Dividend Magic

Saving and Investing towards Financial Independence in Malaysia

Investment

Tune Protect Group Berhad – Insurance Made Easy

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Filed Under: Annual General Meetings (AGM), Companies in the News, Dividends, Doorgift / Goody Bag 12

Tune Protect Group

Overview

Tune Protect Group Berhad (“Tune Protect”), previously known as Tune Insurance Holdings Berhad is listed on the main market of Bursa Malaysia since its initial public offering in February 2013. The main business of Tune Protect is in insurance and reinsurance, primarily travel insurance and general insurance. Through its alliance with AirAsia and its affiliates, Tune Protect has been one of the major travel insurance players in Malaysia and the ASEAN region.

I purchased a total of 10,800 shares in Tune Protect (TUNEPRO 5230) back in February and July 2015 for an average price of RM1.7133.

Tune Protect Fundamentals – Annual Report 2016

The financial year 2016 has been a positive one for Tune Protect when compared to the dismal year of 2015. The company grew revenue by 7.6% to RM516.6 million. Profit after tax increased by 18.8% to RM86.6 million. Shareholders equity also grew 10.1% to RM496.6 million. Earnings per share of the company have grown to 10.64 sen from 9.17 sen a year ago.

Profitability metrics are more than suitable. Tune Protect has a return on equity of 16.1%. A good, solid number here.

For a more comprehensive view of the company’s financials, the 2016 Annual Report can be downloaded hERE.

Tune Protect, AirAsia and Tune Group

Tune Protect Ownership / Shareholders
Tune Protect Ownership

15.77% of Tune Protect is owned by Tune Group Sdn Bhd whose joint-shareholders are Tan Sri Tony Fernandes and Datuk Kamarudin Meranun. Another 13.65% is further owned by AirAsia Berhad. This strong correlation to AirAsia is the reason for the strong partnership between Tune Protect and the airline. I view this as a double-edged sword because Tune Protect is deriving most of its travel insurance income from AirAsia customers – a risk in my opinion.

That being said, this risk also creates a secure and all but guaranteed stream of income for Tune Protect. AirAsia and its owners Tan Sri Tony Fernandes and Datuk Kamarudin Meranun both have a significant interest in the company and I don’t foresee a break in the strategic alliance between the parties.

Tune Protect Insurance Structure
Tune Protect Corporate Structure – 2016 AR

Conclusion

All in all, I view Tune Protect as an insurance company with immense growth potential. I particularly like the direction the company is going in terms of digitalisation and ease of usage. The company’s partnership with AirAsia puts it in a strong position in the travel insurance industry.

In 2016, Tune Protect added RM540 to my annual dividend income, a 2.92% dividend yield for 2016. The stock is trading at RM1.58 today (22 May 2017), translating to a capital loss of 7.78% for me.

Have you taken a look at this stock? Like it? 

Tune Protect Group – AGM 2017

Tune Protect Group to face ‘Short-term Pains’ in 2017

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Tune Protect AGM Doorgift Tony Fernandes
Tony Fernandes and Kamarudin bin Meranun

The management stated in the AGM today that Tune Protect is quietly optimistic moving forward. They’re expecting to maintain single digit growth for the 2017 financial year.

Towards the end of 2016, the Malaysian Aviation Authority’s new requirement for airlines to provide an “Opt-in” facility for travelers purchasing travel insurance. This has huge negative implications for Tune Protect. However, management has several initiatives planned to offset this. The company is planning to collaborate with AirAsia, leveraging on the airline’s technology and digital platform.

AirAsia, Tune Protect ‘about to announce big tie up’

KUALA LUMPUR (May 22): AirAsia Bhd group chief executive Officer Tan Sri Tony Fernandes said the budget airline and Tune Protect Group Bhd will announce a major collaboration to further grow both companies’ income.

AirAsia is the largest shareholder in insurer Tune Protect with a 13.65% stake as at April 10, 2017. Tune Protect’s units include Tune Insurance Malaysia Bhd and Tune Insurance Labuan Ltd.

“Airasia and Tune Insurance about to announce big tie up. Both incomes will grow. PC (press conference) later.

“I believe Tune will create new markets through digital insurance,”
Fernandes said via Twitter.

The Edge Malaysia

Tune Protect 2017 AGM Doorgift / Goody Bag

I had a mini heart-attack today as I arrived to register for the AGM. They told us they ran out of door gifts again but fortunately more were on the way. I headed in to attend the AGM first after being told there would be enough gifts for everyone after the AGM. The AGM was conducted in GSC’s cinema theater and it was a well-run meeting.

Tune Protect AGM Doorgift
A tote bag that can be worn as a backpack is how I’d describe this.
Tune Protect AGM Doorgift
What was inside: A nice, fluffy round pillow for your travels.
Tune Protect AGM Doorgift
RM10 Secret Recipe Cash Voucher x2

End.

