Dividend Magic

Saving and Investing towards Financial Independence in Malaysia

Investment

Basic Financial Plan for Malaysians

By 6

I’ve gotten so many questions from all of you seeking financial guidance that I’ve decided to once and for all come up with a simple financial plan (a guide if you will) for all to use.  

We’ll begin with the basics first, getting yourself out of debt, saving up and then investing that money for passive income.

The Goal

The final goal of this plan here is for everyone to have an investment portfolio that generates sufficient passive income to sustain your lifestyle.

What is your Networth

Use a paper or Microsoft Excel and draw up your Balance Sheet. You’ll have your assets listed on one column and your liabilities on the other.

I’ve got a simple template set up for everyone to use here. Add or remove necessary items. The download link for the Excel file is below.

Personal-Balance-SheetDownload

1. Budgeting and Saving

First and foremost, you’ll need to have capital. For that regular, periodic investing. And also, for the opportunities that appear once (or twice) in your lifetime.

Acquiring capital would mean you need a surplus in your monthly budget. Now, there are tons of budgeting templates out there on the interwebs so I’m not going to walk you through this.

I will, however, tell you that the most important aspect of budgeting is to make it into a healthy habit. Keep at it for a time and you’ll thank yourself 50 years down the road.

Savings – I want you to have at least a 20% savings rate. The higher the better, in fact, try for 50% of your take-home salary. You’ll invest more during your early years and let the magic of compounding take over sooner.

2. Your Emergency Fund

After you’re done consolidating and paying off your debts, you’ll have a nice surplus in your budget and savings every month.

The next step would be to start building up what we call your Emergency Fund. This is the fund where if and when you ever need money for an emergency, you’ll never need to take out that personal loan or worse, from loan sharks.

An example – medical bills, or if your phone got stolen etc.

How much should you have you ask? Some sites will tell you 3 months of your expenses. I say at least 6 months, go 12 months if you’re the risk-averse kind.

I typically keep my emergency funds in Fixed Deposits (‘FDs’). Now, you may need to liquidate this cash immediately, so put them up in one-month FDs.

3.1 Investing

You’ve got a kick-ass budget going on, your behind is covered by your emergency fund, now let’s talk investing.

As you all know, I invest heavily in stocks.
Here’s what I do – I continue saving and accumulating my wealth. I then wait for and seize any opportunities that present itself. I try to always have cash on hand.

Of course, you may not want to invest in stocks. And that’s perfectly fine, you should invest in assets you KNOW and you’re comfortable with. Just as long as you INVEST. Don’t leave your money lying around in FDs and what not because inflation is gonna take a bite out of it every single day.

The 7 investment options in Malaysia can be found hERE.

Investing your money is essentially making your money work for you. The first few years of your investing will determine the outcome of your financial well-being so invest with care and diligence.

3.2 Building Your Passive Income

For me and hopefully for you, the goal is to have enough passive income to not have to worry about work. I’ve calculated that to about RM3,000 per month or RM36,000 per year. This is the essence of FI/RE – Financial Independence and Retire Early.

To learn more about FI/RE – click hERE.

There are lots of people and information out there that touts and scream passive income in your face. But when I say passive, I mean the true passive. You receive regular income with little to no effort on your part.

For example, a rental property where you manage it yourself and you’re getting complaints from the tenant every other month is not passive.

Whereas if you let your agent handle every single thing regarding the said property and check-in maybe every quarter with him/her, I’d classify that as passive.

Or you know, just buy Real Estate Investment Trusts (‘REITS’).
Let huge ass property managers manage your property instead. No worries. Hakuna Matata.

4. Protection

Now I’m including protection into your financial plan because many either overlook this or overprotect and overinsure themselves.

This step should be done simultaneously with Step 3.

Let’s talk insurance. I know I’ll be getting flak from insurance agents for saying this but – You don’t need life insurance. This is my opinion.

What you should focus on right now, is medical insurance. To cover your medical expenses, should you be hospitalized or some critical illness should befall you. That’s all I have and that’s all I need. I can pass on my whole portfolio to my next of kin and dependants upon my demise.

