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Wednesday, December 16, 2009

Tips on how to choose unit trust funds

Personal Investments - By Ooi Kok Hwa

UNIT trust funds offer an attractive alternative to retail investors, especially those looking for the benefit of diversification with a small pool of capital while enjoying the possibility of earning higher returns compared with conventional savings.

However, a lot of people have the misconception that the diversification nature of these funds means that the risk of investing in unit trust is low and they can just close their eyes and simply pick any of the funds that come along.

This misconception has led to many paying high prices in learning that as in any type of investments, investing in unit trust funds requires some basic understanding and research before we commit our hard earned money to it.

In general, we can classify the unit trust funds in the market into two major categories: income funds and growth funds.

·Income funds usually are characterised as providing consistent income to the investors. These funds invest in income-producing stocks or bonds or a combination of both. Bond funds, equity income funds and money market funds are included in this category.

·Growth funds generally are more aggressive than income funds but have the possibility of earning higher returns by focusing on the objective of long-term capital appreciation rather than income producing or short-term gain. Examples of growth funds are small-cap funds, commodity funds, index funds and gold funds.

Before we start evaluating the funds to invest in, there are two main considerations which are our investment objectives and risk tolerance level.

Every investor invests for his own purpose. If you are investing for your retirement and are already close to retirement age, you should look for income funds that are more predictable.

However, if you are still young and want to save for your children’s higher education, which will be 10 or 15 more years, you may want to look for growth funds that generate higher return but with higher level of risk.

Once we are clear on what we are looking for in the investment, we can narrow down our selection to either income or growth category and move to the next step of identifying the most suitable funds within the selected category.

Here are a few key factors to look into when evaluating unit trust funds:

·Investment strategy, policy and holdings: Every fund has its own investment profile. Investors should have a clear understanding of the investment strategy taken in each fund that they are considering to ensure it is consistent with their personal investment objective and risk tolerance level.

Even the funds within the same category may have significant differences in risk exposure due to the difference in the investment holdings.

For example, the risk exposure in large-cap growth companies is definitely much lower than for penny stock funds.

·Past performance: Investors may look into the past performance trend of the fund to gauge its future performance.

However, do bear in mind that good past performance may not be repeated in the future and we should not be overly excited to see one year of good results if the fund is only newly established.

A good fund should be the one that has been consistently out-performing its peers, be it during good or bad times.

·Cost: Investors must be aware that when they buy or sell the funds, there are fees and expenses embedded in every transaction.

For example, the expense ratio of a small fund tends to be higher than a large fund while a regional or global fund usually will carry higher costs compared with a domestic fund.

·Fund management: The fund management is very important to ensure continuity and consistent performance.

If a fund changes management too frequently, it will be very difficult for us to gauge the performance of the fund as different managers will have different styles which may affect the performance of the fund.

For example, if the manager tends to have higher portfolio turnover, then the expense ratio of the fund may increase even though the nature of the fund holdings remains the same.

By having good understanding of the above factors, we may be able to make meaningful comparisons among funds that we are interested in to identify the ones that suit us most.

Source: the Star online

Sunday, November 29, 2009

YOUR MONEY - 10 factors to financial freedom

MOST people think that the Return on Investment (ROI) is the most important, if not only, factor for them to manage in order to achieve their financial freedom.

To them, they have a higher chance of achieving financial freedom if they can get good ROI for their investment. A good and high ROI will help to increase their investment fast to achieve whatever financial goals they have.

If they do not get a good ROI, then they think that they will have little chance of achieving their financial freedom.

As a result people focus too much on ROI in their financial freedom plan and neglect other equally important factors.

In my opinion, the importance of ROI in achieving one's financial freedom has been over-rated. ROI is not the only important factor. There are another nine factors that you can manage to achieve financial freedom.

The nine factors

The other unknown or under-rated factors in achieving financial freedom are:

- The time you start taking action

The earlier in life you start to take action to achieve your financial freedom, the better position you will be in achieving your financial freedom.

