Introduction to Unit Trust

Unit trust is another investment vehicle which I can categorized as moderate risk. However, each fund has it own risk rating and should be accessed individually.

What is Unit Trust?
A investment scheme which allow me to pool my money with other investors (thousands of them) and professionally managed. Investment manager will invest the money on my behalf and distribute the profit/loss back to the unit holder.

Why do I Need Unit Trust? Can I Just Invest by Myself?
I need to understand the benefits of unit trust in order to answer the questions.

The Benefits of Unit Trust

Professional Fund Management: For a small fee, professional fund managers will decide how to invest my money using their expertise and resources. This is what I am lacking. So it is a good idea to hire them.

Diversification: My money will be invested over a broad portfolio of stocks in different companies, sectors, countries or regions. This will reduce the risk involved.

Simple, Save Time and Liquidity: It is easy to purchase unit trust compared to buy stock directly in stock market. It saves me time to study and predict future market in order to make decision. I can redeem my investment and receive cash within two weeks.

Modern Saving and Piggybank

I find it is interesting to learn the concept of 'piggybank'. Piggy bank is the traditional name of a coin accumulation and storage container, most often used by children.

During my childhood, I did not have any piggybank to save my money. Instead of yellow piggy clay, I saved my coin in a 'tabung buluh'. Tabung buluh is basically a bamboo which has been cut with certain length to become a container. A small slot is made by using saw to insert coin into the bamboo. However, the concept is the same. Children need to break the piggybank or the bamboo to retrieve the money they have saved.

The modern saving scheme should act the same way. Imagine a unit trust is like a piggybank. I can only deposit money in it. Leave it and wait. Only break it after it is full. This lesson is simple, which we have learnt many years ago.

Budgeting: Do this and Discover the Difference

Put Savings (and Yourself) First With a Budget

(from Yahoo!Finance)

Personal savings have reached record lows, yet saving is essential to ensure a comfortable future. Learn how to track monthly expenses with a budget and potentially free up cash for saving.

1.Put Savings First With a Budget

Where does that money go? America, it seems, is in the midst of a savings crisis. Personal savings rates have dropped in recent years and remain low by historical standards as many people continue to spend beyond their means.

If you're among those Americans who can't seem to save, it might be time to create a budget. A budget allows you to understand where the money goes and may help you free up cash for important savings goals, such as college and retirement.

2.Getting Started

Setting up a budget will require some work, but the benefits more than offset the time invested. How you create your budget is up to you. You may choose a piece of financial planning software, such as Microsoft Money or Quicken, or you may choose the paper and pencil route. The above worksheet is a simple yet inclusive budget that you can use to get started.

The first element of any budget is your income, or how much money you receive each month. This can include paychecks, legal settlements, alimony, royalties, fees, and dividends from investments that you do not reinvest. Once you know what your monthly income is, you can use a budget to make sure you don't spend more than you earn, thus helping to reduce debt and freeing up cash for savings.

Next, you need to know how you spend your money. Start by tracking your spending for a month. Gather bills and receipts, and don't forget to include newspapers from the corner store and trips to the soda machine. Don't assume any expense is too small to record.

Write down your expenses and break them into categories. Using the budget worksheet as an example, we find Fixed Committed Expenses -- mortgage, loan, and insurance payments that stay the same from month to month; Other Committed Expenses -- things you can't live without, like food, utilities, and clothing; and Discretionary Expenses -- things you like but don't necessarily need.

3.Less Spending = More Savings

Once you know where the money goes, it's time to analyze your expenses. There probably isn't much you can do about Fixed Committed Expenses without moving or getting rid of the family car. However, if these expenses are greater than your monthly income, you are probably carrying too much debt to effectively save.

You may find some room to economize in Other Committed Expenses, but look at Discretionary Expenses first. This is typically the easiest place to reduce spending. Begin by canceling magazine subscriptions to titles you don't read. Eat fewer meals out, or choose less expensive restaurants. Across much of the country, you can rent two DVDs for the price of a single adult ticket to a movie and throw in some microwave popcorn for a dollar more.

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4.Digging Deeper

Once you've reduced discretionary spending, look at those Other Committed Expenses. Can you reduce the grocery bill with coupons or more economical meals? How about taking public transportation instead of cabs?

One area to closely examine is credit card debt. If a high balance is keeping you from saving, you need to find ways to trim those monthly payments. Call your credit card company and ask them for an interest-rate reduction, or shop around for a card with a lower rate. You can find a list of low-rate cards through CardWeb (1-301-631-9100 or online at www.cardweb.com). Beware of low introductory "teaser" rates that increase to much higher rates after six months.