While we’re on the topic, fuck investment-linked insurance. Get a standard, simple one. Don’t let the premiums in your 80s scare you. You’ll invest the money yourself, without paying a fee to the insurance company.

5. Review and Monitor

You finally have everything in order. The final step is a step that is continuous and on-going. It is for life. And it is for generations to come.

You’ll need to monitor your budget monthly, make sure your savings increase in tandem with your salary and income.

Your emergency fund will increase as your monthly expenditure goes up.

Your investments and assets AND passive income should always go up, up and UP.

And, your insurance should always be updated to include the latest offerings and cover all illnesses.

I myself go over my finances every month. Part of the reason I started Dividend Magic is to keep track of my investment portfolio as well as to hold myself accountable.

End.

It is my hope that this here Financial Plan would be of help to every single Malaysian. It is a very basic plan, I’ve left out some more advanced features of financial plans but the essentials are all there.

You and you yourself are responsible for your finances.

Remember – Save, Invest and FI/RE.
I’ll leave you one of my favourite quotes by William Shakespeare.

”There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.”

Now go out there and don’t let them opportunities pass you by.

Funding Societies – My First Default

By 1

First off, an update on my portfolio’s performance with Funding Societies Malaysia. Annualised returns have gone down from 13% to 9.23%.

A lower figure compared to January but still, a 9.23% return is commendable for an investment.

Mainly due to –
1. A default; and
2. New unutilised capital.

My First Default(s)

It caught me off guard when I first received notice on the default on the issued notes, of which I’ve put in RM300 each into the affected notes.

MBBT-18080032
MBBT-18080033
MBBT-18080034

Being caught off guard like that isn’t always a nice experience but it was mitigated somewhat because I’ve constantly been managing my own expectations and prepping for a few defaults.

Re-adjusting Funding Societies’ Auto-invest Bot

If you’ve noticed, all the notes come from a single issuer or company. So it’s back to the drawing board for me.

I’ve now switched my auto-invest bot settings to have ‘Max Issuer Exposure’ from the previous 25% to a mere 5%. I don’t want to be over-invested in one single issuer.

In the event that a single issuer defaults, my loss exposure will never exceed 5% of my total loan portfolio.

Steps Taken by Funding Societies

It all started on 7 January 2019. The issuer contacted Funding Societies to delay payment. Below will be the notices I received from Funding Societies. In chronological order.

This will be pretty lengthy but it is important you as investors know the step-by-step process taken by Funding Societies.

7 January 2019

Dear Investor, The Issuer has reached out to us to push back the repayment of January 2019 due amount because pending receivables from their client, this will include late interest charges. Tentatively, repayment of January 2019 due will be on 18 January 2019. Thank you for understanding the situation. Team Funding Societies 7/01/2019, 6.20pm

** And thereafter, lengthy amounts of back and forth discussions with the issuer on the settlement. I’ll spare you the details. With the issuer failing to make repayments in March, Funding Societies finally decided to serve a letter of demand.

10 April 2019

Dear Investor, We wish to update that we have served the Letter of Demand as of 8 April 2019. At this stage we continue to be in contact with Issuer through our lawyers to demand for RM 50,000 which due on 31 March 2019, and upcoming RM 150,000 which is due 15 April 2019. As we wait for Issuer response to the Letter of Demand, kindly allow us to update you by 17 April 2019. Team Funding Societies 10 April 2019, 8.30pm

18 April 2019

Dear Investor, We would like to inform you that Note Issuer has made a partial payment of total RM 10,000 and it has been distributed as principle to investors on 16 April 2019. However, the amount made by Issuer is less than what we have requested from the Issuer. We are still in the midst of negotiating the outstanding repayment term with Issuer. As per our last update, the Letter of Demand has been served to the Note Issuer, and the Note Issuer has only made payment of RM 10,000.00 of the promised RM 200,000.00 upon the expiry of the Letter of Demand on 17 April 2019. At the meantime, we are escalating our recovery efforts through legal avenues and are discussing with the appointed panel lawyer on how to approach this matter effectively. You may refer to your email for full update. Kindly allow us until 3 May 2019 to provide you updates on the progress of recovery. We truly appreciate your kind patience and continued support. Team Funding Societies 18 April 2019, 1.25PM

End.