Surprisingly, the AGM today wasn’t filled with dumb questions. The shareholders today were much more sophisticated and involved.

The investor relations team from Tune Protect did a good job handling some rowdy shareholders who weren’t happy because they had to wait a few minutes for their door gifts. Some were even complaining because they wanted bottled waters to bring home.

To the Tune Protect IR team, thank you for a good AGM. And if it is of any consolation, I apologize for the garbage and self-entitled attitudes from some of my fellow shareholders.

Wanted to get a picture with Tony Fernandes but I was rushing to get some errands done. Doubt I’ll be able to during AirAsia’s AGM this coming Thursday (25/5/2017) due to the crowd.

Let me know if you’re attending the AGM this Thursday, we’ve still got 1 more slot in our little carpool squad.

After the AGM ended at around 11.30 am, I headed to Secret Recipe to redeem my RM20 cash vouchers. Had a plate of Stewed Australian Beef and a cup of coffee. Paid an extra 11 bucks for those.

As at 4 pm today, Tune Protect’s share price rose 11% to RM1.57, for a market value of a little over RM1 billion.

Thank you for reading!

Maybank DRP (Dividend Reinvestment Plan)

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Filed Under: Dividends, Companies in the News, Investment, Travel, food and the finer things in life 10

UPDATE: My article on DRP and Maybank’s DRP updates can now be found hERE.
This article can be considered outdated.

What is a DRP (Dividend Reinvestment Plan)?

Completed my second Maybank DRP (Dividend Reinvestment Plan) today. One qualifies for a DRP if you’re a shareholder before the Ex-Dividend date. If you’re unsure of what a DRP is, I’ve written about it previously.

To recap, the things you need to do when applying for a DRP are:

  1. Decide how many shares you’d like to receive in lieu of cash dividends;
  2. Sign and date the Dividend Reinvestment Form (“DRF”);
  3. Fill in your CDS account number in the DRF;
  4. Affix a revenue stamp / setem hasil to the DRF; and
  5. Mail the form

Maybank DRP

So back in October, Maybank offered their shares at RM7.25 per share and I applied for the maximum allotted to me – 68 measly units. Back then, RM7.25 was a 5% discount to the current market price. I would’ve made a profit of RM27.88.

After including the cost of the revenue stamp of RM10 and the stamp to deliver the form of RM0.80, that left me with RM17.08 in savings. I vowed to first sort out the calculations before wasting an hour of my life waiting in line at the post office for RM17.

Maybank DRP Setem Hasil
Malaysia’s Revenue Stamp / Setem Hasil

This time around, Maybank offered their shares at RM8.25 per share.  That’s roughly a 13% discount, considerably higher than the 5% offered the last time. Also, instead of 68 shares previously, I was allotted 84 shares this time around. Which translates to RM90.72 in savings for me (based on the market price of RM9.33 today). So this time, I decided to be a little more detailed / anal about my calculations.:

  • RM90.72 (savings) – RM10 (setem hasil) – RM0.80 (stamp) + RM 10 (estimated brokerage fees)
  • Final savings: RM89.92

PosLaju and Revenue Stamps

RM89.92 was worth my time. Went early to the PosLaju near my work area, arrived at 9.30 am sharp and got my number. I waited for about 5 minutes for my turn, purchased the RM10 Setem Hasil and RM0.80 stamp required for postage. I was done by 9.45 am. Wham, Bam! Thank you, Ma’am.

In my experience, it’s best to head to your local PosLaju as early as possible. Any time after 10 am or during lunch hour and you’d be faced with 1 hour-long queues. If your workplace has an office boy handling your mail, you can also seek his/her help out with this.

Also, you’re only able to get your revenue stamps / setem hasil at PosLaju outlets and from LHDN. I’ve tried enquiring at other more convenient places like Mailboxes etc but unfortunately, they don’t sell revenue stamps.

Maybank Dividend Reinvestment Plan DRP
Pos Laju
Dividend Reinvestment Plan (DRP) Malaysia
Affixed the 80 cents Stamp

Maybank 2017 Dividend

Maybank Dividend
Malayan Banking Berhad

Now, to the numbers. My gross investment in Maybank is RM25,723.21 with an average price of RM8.1197 per share. Notice the dividend totaling RM1,013.76 in value. That’s the first interim dividend Maybank is paying me which gives me a dividend yield so far of 3.94%. Opting for the 84 units in shares, I’ll be receiving the remaining RM316.80 in cash. Traditionally, Maybank’s final dividend payout in October will be slightly higher than their first dividend.

Think on that for a moment. This is Malaysia’s largest bank and I’ll be receiving (if all goes well) 8% in dividends from them. And I’m not even including my capital gain. So to those of you who’ve been asking and comparing my dividends to FDs. This is what I’m talking about. In the long term as the companies I invest in grow from strength to strength, so does my dividends. It may be 1-2% now but they’d be growing every year, some drastically like Maybank’s 8%. However, your FDs will follow the board rate, always hovering at 3-4%.