You could also consider a home equity loan, which may offer a tax deduction, or a consolidation loan. Make sure that you'll be able to afford the monthly payments before you take the loan. Banks can foreclose on a home equity loan within 90 days if you miss payments.

If your savings are still being crushed under the weight of debt, or if you're having trouble making minimum monthly payments and covering necessary expenses, consider getting some help. The nonprofit National Federation for Credit Counseling (call 1-800-388-2227, or visit www.nfcc.org) can help you set up a budget and negotiate payment schedules with lenders for a modest fee. Once you start paying off your credit cards, the extra money can be used to build savings.

5. The Goal: More Savings

Once you've figured out where to economize, you can enter amounts in the Expected column of the budget. Notice that Savings and Children's Education appear under Fixed Committed Expenses. This is to encourage you to pay yourself first, a key rule of saving. By setting aside a certain amount each month for savings, you can build toward your goal without missing the money. You may be able to set up a payroll savings plan through your bank or credit union. Also look into any employer-sponsored retirement plans you may have at work, which potentially offer tax benefits along with savings for the future.

It might also help to set a savings goal, both for short- and long-term needs. Studies have revealed that families with savings goals tend to save more.

Remember that your budget is a living document. As your circumstances change, so will your goals and needs. Review your budget every few months to make sure it reflects your goals and to see if you are saving as much as you possibly can.

Summary

• You can use computer software or a pencil and paper to create a budget.
• Analyze your spending for a month to see where your income goes. If your living expenses are greater than your income, you'll need to find ways to economize.
• Your spending can be broken down into three categories: Fixed Committed Expenses, Other Committed Expenses, and Discretionary Expenses.
• To free up cash for savings, begin by reducing Discretionary Expenses, then look at Other Committed Expenses.
• Pay down credit-card debt aggressively. Once the debt is paid off, direct the extra money to savings.
• Set aside some of each paycheck for savings goals. Ask your bank or credit union about payroll savings plans and investigate your employer-sponsored retirement plan.
• Review your budget periodically to make sure it is still in line with your needs and goals.

Checklist

• Start carrying a pocket-sized notebook and pen or pencil to record purchases throughout the day.
• If you plan to use computer software to help create your budget, begin shopping around for the best deal.
• Set a new savings goal for the year ahead -- such as saving 5% or 10% of income for retirement and other priorities.
• If you still don't know where to start, consider seeking advice from a trusted financial advisor.

As appeared on Yahoo! Finance

Top 10 Money Drains

Thursday, August 16, 2007provided by

It's easy to fritter away money on daily expenses. If you fall into these money traps, learn to avoid them and pocket the savings.

1.	Coffee	6.	Car washes
2.	Cigarettes	7.	Weekday lunches out
3.	Alcohol	8.	Vending machines snacks
4.	Bottled water	9.	Interest charges on credit cards
5.	Manicures	10.	Unused memberships

1. Coffee -- According to the National Coffee Association, the average price for brewed coffee is $1.38. There are roughly 260 weekdays per year, so buying one coffee every weekday morning costs almost $360 per year.

2. Cigarettes -- The Campaign for Tobacco Free Kids reports that the average price for a pack of cigarettes in the United States is $4.54. Pack-a-day smokers fork out $1,660 a year. Weekend smoker? Buying a pack once a week adds up, too: $236.

3. Alcohol -- Drink prices vary based on the location. But assuming an average of $5 per beer including tip, buying two beers per day adds up to $3,650 per year. Figure twice that for two mixed drinks a day at the local bar. That's not chump change.

4. Bottled water from convenience stores -- A 20-ounce bottle of Aquafina bottled water costs about $1. One bottle of water per day costs $365 per year. It costs the environment plenty, too.

5. Manicures -- The Day Spa Magazine Price Survey of 2004 found that the average cost of a manicure is $20.53. A weekly manicure sets you back about $1,068 per year.

6. Car washes -- The average cost for a basic auto detailing package is $58, according to Costhelper.com. The tab for getting your car detailed every two months: $348 per year.

7. Weekday lunches out -- $9 will generally cover a decent lunch most work days. If you buy rather than pack a lunch five days a week for one year, you shell out about $2,350 a year.

8. Vending machines snacks -- The average vending machine snack costs $1. Buy a pack of cookies every afternoon at work and pay $260 per year.