So there you have it. I’ve said there would be defaults and I’m sharing with everyone the first of mine.

There are inherent risks in investing in P2P financing. To mitigate, I am diversifying as much as I can. Putting in small amounts in every note issued.

And now, as I’ve learnt the hard way, not to overexpose myself to one single issuer.

I hope everyone learns from this.

That being said, I am still getting a 9.23% return. So don’t let yourself be discouraged by my defaults.

😀

Sign Up!

If you have not already, you can sign up with Funding Societies hERE.
Alternatively, you may use the code: j1mwa37p
You’ll receive RM50 upon investing your first RM1,000.

Note:
Funding Societies has reduced their referral bonus from RM50 to RM30 effective 1st March 2019.

Using my code and link, you’ll still receive RM50.

StashAway

By 2

Meet Up

Having been watching and hearing a lot about StashAway for the past few months, I finally met up with Wai Ken and Albert Kok from the StashAway team.

I got to know more about the company itself and the team behind it. I was impressed by both the team and the technology behind StashAway. I’ll, therefore, be guiding you to opening a new account and investing in them with this article.

Economic Regime-based Asset Allocation (ERAA)

I’ve put off opening an account for a while now as I wasn’t too sure what kind of ‘sophisticated investment strategies’ the company was going to apply to my hard earned money.

They call it the ERAA. In short:
1. You determine your risk levels
2. StashAway picks the securities to invest in for you
3. ERAA will re-adjust the asset allocation to maintain your previously determined risk level

What I Like About StashAway

  1. As a retail investor, you get access to a multitude of investments from the US, Japan etc.
  2. You also pay fees only available to the big boys.
  3. Auto readjustment of your portfolio. You can leave your portfolio as it is for years and let StashAway handle it.
  4. Annual fees start at 0.8% and it goes down as you invest more

Dislikes

I found that I was unable to pick and choose personally the assets which I want to invest in. The only choice I had as an investor was to reset my risk profile and look at the breakdown of assets to be invested in.

Why? This is in StashAway’s FAQ –
Based on your risk preferences, selected goal, and current economic regime, our algorithm carefully picks the ETFs most suitable for your goal. This allows us to provide the most optimal diversification personalised to you. As such, it is not possible for a customer to handpick the ETFs or the allocation.

Getting Started

First things first, sign up at this link hERE.
Dividend Magic has partnered with StashAway to get you 50% off your fees for the first RM100,000 invested for 6 months.

Now, I didn’t have too much trouble with the account sign up. It took me about 5 minutes but I’ll guide you through it as best I can. With pics.

Step 1 – Getting Started
Step 2 – Your Email and Password
Step 3 – Your Goals and Portfolio
My Parameters
Projections for my Portfolio – I wish.
Step 4 – Eligibility
Step 5 – More Assessments
Final Step – Set up your risk profile!

My Investment

I’ll personally be depositing about RM3K to RM10K as a start.

This will be a long term passive investment for me and I’ve decided to put my money into a balanced portfolio, with a StashAway risk index of 14%.

The portfolio mix will consist of 54.5% growth assets and 45.5% protective assets.

Have any of you started investing in StashAway? How is your porfolio doing? And for those who are planning to start out, please do share the portfolio mix you’ve decided on and why.

The Employees’ Provident Fund (EPF)

By 12

EPF Dividends 2018 – 6.15%


The Employees’ Provident Fund has a good track record of declaring above average returns to Malaysians. Also, have a look at their very simple vision and mission.

Vision

Helping members achieve a better future

Mission

Safeguard members’ savings and deliver excellent services

Quality Policy

The EPF is committed to help members achieve a better future through continuous improvement in safeguarding members’ savings and delivering excellent services. 

With the EPF, Malaysians essentially have in place a system of forced savings, investing and reinvesting for their retirement.

An independent governmental body whose goal is not motivated by fees but to earn the highest possible return for its members.

In general, Malaysians are happy with the 6.15% declaration of dividends by the board of our good old EPF.

And YES! 
EPF = KWSP. They’re one and the same.

