investments, low or high volatilities investments, as well as capital protected investment instruments or those investment instruments which fluctuates.
There are short term deposits such as fixed deposits and money markets; investment instruments managed by government-linked companies such as Amanah Saham Nasional Berhad’s products and Amanah Hartanah Bumiputera; unit trust and Real Estate Investment Trusts (REITs); gold and silver; Exchange Traded Funds (ETF); stock trading whether locally in Bursa Malaysia market or international trading platform; bonds or sukuk; digital instruments such as cryptocurrencies and non-fungible tokens (NFT); derivatives such as futures and options; as well as real estates and properties.
Please bear in mind that insurance and takaful is not an investment or saving instrument but it is meant for wealth protection. However, insurance and takaful products are usually linked to investment and this serves as an added value to the wealth protection instrument. It is important to put your money at the right instrument based on your objectives. You invest your money to get good returns in order to fight against inflation. Whereas you buy insurance or subscribe for takaful wealth protection and financial security purposes should anything unfortunate happen to your health and life.
There are many available options of investment but the most important is to identify which kinds and combinations that really suit you. As for a Muslim, it is also crucial to know which instruments are shariah compliance before investing.
What is the minimum asset requirement for investment?
Each type of instrument has their own minimum initial investment amount. Unit trust for example, can invest as low as RM100 per month and as high as millions ringgit, subject to certain screening to ensure the sources of funds are free from illegitimate sources, money laundering activities, terrorism financing and any unlawful activities.
However, for each individual, the minimum investable amount may vary depending on their own financial standing. A lot of factors need to be considered before you invest. The most basic rule to comply is your personal cash flow must be in a healthy position. If your cash flow is in deficit, which means your monthly expenses are higher than your total income, probably your spending habits are being financed by credit cards all this while. If you only pay the minimum amount for the credit cards every month, thus it could be less effective for your investment return and wealth management because the interest rates for credit cards are usually higher than investment returns that you get.
You probably have large cash flow but still have negative networth if you hold a lot of debt and live outside your means. Before considering more attractive investments, focus on fixing your cash flow and manage your debt first.
The second thing to look at is whether you have enough savings for emergencies. Lavish lifestyle leaves more room for lavish emergencies. For example, luxury vehicles tend to cost more to repair than ordinary cars. If you have property that provides consistent rental income every month, you still need emergency funds in case your tenant moves out from your property and leaves your property vacant for too long without rental income to service your mortgage financing.
For stable income earners, it is advisable to have an emergency fund equals to at least three months income. For irregular income earners, self-employed or businessmen, it is recommended to save at least six months to twelve months income as an emergency fund. The covid pandemic that we are facing right now is one of the real life examples of how having a sufficient emergency fund is really important to business owners, self-employed individuals and even those who are working in the private sectors to financially survive during this difficult situation.
The next thing to consider before fulfilling the investment requirement is your wealth protection. Let the insurance you bought or the takaful plan you subscribed pay your medical bills and compensate you in case of any unfortunate event happen to your health, instead of you forking out a big sum of money from your own pocket or emergency fund.
After all the factors above have been adequately met, then only you can use the excess money you have to explore the suitable investment opportunities.
What is your best advice to those who just started to invest?
First, determine your investment objectives. For example, if you seek consistent monthly passive income with capital appreciation, you might consider investing in property. If you want to keep up with inflation, capital appreciation and enjoy yearly dividend or income distribution, you might consider investing in stocks or unit trust.
Second, determine your time horizon for investment. Is it for short term only, medium term or long term. This is because certain kinds of investment have high initial fee charges and thus it will takes three to five years before you can enjoy the returns from your investment. Investments that have higher return potentials usually long term in nature.
Third, know your risk tolerance. Are you conservative type of person, or moderate or aggressive in terms of risk appetite? If you are conservative type of person and low risk tolerance, then you should choose capital protected investments such as fixed deposits or money market. If you are a moderate type of person, having a mixed fund in unit trust could be the best suitable for you. If you are an aggressive type, you may consider investing in stocks trading, equity funds in unit trust, cryptocurrencies and exchange traded funds. But it is best to start or combine with low to medium risk investment first, so that you understand how well you can tolerate the price fluctuations.
Make sure you have good knowledge and understanding on the instrument you choose, especially those high risk investment instruments such as stock trading and cryptocurrencies.
Maybe you have heard this popular advice, ‘do not put all eggs in one basket’. Segregate your capital to a few investment instruments, funds or counters because each of these come with different types of risk such as market risk, country risk, liquidity risk, supply and demands, management risk, etc.
If you find it is challenging for you to frequently monitor your investment performance and keep abreast with the market updates, there is another alternative way called Private Managed Accounts where you can just contribute the capital and get your money invested and managed by licensed Investment Managers.
Consult your financial planner before making a decision. Never ever fall into a scam. Beware of ‘too good to be true’ offers. Verify the authenticity of the investment with the Securities Commission and Bank Negara Malaysia before you give up your money to someone or organisation.
What is your opinion on the current market – post pandemic?
The government is planning to move our country to the endemic phase, which means we are no longer focusing on herd immunity but rather to provide the people with the widest possible vaccination coverage. As recently announced by our government, interstates travel is now allowed, overseas travel is also permissible to fully vaccinated individuals. We see many business sectors are now reopened. These will further stimulate our economy and thus we can foresee our Malaysian market gradually entering into the recovery phase. In summary, Malaysian economic recovery appears more favourable due to vaccination, many states moved to Phase 3, interstates and overseas travel are now allowed.
Through your experience, share with us some inspiring stories of individuals or companies that made it through smart investing.