9. Interest charges on credit card bills -- According to a survey released at the end of May 2007, the median amount of credit card debt carried by Americans is $6,600. Rate tables on Bankrate.com indicate that fixed interest rates on a standard card average 13.44 percent. Making the minimum payment each month, it will take 250 months (almost 21 years) to pay off the debt and cost $4,868 in interest. Ouch!

10. Unused memberships -- Costhelper.com reports that the monthly service fee at gyms averages between $35 and $40. At $40 per month, an unused gym membership runs $480 per year.

Copyrighted, Bankrate.com. All rights reserved.

EPF (KWSP)

KWSP..Well, most of us know what it is. But what should i know about this scheme?

It is compulsory for those working in Malaysia. The employee will contribute 11% of basic salary, meanwhile another 12% come from the employer. In total, the employee will have 23% of his basic pay in the account.

Since this is for retirement purposes, the dividend is quite low compared to other investment vehicle. This is well understood since the fund is intended for saving, not for investing.

Since 1st January 2007, there are two accounts for each KWSP member.
Account 1 - consists 70% of monthly contribution
Account 2 - consists 30% of monthly contribution

Account 1 is mainly for retirement purposes. No withdrawal before 55 years old. Account 2 can be used for buying house, children education and can be withdrawn at 50 years old. The details can be found at KWSP website.

KWSP Dividend 1952 -2005

YEAR = DIVIDEND PAID
1952 - 1959 =2.50%
1960 - 1962 =4.00%
1963 =5.00%
1964 =5.25%
1965 - 1967 =5.50%
1968 - 1970 =5.75%
1971 =5.80%
1972 - 1973 =5.85%
1974 - 1975 =6.60%
1976 - 1978 =7.00%
1979 =7.25%
1980 - 1982 =8.00%
1983 - 1986 =8.50%
1987 - 1994 =8.00%
1995 =7.50%
1996 =7.70%
1997 - 1998 =6.70%
1999 =6.84%
2000 =6.00%
2001 =5.00%
2002 =4.25%
2003 =4.50%
2004 =4.75%
2005 =5.00%

ASB Divedend 1990-2007

Book Review : Banker to the Poor

Banker to the Poor

The Author: Muhammad Yunus was born in Chittagong, a seaport in Bangladesh. He was educated at Dhaka University and was awarded a Fullbright Scholarship to study economics at Vanderbilt University. In 1972, he became head of economics department at Chittagong University. he is the founder and managing director of Grameen Bank. He is a winner of the Nobel Peace Prize.

What it is all about: This is a great book! It teaches me to believe that majority of the world population are hardworking and honest. At first Yunus loaned $27 from his pocket to 42 stool makers living in a tiny village. He then went to local bank but failed to persuade the manager to provide small loan to the poor.The bank did not believe in two things. First, the loan would not change the life of the poorest family in the region. Second, the poor would not be able to pay back the loan in time.

As a result, Yunus founded Grameen Bank and helped these villagers to come out of the poverty cycle by providing micro lending scheme. the result was impressive! The loan repayment rate was almost 100% !!

This is one of my favourite book. Poor people is among the most honest person in this world.

How Much? : RM67 from Kinokuniya (273 pages)

Check the website here.

KPF Dividend 1992-2006

I just being informed that the dividend for year 2005 was 14%. The KPF website announces 10% dividend and 4.5% bonus for year 2006.

Koperasi Permodalan Felda (KPF)

Koperasi Permodalan Felda (KPF) was founded in 1980 to provide saving and investment opportunity to settlers (peneroka) and staff of FELDA. This initiative provides chances for members to have equity in subsidiary companies under FELDA. KPF is open to settlers (peneroka and penerokawati), their spouses and children. As my father is a settler since 1979, I took this opportunity to register with KPF about a month ago with RM5 fee. I am looking forward to obtain my registration number which means i can start my investment.

Click here to look at KPF website.

But what so special about this KPF? Since 1992 to 2004, KPF yielded an average of 13.27% of dividend every year. This is much higher than conventional ASB investment.

So if you are sons or daughters of a settler, take this opportunity and build your wealth faster (unless you have more lucrative investment vehicle). I know there are similar kind of investment like KPF which are specifically design to cater a member of an organization. For example, ATM (Angkatan Tentera Malaysia) also has its own cooperation. Ask your father or mother if they are member of such organization. Then find out the advantages of being a member and your eligibility.