Someone who starts planning and acting on his financial freedom plan at age 30, put himself in better position than someone who starts at age 50. The earlier you start investing, the lower ROI you will need to achieve the same wealth accumulation goal.

However, many people just ignore this and do not use it to their best advantage in achieving financial freedom.

- The amount you save

The more you save from your income, the more money you will have to fund your financial goals. As a result, you can achieve your financial freedom easier.

In addition, the more you save, the less ROI is needed to generate to achieve the same accumulation goal.

- Your family income

The more income you have, the more money you can save. As a result, you will have more money to fund your financial goals. When we talk about your family income, it includes your spouse's income. Having extra sources of income is definitely better than having only one source of income.

- Children's education expenses

The more you spend on your children's education, the less money you will have for your other financial goals. So, someone who spends less on children's education or has fewer children is in a better position than someone who spends more on children's education or has many children.

- Your dream home

If you want to have an expensive dream home, you will have less money for your other financial goals. Someone who wants to have a RM2 million bungalow will definitely put himself in a more challenging position to achieve financial freedom than someone whose dream home only cost RM500,000.

- Your vacation expenses

The more you spend on your vacation, the less money you will have for your other financial goals. Someone who spends RM20,000 a year on vacation is in a better position to achieve financial freedom than someone who spends RM50,000 a year on vacation.

- Your retirement age

When you retire, you stop having active income. So, the later you retire, the more income you generate to fund your financial freedom. Someone who chooses to retire at age 65 will need a lower ROI to maintain his retirement life style than if he were to retire at age 55.

- Your living expenses during retirement

The more you intend to spend on your retirement living expenses, the more money you will need to fund your retirement. Therefore, you will need to achieve a higher ROI. On the other hand, if you intend to spend less on your retirement living expenses, you will need a lower ROI for your investment.

- Your medical fund provision

The more you need to provide for your medical fund, the less money you have to fund other financial goals. You can reduce your medical fund provision by transferring your risk to insurance company. You can also choose to use public healthcare service rather than private healthcare.

After going through the nine factors, you may think that they are nothing new. However, in the journey to achieve your financial freedom, what you know is not important. What matters more is what you do with what you know.

When you are able to manage your financial freedom plan using all the 10 factors, you will be able to place the importance of ROI in the right context and let other factors play their roles.

As a result, you will be able to exploit the compounding and synergistic power of the 10 factors to attain financial freedom.

Without considering nine factors, your financial freedom car is only powered by one horsepower engine rather than 10 horsepower engines. And that's a great waste.

In fact, there's another angle to consider when using the other nine factors: your ability to control a particular factor. The more control you have on one factor, the easier it is to manage that factor to achieve financial freedom.

Out of the 10 factors, ROI is the one that you have the least control.

You will never be able to guarantee your ROI no matter how much effort and knowledge you put into it. The truth is that no one in this world has an absolute control on ROI. Not even a great investor like Warren Buffett. Therefore, it is an illusion if you believe you can control ROI by putting in great effort.

However, you will find that you can have better control on the other nine factors. You can control when you want to start taking action, the amount you want to save, what your dream home should be, how much to spend on your vacation, when you want to retire, how much to spend on your children's tertiary education and how much money to set aside for your medical expenses.

You can also control on how much to spend on living expenses during your retirement and your much income to generate if you really want to.

I must agree that you can't completely control all these factors. However, you definitely have better control on these factors than the ROI factor.

Therefore, the wiser way to achieve financial freedom is to understand that ROI is only one of the 10 factors to achieve your financial freedom and the least controllable one.

If you are serious about achieving your financial freedom, start exploring the other nine financial freedom factors and put them to good and full use.

To do that effectively and efficiently, a tool that comes in handy is the Roadmap to Financial Freedom.

In fact, the roadmap has been designed in such a way that you can manage all the 10 financial freedom factors easily.

source: NST online

Sunday, November 22, 2009

What is the real value and use of gold?