We always heard inspiring stories of those who became filthy rich through the business they ventured in, stock investments or real estate investments. But I personally feel inspired with young individuals who know how to manage their money and know how to grab opportunities to invest early.
I met a young guy in her early 20s via an online financial management webinar, of which I was one of the panel speakers. His salary is just slightly higher than our country’s minimum basic salary. But he already has a five figures investment portfolio at a young age. When I asked what his secret was, he said he inherited the saving habits from his parents. His parents are school teachers and none of them teach accounting or finance related subjects. Saving habits were instilled since he was a child by his parents. He started saving as early as he received ‘duit raya’ or ‘angpow’ during the festive season during childhood. Her mother will place this money in his Tabung Haji account and as you all know it gives good returns in the form of ‘hibah’ during such old years. After schooling, he also started saving money as early as he got his first salary. It is ok to start saving with a small amount of money after setting aside a certain portion to pay monthly commitments, but the important thing is to be self-disciplined and consistent. He also has his own small business via online platforms which sometimes give him extra income to spend.
Not only does he start early so as to build his personal wealth, but he also has a good mix of investment assets allocations which led to handsome total rate of returns as compared to inflation. Being a young and aggressive type of person in terms of risk tolerance, he enjoys stock trading among other investment instruments that he has, because of the potential short term gain.
At his young age, probably most of his friends would prefer to spend their income on lifestyle, entertainment, clothes, shoes, and hipster cafes. Well, just like me too when I was young, I made so many financial mistakes, was a shopaholic and lost huge opportunities to build up my own wealth at that time. Unlike this smart young investor, he likes to spend his time, money and effort learning about financial management and gain knowledge on investment instruments by attending courses and reading books.
Nowadays, information can be easily gathered from the internet. Just a finger click away to acquire knowledge without boundaries. It does not require a lot of effort. It just depends on whether you want to learn or not, and you want to do it or not.
From this young smart investor, I have learnt that it is important to us as a mother to instil the saving habit to our children and make our kids excited and enjoy saving money. Like I said, the best time to invest is 10-20 years before. But the second best time to invest is now. Start as early as you can.
In this digital era, youngsters can easily become rich at a young age if they know how to utilise the technologies as an ‘income making machine’. Youtubers, gamers, instafamous, online sellers, game creators, we see many of them become rich at a young age. But becoming rich does not mean wealth is being managed wisely and effectively.
With the economy sectors slowly opening up, is this the best time to invest in properties?
In the current market condition, the property looks favourable to property buyers considering the low interest and financing rates, downwards property prices, attractive incentives offered by the Government and high supply in the market due to disposal of properties by owners as well as supply of overhang properties. With many states moved to Phase 3 and economic activities resumed, industry experts believe the property market still remains resilient and prices will still appreciate next year due to the demand in the buyer’s market. However, before making a decision to venture into property investment, investors still need to consider many factors especially the cost of acquisition, maintenance, the cost of managing the properties and investors must have sufficient emergency fund as a financial security in case the properties are vacant for too long with no rental income to cover the mortgage financing commitment.
In addition, the series of Movement Control Orders during this pandemic have adversely impacted many businesses and have changed the working norms from fully operated physical offices or business premises to work-from-home, online programs and online purchases. It has further impacted the occupancy rates of commercial properties. However, with Malaysia moving to an endemic phase, I believe it will slowly recover as many sectors have resumed their businesses and people start to get back to work in the office, with the need for a safe and healthy working environment becoming a priority.
When is actually the best time to invest your money?
The best time to invest your money is 10 to 20 years before. But the second best time to invest your money is now. Time is crucial when talking about investment. The earlier you save and invest, the earlier you could achieve your financial goals. Start as early as you can. Like how they, time and tide wait for no man. Which means, if you do not make use of a favourable opportunity, you may never get the same chance again.
WHAT DOES A WEALTH PLANNER DO?
First and foremost, it is important to understand who the so-called ‘wealth planners’. There are three categories of wealth planners. It is important to understand the differences between these categories and their scope of services. ‘Wealth planner’ is a designation normally used by representatives or agents of insurance companies, Takaful operators and investment management companies, who offer the company’s financial products. Before proposing a specific product to a client, Wealth planners will do a basic wealth assessment to determine the client’s needs in order to match with the selection of products they are offering.
The second category is those who are certified as a financial planner, such as Certified Financial Planners (CFP), Islamic Financial Planners (IFP), Registered Financial Planners (RFP) and Shariah Registered Financial Planners (RFP). The certified financial planners received formal recognition of expertise in the areas of financial planning by Financial Planning Association of Malaysia (FPAM), Malaysian Financial Planning Council (MFPC) or Islamic Banking and Finance Institute Malaysia (IBFIM). They educate and advise people on overall financial planning and management but are normally attached with specific insurance companies, Takaful operators and investment management companies. Some banks also sponsored their employees to pursue this certification programme in order to provide comprehensive financial planning knowledge to better serve their clients.
The third category of wealth planners are Financial Planner Representatives (FPR). FPR are certified financial planners who are licensed by the Securities Commission of Malaysia. FPR are full fledged practicing financial planners, who advise and construct holistic financial portfolios which comprises wealth creation, wealth accumulation, wealth protection, education planning, tax planning, retirement planning and legacy planning. FPR helps clients to achieve specific financial goals by analysing clients’ financial situation, stratergizing clients’ overall financial position in depth, designing financial plans which are tailor-made to the clients’ financial portfolio, identifying clients’ specific financial needs and proposing suitable financial products if it is necessary. FPR normally provides fee based advisory and services. As FPR are regulated under the purview of Securities Commission (SC), FPR have to comply with SC guidelines at all time and have to provide non-biased advisory when it comes to proposing any financial products to the clients.