ASW 2020 Performance

Year	Dividend %
2001	7.25
2002	7.25
2003	6.60
2004	7.00
2005	7.10
2006	6.80
2007	8.00

Amanah Saham Wawasan 2020 Past Performance

The highest dividend - 8.00% year 2007
The lowest dividend - 6.60% year 2003
Average dividend - 7.14%

ASB Performance

The graph below shows ASB performance (dividend plus bonus) from 1990 to 2007.

The highest return (dividend plus bonus) : 14% in 1990 and 1994
The lowest return : 8.55% in 2007
Average return : 11.15%

* I do not guarantee the accuracy of any figure in this blog. I have tried my best to find the most reliable source for the data.

Where to Save and Invest?

Most people know where to save their money. In Malaysia alone, we have more than a dozen of banks which can be used. Setting up a saving account is not much a hassle anyway. However, do I know where to invest?

Investment Vehicles

In my opinion, there are few investment vehicles which are readily accessible in Malaysia.

ASN, ASB, ASW etc : Permodalan Nasional Berhad (PNB) is part of government effort to instill a saving habit among Malaysians. PNB has issued various unit trust schemes such ASB, ASN, ASW 2020, ASD, ASG. PNB was founded in 1979 and became the largest fund management company in Malaysia. These unit trust scheme usually yield between 7-10% dividend each year.

Click here for PNB master prospectus.

Other Unit Trusts: Unit trust has a long history since 1959 in Malaysia. Nowadays, there are at least 20 companies offering unit trust products. The unit trust can give up to 40% return in a year (not all, only few with exceptional performance). However, the average return is between 10-20%. It is advisable to leave my money for at least moderate term (3 years) in order to get a fair return.

Property: Property is almost sure to appreciate in value. With development around Malaysia (such as Wilayah Pembangunan Iskandar WPI), some regions will experience property booming soon.

These are 3 investment vehicles which i think readily accessible in the market. The other vehicles are complex, consume time and need big capital. Thus, as an average person I will concentrate on these 3 investment vehicles. These investments are simple and easily understandable with manageable amount of risk.

Saving vs Investing

Actually there are major differences between saving and investing. In previous post, I have combined saving and investing together. At times, the word 'saving' that I used, can be translated directly as 'investing'.

The Definitions:

This is my personal definitions of saving and investing. Saving is putting aside my money in some place in which I will be able to get it anytime I want without any delay. Saving is intended to smoothen my cash flow without any intention of getting any return from the activity.

However, investing means allocating some portion of my money in places where it can grow and yield return in medium or long term. To stay solvent in this modern world, it is important to have both elements in our financial plan.

How They Differ

Goals: Saving is for short term goal and to ease daily business transaction or in emergency. Investing is mainly moderate (3 years) to long term commitment. The money is less liquid in investing compared to saving. For example, saving maybe used to purchase new sofa set while investing is for children's education.

Vehicles: Saving and Investing vehicles are not the same. The most common form of saving is bank account (saving and current accounts). Meanwhile, investment can be made in the form of bonds, mutual funds and property.

Return and Risk: Most likely the return of investment is much higher than saving. The same apply to the risk associated with both methods.

Liquidity: It is easier to get my saving money at any time I want. By using ATM card and Internet banking, any transaction can be made by just touching few buttons. Meanwhile, money which is invested takes time to be converted into cash. This may take several days.

Time is Money

Time is our best ally in investment. So, start now to save regularly. To illustrate the important of start early, let consider these situations.







Case 1

Aminah starts a regular saving at age 25. She plans to have RM1 million a retirement (age 55). Thus she has 30 years to achieve her goal. Let us assume that the dividend is 10% per year. To achieve her goal, Aminah need to save RM481 per month. Note that at retirement, she earns RM8366.79 monthly till the day she dies.

Case 2

Meanwhile, Abu has a similar goal. But he starts his regular saving 5 years later, at age 30. He only has 20 years to achieve the same goal. As a result, he needs to save RM725 monthly, which is RM244 more than Aishah.

Case 3

Zack is the worst. He starts at age 35. He needs to save RM1236per month to be as rich as Aminah and Abu at retirement. 1o years late means Zack has to pay extra RM755 compared to Aishah.

So, the best advice is to start early. Start saving when I receive my first paycheck.

How to Save?

Saving - Put My Faith in It, but How to Do It?

Pay Myself First: The key to successfully saving plan is to pay myself first. I need to make it a habit to set aside some money for me first. The bills and other people should wait! Most people are paying themselves last. And by the time they finish paying others (utilities companies, friends, cable TV company, etc), they only have few cents left for themselves. Thus, I need to

Save 10% of My Paycheck: I should save at least 10% of my paycheck every month. I need to do this the first moment my money is in the bank. Then If I am comfortable, I will increase the percentage and find ways to reduce my expenses.