We’re all familiar with EPF as our retirement fund. But what does EPF actually invest in?

dividend magic - retirement
‘How late do you expect to be working?’

Main Assets of EPF


As of 2018, equities made up about 41% of EPF’s total assets.

A further 50% is invested in fixed income instruments.

Let’s have a look at some of EPF’s largest equity holdings.

It’s a good idea to have EPF’s investments as a reference, apart from my Freedom Fund of course. ; )

What Will Become of Your EPF Savings?


With the recent 6.15% declaration in dividend, what do you plan to do with your savings in the fund?

I’ve created a simple poll in an attempt to gauge the mentality and financial decisions of everyone here.

No pressure. Also, there are no wrong answers.

What Will You Do With Your EPF?

View Results

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What I Do With My EPF

I personally am leaving my EPF untouched till I reach 55. And then I’ll withdraw a monthly amount to keep me alive, slowly drawing down on the capital.

Your EPF is essentially forcing you to save a portion of your income every month. And it helps you reinvest those 6% and above dividends every single year.

Even though I’ve mentioned there being no wrong answers to the poll above, I do believe Option 2 and 3 – where you’re essentially drawing down on your funds from your EPF savings is the least financially sound decision.

I see no reason for one to forego that 6% return in lieu of mutual funds or property. If you’ve got to take money from your retirement savings to purchase something, you definitely can’t afford it. In my opinion, of course.

Has anyone done this long term and made good money from Options 2 and 3?

End.

You may have heard from uncles and aunties telling you to withdraw as much as you can during times of uncertainty.

Mutual fund agents may have enticed you to believe their RM100 million funds are superior to our national fund – worth over RM800 fucking billion dollars.

Property agents may have hinted that your purchase of that 3BR apartment is a better decision than leaving your money in the hands of a professional investing team.

I think all are a load of hokum and I’ll stick with EPF for the foreseeable future.

I think you should too. 
And this is a plea to all Malaysians, don’t squander away your retirement savings.

TL;DR – Withdrawal from EPF? Bad idea.

Things To Do Before You Start Investing in Malaysia

By 2

I get asked a lot about investing.

To start off, let me just say that I don’t claim to be the best investor in Malaysia. There are many others who I’m sure are better out there. However, I’ve been able to make a decent amount of money through saving and investing. In particular, dividend and value investing.

I’ve been able to successfully generate annualized returns of 10% (so far). With my portfolio close to RM450K right now.

My Philosophy

I invest primarily for financial independence and freedom. To generate enough passive income, allowing me to have the freedom of choice when it comes to major financial decisions.

I don’t view ‘investments’ that keep me up late at night as passive investments. I’d very much rather have an investment generating 10% pa, worry-free than an investment that generates twice that but keeps me up all night and all on my toes all day.

In other words, I am investing with quality of life as an end goal. And I’m investing for the very long term, for life.

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What Are Your Advantages

The first question to ask yourself before you invest is this. I’ve broken advantages down into 3 main categories.

1. Informational

If you happen to have access to certain information not privy to the public or the rest of us Malaysians, you’re way ahead of the curve. Be aware of threading the fine line of insider trading though.

It’s always a good idea to invest in businesses you have a direct connection to. A good example would be an AirAsia employee who might have noticed that passenger volume has gone down for months where previous flights were full.

An example of illegal insider trading would be an accountant of AirAsia who reads the unpublished accounts and notices AirAsia is about to declare an unusually high-profit next quarter.

2. Analytical

This means you’re better at taking the information available in the market and dissecting it and then using it to your advantage. You could have algorithms set in place, charts etc.

This usually applies to the big boys. Investment firms with PhDs and whiz kids working for them, making better use of the information available in the market than the average joes like me.

3. Emotional / Behavioural

Do you have a particular personality or temperament that allows you to make better investment decisions?

Being able to separate your emotions from investing ie. not succumbing to the ups and downs of Mr. Market. This is easier said than done and I myself find it difficult to execute especially during times of recession.

A good example would be our good Mr. Warren Buffett. ‘Be greedy when others are fearful and be fearful when others are greedy’.

