We have seen tremendeous falls in the world share market for the past few weeks. No single country is spared from this recent world-wide financial crisis. I am sure there are many depressed and anxious investors out there.
Good thing is a coin always come with two faces. While many might see this period as crisis, there are still many out there seeing this as a once in a life time GOLDEN opportunity. I belong to the second group. In fact, I’m starting to get real excited to see most of the counters, as well as Unit Trust funds, being “offered” at such a great extent of discount.
The smaller the base, the greater would be the return.
I leave you with these two great articles for your reading pleasure. One from my respected Guru - Warren Buffett, while the other from the young millionaire from Singapore - Adam Khoo. Both of them sharing a similar view.
I was reading a very interesting article. Was attracted by it’s title ~ “Millionaires-in-the-Making”
The article was about a young couple of 27 years old, John and Gina, whom are different from their fellow friends of their age group with similar earning power. While the latter indulge their life with fancy dinners, luxury vacations and designers wardrobes, this couple is planning how to make their millions and retire by the age of 40.To achieve their goals, they: - More →
Upon reading my last article on effective interest rate , a close friend of mine asks me a question: -
If Mr. A has RM 100,000 cash, should he: -
a)Pay off his car loan of RM 100,000, with interest rate of 2% p.a. for 5 years; or
b)Continue with his car loan, and save the RM100,000 in Fixed Deposit (FD), with interest of 3.75% p.a.,
This is a common question when one reaches a stage in which they have some money left over and wondering whether they should use the money now earmarked for savings to pay off their debt faster.
A friend of mine received a call from a banker last week, offering him a low interest personal loan of RM 34,000 at 5.99% per year, with 5 years repayment terms.The idea put forth to him was that he could use this RM 34,000 to repay part of his current RM 200,000 home loan, which had a 20 year tenure, which ultimately should help in saving his home loan interest. The reasoning was that the RM 34k if settled with the personal loan, would save substantial interests if it were continued to be paid over 20 years.
With his current home loan interest of 6.5% p.a., he was quite moved by the offer, as from the initial sound of it, the personal loan of 5.99% might very well help to reduce the interest expenses by 0.59% p.a. for the next 5 years.
Is that so?
He came to me for an advice and I told him that he would not be saving any interest, but in fact would be paying much higher interest than he thought!!!
Ok. Here come another common misconception of Unit Trust Investments, or perhaps I can say a commonly used selling line of fellow consultants – ‘invest in this fund because it is distributing dividend by month end’.
In fact, I just met up with a potential Public Mutual Gold investor whom is well pleased with his existing consultant mainly because the consultant offers the service of advising him on which fund to invest in based on the dividend distributing timing. I must mention that this investor’s investment objective is to withdraw the dividend as his pocket money.
So, is this a good idea?
Well, it surely is a good selling line - “Hey, you put in RM 10k today, you will make RM1k from dividend distribution (assuming a 10% distribution declared) by month end. “ Sound great!
But the point is, is it financially beneficial to the investors by advising them to invest into a fund just days before the distribution declared?
Often we hear investors favoring one fund over the other simply because of its cheaper price. They think that a cheaper fund has a greater potential for capital appreciation.
Unfortunately, this is a misconception.
One should not confuse its actual value based only on the price of shares and unit trust.For shares investment, the price of a particular share may reflect it value, especially when considering certain other factors like its PE ratio, etc. For e.g., for Genting shares, investing at RM 5 is of better value than at RM 8.However, for unit trust investment, the price of a unit trust at a particular time does not indicate relative value in the same way as stocks.
Perhaps we should start off with looking at how the price of a unit trust is derived. The price of a unit trust is normally known as NAV (Net Asset Value). Technically speaking, it is defined as the market value of the unit trust’s total assets, minus liability/expenses, and divided by the number of units issued. We can see how NAV is calculated using a simple example: -
Total asset of the fund = RM 10 billion
Total number of units issued = 50 billion
NAV (Net Asset Value) = RM 10 billion/50billion = RM 0.20 per unit
I was reading a fellow blogger’s concern on his falling unit trust investment value.
I can understand how disappointed he would have felt.
Last year, while the market was vibrant and at her all time high, was a great year for investments. Due to most bourses hitting all time highs, unit trust companies delivered very good results which boosted the excitement levels of investors. Many investors may have made quick money from unit trust investments last year. The side effect? - a great level of optimism brings forth a greater level of disappointment.
More so, such optimism and excitement has caused many investors to lose sight on the underlying principal of unit trust investments.
So, why not stay calm and re-look the objective of us choosing unit trust investment in the first place: - More →
I was reading a report from Singapore, dated 5 June 08: -
“ Malaysia’s inflation is expected to rise to 10- year high of 4.7 percent in 2008, after the government sharply raised fuel prices.
Economists expect Malaysia’s central bank to raise its benchmark interest rate to 4 percent from 3.5 percent currently, by end of the year.
Central bank Governor, Zeti Akhtar Aziz, said on Thursday that energy price rises meant inflation would average 4.2% in 2008 and Prime Minister Abdullar Ahmad Badawi had estimated inflation in a range of 4 and 5 percent this year. An inflation rate of between 4 and 5 percent would be the highest since 5.3 registered in 1998.
Bank of America expects the central bank to start its tightening campaign in July, when it is likely to raise rates by 25 basis points, follow by more rate rises later this year. “