Make Lump Sum Investment Occasionally: Some employee receive a great treat towards the end of the year. Bonuses, Incentives and simply Hari Raya Angpau can be used to expand my saving size. I need to remember the more money I save, the more dramatic my saving will grow.

Live Below My Means (LBMM): Live below my own means does not mean to lead a stingy, misery life. I just need to be frugal and be careful on my purchases. On the Internet, there are lots of tips on how to live below my means. Apart from a well controlled cash flow, LBMM can instill a noble character, not to show off with my wealth.

Discipline and Commitment: After all, I need to committed to what I write. Always to imagine the end result that I want and stay in focus.

The Rule of 72 - Doubling My Money

This is a simplified calculation on how long do I need to double my invesment. Just divide 72 with the expected interest every year . I am assuming the interest is constant all the time which is very unlikely.

The result as follows;

Interest Rate-Years
3% -24 years
4% -18 years
5% -14.4 years
7% -10.3 years
8% -9 years
10% -7.2 years
20% -3.6 years

Interesting right? I have no idea where 72 is coming from. But the calculation does give a good estimate.

The Power of Compound Interest

The most basic investing strategy is not hard to understand. Perhaps the easiest tactic is to leave my money alone and let it accumulate over time, or ''compound''.

Two basic principles of ''compound'' are:

1. The more I save, the faster it grows

2. The earlier I start to invest, the more dramatic my money can grow.

Firstly, I should understand and believe that money can grow over time. The process is slow but it is a sure way to accumulate wealth in a long run. To illustrate the power of compound interest, let see simple cases.

Case 1

Ali is saving RM200 in ASB every month without fail since he is 25. Let's assume that the dividend of ASB is 7% every year. 25 years later, at age 50 the total saving he has is RM157,533.35.

The amazing fact behind this number is that: the total money that Ali actually put in during those year is RM60,000. This is only 38.1% of his total wealth. A total of RM97,553.35 is accumulated compound interest!!

Case 2

Saving for children education is a prime concern of most parents. When Abu is having his first baby, he has saved RM10,000 at that time. He put the money in a bank with an interest of 8% per year for his baby education. When the baby grew up and ready to enter university, Abu already has RM 50,338.34 as a result of his 20 years investment. See how RM10,000 can grow to 5 times its value in 20 years. Abu no need to worry about settling down his son education fee. But a lump sum of RM10,000 is too much for many parents.

Case 3

RM10,000 is maybe too much. To be more realistic, Zainab save RM100 per month for her baby education since she knew she is pregnant. After 7 years, her total saving is RM11,171.35. From that moment, she stops her regular saving and let the money grow by itself. When her child reaches age 20, the saving has grown RM30,381.87. This can be used to finance her child education at local university.

I have not earn my first wage from a formal job yet. So, I have no experience on how it feel to receive the first pay. At university, I work part time as a domestic assistant or cleaner. I cleaned university hall of residence and being paid almost equivalent to the national minimum wage. Most of the money was used to fund my travel around Europe. Anyway, that when I was a student, had no idea of saving and compound interest.

To calculate the compound interest of your investment, click here.

Introduction to Saving Plan

Before one has money to invest, he need to learn to save first. Without any saving,one cannot invest unless he has inherited million dollar legacy from his late parents.

To a lot of people, saving means keeping aside a small percentage of monthly allowance for future use. The amount of monthly saving is diferent for one person to another. It depends on one's liability (car loan, bills, etc) and lifestyle. As a basic rule, the least that need to go into saving each month is 10% of paycheck.

As a graduate engineer, I may earn at least RM2000. This means RM200 should go to my saving account. But that's not all, the hardest part of the journey is to minimize the expenditure and maximize the income. Thus, I can save more.

It is important to set a goal for the saving plan. People may save for retirement, for house downpayment, for children education, or for marriage.

Introduction

Money is an essential part of daily life. Yet, we have been taught almost nothing about it. Since childhood, we believed money is to be spent, as an exchange for good or service. We think money means prosperity and easy life.

But the thing that we do not know is money can grow. Money can depreciate in value. Risk is part of money and need to be managed properly. Thus, I have started a quest to understand money better. Money can be either a good and obedient servant, or the worst master.
I wish I can start to write down the knowledge of money. A wise man once said

''Knowledge is like a wild animal that you hunt. If you not tie the animal (write it down), it will run away''

I hope this effort will benefit me the most. Good luck to me on my journey.