Becoming a Better Investor

After identifying your advantages, it’s time to beef up. Now, these are useful even if you’ve had some mileage as an investor. Remember to always improve yourself.

 1. Read These Books!

I’ve taken the time to compile a list of useful books hERE.

The purpose right now is to not to immediately jump into investing. It is to make sure you’ve got your arsenal of knowledge and skill to help you keep your head afloat in the market.

If you don’t have the time or the energy to read up and increase your knowledge, you shouldn’t be investing. Trust me, you’ll get burnt.

Consider a low-cost index fund or FDs if you eventually find that investing in the stock market isn’t for you.

2. Pick Your Style

Now you’ve read up on the different styles of investing, you should have a rough idea on how you want to go about investing.

Base this on your own personality. What sort of risk are you willing to take? And what sort of returns are you looking at?

Base this also on the amount of capital you have to invest. RM10,000? or RM100,000. There is both a case for and against diversifying. Which you’ll have to decide for yourself.

And base this on how long you plan to invest in. The timeframe. Investing for the long term allows your money to compound for a longer period of time. Which is why investors that start young have a huge advantage compared to their senior counterparts.

3. Set Your Rules

One of the main mistakes investors make, especially value investors is thinking that the journey ends once you’ve successfully picked a stock.

On the contrary, investing ends only when you’ve liquidated your investments. When that cold hard cash is in your hands or bank account. Dividend investing helps me maintain my capital while receiving dividends in my bank account annually.

On that note, it is important to have a target price or value for your stocks. This will let you know when to sell and when to purchase more. For me personally, as a dividend investor, I only sell a stock when it is 50% higher than my valuation of the stock. And I add more if it falls below 30%.

4. Have a Proper Financial Plan

It is important to have a plan to adhere to every month. You’ll want to have a proper financial plan in place and review your finances periodically in accordance with the said plan.

I’ve gotten a proper basic financial plan together that covers the essentials for all Malaysians hERE.

Paper Trading

Now that you’ve got everything in order and you’re all set to start investing, I’d highly recommend one more step before you start off – paper trading.

Paper trading is trading hypothetically online without the actual use of money. You start off with a set amount of capital, say RM100,000 and you start investing as how you normally would. Do this for a year and see how you manage at the end of the exercise.

End.

Now, investing is easy. But it isn’t as easy as some of you might think. You’ll be thrown into the market with the big boys and their PhDs and algorithms. But, armed with the right knowledge and some common sense, investing isn’t too difficult.

For your next step, you’ll want to go through the motions and start with the opening of your brokerage account. You can read up on it hERE.

Bonus Issues and Stock Splits – Good or Bad?

By 0

I just received a document from Cypark Resources Berhad, stating that I as a shareholder will receive 1 bonus share for every 2 Cypark shares I hold.

What are Share Bonus Issues?

A bonus issue is an offer of free additional shares to existing shareholders. They’re basically gifts to shareholders of the company, rewarding you and me with additional shares at no cost.

The bonus shares are issued and paid out of the retained profits of a company.  They’re issued as a ratio, based on the number of shares held by the shareholder. For example, Cypark handed out bonus shares at a ratio of 2 : 1. For every 1 share held, shareholders get 2 bonus shares for free.

Why are Bonus Shares Issued?

  1. To reward shareholders
  2. Boost investor sentiment and market confidence
  3. Increase liquidity
  4. Adjust the stock price to a reasonable range

Difference Between a Bonus Issue and Stock Split

Both have many similarities as well as differences. Stock splits only serves one purpose – To increase the number of shares. Ie. To adjust the share price of the company to a lower level.

Many Malaysian investors still believe a company like Nestle whose share price is RM145 per share is “expensive”. Investing RM10,000 into Nestle or a low price share is the same thing. You’re investing RM10,000. End of story. 

When a stock is split, there is no change in the company’s cash reserves. In contrast, when a company declares a bonus issue of shares, the bonus shares are paid for out of the accumulated profits of the company, depleting reserves.

End.

I hope this clears the air on bonus issues and stock splits.

TL;DR – Bonus issues are a plus for the company, stock splits are neutral.

Happy investing!

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