WHAT is the real value of gold? Gold has industrial uses, especially in the electronics industry where it is used for electrical wiring due to its high conductivity. However, close to two-thirds of its demand is for jewellery, particularly in India and China.

Increasingly, it is being used again as a store of wealth as investors lose confidence in paper money, hedge against inflation or worry about economic and political turmoils. Other than buying physical gold, investors can invest in gold exchange traded funds (ETFs). SPDR Gold Trust, the largest gold ETF with a market capitalisation of over US$41bil, holds over 1,100 tonnes of gold.

Money could as well be in the form of sea shells and indeed Pacific islanders used sea shells as money. Before paper money, what constituted money came in many forms – sea shells, salt, leather, copper, silver and gold. Money was used as a store of wealth which could be used to purchase goods and services without resorting to barter trade. It was in the world’s oldest civilisation, Mesopotamia (in modern Iraq), where metal coins were introduced around 2500 BC. Gold is valuable only because it is perceived so in the collective psyche of the human race, hence its value is subjective and relative to other alternatives. To be valuable, something has to be rare and desired.

In all of history, only 161,000 tonnes of gold have been mined, barely enough to fill two Olympic-size swimming pools, according to a January 2009 National Geographic article. To be valuable and used as money, it has to be something durable. That would exclude fair maidens as their perceived value in the eyes of lustful men may diminish with age. Still, without the demand of gold from the fairer sex, its value would be much lower.

In Einstein’s theory of special relativity, time is relative to speed but if we apply the theory of relativity to the perception of value, the relative value of goods and services is determined by comparing the desirability of one versus another just as we compare the relative attractiveness of bonds, real estate, gold and stocks.

Even within the same asset class like stocks, we apply the relative yardstick – should we buy DiGi or Maxis? The relative attractiveness is determined by supply and demand, interest rates, growth and dividends for stocks, personal preferences and many other factors. The fact that the prices of stocks, bonds and commodities quoted on exchanges are so volatile is a reflection of not only genuine supply and demand but also human psychological factors which cause irrational exuberance or pessimism.

The Chinese introduced paper money during the Tang Dynasty (618-907) and with that they also invented hyperinflation when a large amount of paper money was introduced.

How does printing money cause inflation? In a simple hypothetical world where US$100,000 of paper money can only buy you a bar of gold or a house, doubling the paper money to US$200,000 does not create new wealth but merely causes the value of the bar of gold and the house to rise from US$100,000 to US$200,000, an inflation of 100%.

Wealth transfer

Printing of money merely results in a wealth transfer from the saver (who can buy less with paper money) to the government (as it can use the freshly created money) and borrowers (decline in the real value pf debt). Gold is perceived as an inflation hedge and a store of value. (See chart) Its price spiked in the late 1970s when the US and world inflation surged. The price is surging again due to diminishing confidence in paper money.

World governments are all undertaking fiscal stimulus to counter the economic slowdown. These large budget deficits eventually have to be financed by higher taxes but with unemployment in the United States at over 10%, politicians with an eye on getting re-elected may be tempted to print money to finance the budget deficits and bailouts.

Hence it is not surprising that with the United States, British and Japanese governments printing money, investors are flocking to buy gold or commodities which are a better store of value as their supply does not grow as fast as printed paper money.

The printing of money by the US government also puts other currencies at risk as over 60% of foreign reserves are held in US dollars. As the gold standard has been abolished, paper money cannot be converted to gold. No wonder the Indian government has decided to sell some of their US dollar reserves for gold. Perhaps the currencies of larger countries like Australia are relatively safer as they are sitting on large yet-to-be-mined gold reserves even as their US dollar reserves lose value.

So, should the fair price of gold be relative to paper money? Though the value of gold may be subjective in the minds of investors, the reality is that the amount of gold in the world is finite, but there is no limit to the quantity of paper currency which can be issued.

Therefore it is not surprising that the value of gold is at a record high as more money is being printed. All this is premised on the assumption that we will continue to treasure gold, which is likely to be the case as we have done so for millennia.

Choong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd

NEW YORK: Gold prices finished higher for a sixth straight day Friday, rising even as the dollar strengthened.

The December contract added $4.90 to settle at US$1,146.80 an ounce on the New York Mercantile Exchange.

For the week, prices gained 2.7 percent.

Gold has been on a record-setting climb since early September as investors looked for an alternative investment to a falling dollar.

Gold is considered a good hedge against a weak greenback because of its stable store of value.

The dollar, however, has shown some strength in recent days.

On Friday, the ICE Futures US dollar index, a widely used measure of the dollar against other currencies, rose for a second day in a row, gaining 0.4 percent in afternoon trading.

As investors grow more cautious over the sustainability of the economy's recovery, they have begun to shift money out of risker assets like stocks and commodities and back into safe-haven investments like the dollar and Treasurys.

Gold is also considered a safe-haven asset, so prices have held up amid the dollar's strength.

"When the dollar rebounds, I don't think it's a safe assumption that everyone will run from gold," said Jason Toussaint, managing director of investment at the World Gold Council.

There are investors who are holding gold "for preservation purposes," he said.

Some analysts have expressed concern that gold could see a sharp correction after such a rapid ascent.

But the consensus seems to be that gold prices have more room to run.

"We still expect to see attempts at higher levels," said Jon Nadler, senior analyst at Kitco Metals Inc. in a research note Friday.

Other metals were little changed.

source: the star online

Monday, November 9, 2009

How to invest in gold

HISTORICALLY, gold is perceived to be a safe haven during uncertainties and economic crises as it is considered more stable than other asset classes. It is generally an effective hedge against inflation and fluctuations in the US dollars.

Gold is an investment tool for preservation of wealth and a store of value in times of market volatility. It is an asset diversifier that could lower the overall risk in an investment portfolio.

In the previous article, we discussed the benefits of investing in precious metals and particularly gold. This article will focus on different ways to invest in gold.

Gold and gold-related funds

Gold and gold-related funds are unit trust funds that allow individuals, corporations and institutions with common investment objectives to pool their money for investment in gold and other precious metals. Professional fund managers then use the pooled money to acquire assets which will help meet those objectives.

Generally, a gold fund invests in gold mining equities and/or gold bullion accounts, while a gold-related fund invests in gold and other precious metals including platinum, silver, rhodium and palladium.

"By investing in such funds, investors benefit from diversification in their investments as fund managers buy stocks in more than one gold mining company or more than one type of precious metal," said Datin Maznah Mahbob, chief executive officer, Funds Management Division of AmInvestment Bank Group.

The funds also provide investment opportunities that allow investors to benefit from the investment expertise of fund managers who manage the funds.

In Malaysia, the only gold fund is opened to high-net-worth individuals with the minimum investment set at US$150,000 (RM513,000). For gold-related funds, investors can invest as little as RM1,000 to enjoy diversification in their investments and take advantage of professional fund management.

Gold exchange traded fund

An ETF is a unit trust, listed and traded on a stock exchange. It is an open-ended fund that tracks or follows the performance of a benchmark index.

An index is made up by a basket of securities and usually reflects the movement of an entire market. This gives ETF investors the opportunity to invest in a pre-packaged basket of securities of an index rather than just an individual security.

"Gold ETFs allow investors to buy and sell gold ETF units just like how they trade stocks on a stock exchange. Generally, gold ETFs track gold indexes or the price of gold. The ETFs invest in gold mining stocks to track the gold index," she added.

Gold ETFs, which track the price performance of the gold bullion, enable investors to participate in the gold market without taking physical delivery of gold. This is because it is 100 per cent backed by physical gold held mainly in allocated form. Allocated gold refers to the gold kept in a vault under a safekeeping or custody arrangement and the investor has total ownership to it.

The first gold exchange-traded fund Gold Bullion Securities listed on the Australian Stock Exchange since March 2003 is fully backed by gold, which is deposited and insured.

For SPDR Gold Shares listed on the Singapore Stock Exchange, the underlying gold is stored in the form of 400 ounces London Good Delivery bars in a bank vault.

"Gold ETFs are considered a passive investment. This means that upward movement of gold prices or gold indexes will be followed by the appreciation of ETF unit prices," said Maznah.

There is no gold ETF offered in Malaysia yet, but local investors can invest in Singapore-listed SPDR Gold Shares which are available closer to home. They need to have a foreign trading account offered by a local securities firm to trade the ETF. On top of that, their investment is subject to currency risk since the gold price is quoted in US dollars while the ETF is in Singapore dollars.

Physical gold investment

Some investors prefer to invest in physical gold including jewellery, gold bars and coins to have physical possession of the assets. Gold is an asset appreciated for its intrinsic qualities and beauty.

Investors have the option to buy gold bars in a variety of weights and sizes, ranging from one troy ounce to 400 troy ounces from some banks and jewellery shops. For instance, a local gold trading company offers gold bars and coins of 20 grams at RM2,415, 50 grams at RM6,010, 100 grams at RM11,964 and 1 kilogram at RM119,644 as at September 15 2009.

Investors can also invest in bullion coins offered in different weights of 1/20, 1/10, 1/4, 1/2, and one ounce. The actual value of bullion coins is based on the daily gold price and the gold content. They can buy bullion coins including the American Eagle, Australian Kangaroo Nugget and the Canadian Maple Leaf.

"To make direct investment in physical gold, investors need to set aside a bigger sum of investment compared to buying units in gold funds and gold ETFs. It is not as convenient as they have to think about safe storage and insurance for the precious assets," added Maznah.

Mining stocks

Mining stocks or equities are shares of ownership of a precious metals mining company. The stocks entitle the investor to receive profits from the operations of the company, usually by payment of a dividend, and to any voting rights attached to the stocks. Factors affecting the appreciation potential of a gold mining stock include market expectations of the future gold price, the future earnings and growth potential of the company, mining costs, and the likelihood of additional gold discoveries.

In general, prices of gold mining equities are more volatile than gold prices, thus some gold mining company equities decline when gold prices increase. The short-term volatility of the equity prices could be due to some gold mining companies hedging their future output using gold futures contracts. In the long-term, generally prices of gold mining equities could match the longer-term price trends of gold bullion.

"Investors do not enjoy diversification in their investments when they buy stocks of one gold mining company. They need to allocate more money to buy stocks of different companies to diversify their holdings," explained Maznah.

Gold passbook account

Another option is investors can buy gold in 999.9 fineness using a gold passbook account. Whenever they buy and sell gold, the transactions will be recorded in a passbook provided to the account holders. With the account, they can buy and sell gold at daily quoted gold prices for 1 gram in Malaysian ringgit. The account is normally backed by physical gold.

There are banks in Malaysia that require investors to deposit and trade a minimum of 5 gram of gold. The bank allows investors to make withdrawal in either physical gold or cash credited to their deposit accounts. They will incur a conversion charge inclusive of the shipping and insurance for the physical withdrawal.

One of the disadvantages for this type of investment is account holders do not get any interest or dividend for their investment. They generate profits only if they sell the gold at a higher price compared to their initial investment. The banks normally impose a charge of up to 5 per cent based on the gap between the selling and buying prices to cover administrative and storage expenses.


Now that you have understood the different ways of investing in gold, you need to compare them in terms of diversification, affordability and the advantage of professional management. On top of that, you should consider and select the investment options based on your risk tolerance as well as investment goals and objectives.

source: Business Times

Thursday, September 17, 2009

Millionaires Around The World

My, my... would you believe that in The United States alone, you will find 3.9 million millionaires, the highest population on the globe.

And 8.5% of Singapore's population are millionaires...and here we are trying to figure out on how to get our first million... (Now, do you think it is difficult to be a millionaire?)

By the way, to get the full story, you can go here..