This 8% yield is possible because I managed to purchase their shares back when everyone was worried because Maybank lent money to 1MDB. With some common sense, you’d realize that the bank’s loan to 1MDB is minuscule and negligible compared to their entire loan portfolio. So why the fuss?

Even now at RM9.33 per share, the yield would be 5-6%. If I had been more diligent in watching Maybank, I’d have been able to snap them up at even lower prices. Learn how to start investing hERE.

End.

With Maybank DRP this time, I’d be adding 84 additional shares to my portfolio at the cost of RM10.80. Managed to save about 90 bucks with this exercise so I’d say it was a morning well spent. I even got to fill my stomach with some delicious prawn mee nearby at Restoran Fong Lie. It’s one of the best prawn mee in town.

Anyone else opted for Maybank’s DRP? Or did most of you take the dividends in cash instead? 

As always thank you for reading!

Prawn Mee Malaysia

Investing in AirAsia – Now Everyone Can Fly

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Filed Under: Dividends, Companies in the News 0

Update: 2024

AirAsia, a prominent Malaysian low-cost airline, has demonstrated significant growth and resilience in recent years. As of 2023, the airline reported a revenue of approximately RM14.69 billion, a substantial increase from RM6.44 billion in 2022.

This growth reflects a strong recovery in passenger demand and strategic operational enhancements.

In the fourth quarter of 2023, AirAsia’s parent company, Capital A Berhad, reported a revenue of RM4.2 billion and an EBITDA of RM448 million, indicating impressive year-on-year increases of 153% and 384%, respectively.

This performance underscores the company’s effective strategies in navigating the post-pandemic aviation landscape.

AirAsia X, the long-haul subsidiary of AirAsia, also reported robust financial results. For the full year 2023, the company achieved a revenue of RM2.5 billion and a net profit of RM366.5 million, attributed to the recovery of its scheduled passenger flight operations and significant improvements in ancillary income.

As of December 2023, AirAsia X maintained a core fleet of 18 A330-300 aircraft, with its associate, Thai AirAsia X, operating an additional eight A330-300 aircraft.

This fleet supports a network spanning various destinations across Asia and Australia, contributing to the airline’s extensive reach.

In recognition of its service excellence, AirAsia was named the World’s Best Low-Cost Airline by Skytrax for the 15th consecutive year in 2024.

This accolade reflects the airline’s commitment to providing affordable and quality air travel.

Looking ahead, AirAsia continues to expand its services and network. In December 2024, the airline launched fixed fares to reunite Malaysians for the upcoming Lunar New Year celebration in January 2025, demonstrating its dedication to meeting customer needs during festive seasons.

Overall, AirAsia’s financial performance and strategic initiatives indicate a positive trajectory, reinforcing its position as a leading low-cost carrier in the region.

Update : 2019

AirAsia – The Pride of Malaysia

AirAsia Special Dividend

We’ve really got a gem of a company to be proud of right here in Malaysia. AirAsia has been voted World’s Best Low-Cost Airline for 8 years running and the company is dominating the skies with their exceptionally low fares and unmatched talent displayed by the management.

How it all started

Established in 1993, AirAsia was founded first by DRB-Hicom. You’ve all heard the tale of how Tony Fernandes purchased the airline for RM1. Here’s how it happened: On 2 December 2001, the almost bankrupt airline was purchased for a token sum of RM1 WITH RM40 million worth of debts. Within just one year,  Fernandes managed to turn the company around, producing a profit in 2002.

With all sorts of promotional fares, some as low as RM1, AirAsia managed to eat into former monopoly airline MAS. Malaysia Airlines will eventually decline to the point where they delisted from the KLSE. Fast forward to 2008, the company added a whopping 106 new routes to its list of 60. As they say, the rest is history. AirAsia is now an RM10 billion company with huge, HUGE growth potential.

AirAsia Annual Report 2016

Financial highlights

The airline reported an RM6.846 billion revenue and RM2 billion profit after tax in 2016. Shareholders’ equity also increased to RM6.628 billion. The company has also significantly reduced its net debt to just under the RM8 billion mark. This is an immense sum but it is typical in the airline industry.

Another key factor is the airline’s growth in passengers and it’s capacity every single year, maxing out at a total of 26 million passengers and a 30 million capacity in 2016.

AirAsia has one of the most interesting and engaging annual reports out there. Give it a read: AirAsia Annual Report 2016

AirAsia’s Special Dividend?

[UPDATE] 23 February 2017 – RM2.70
AirAsia Tony Fernandes

There has been a frenzy over AirAsia the past few days due to the potential special dividend that will be declared.

Market experts predict the special dividend to range from RM0.50 to RM1.10 per share. The most recent information is that it could be as high as RM1.50 per share. That’s a 50% dividend yield based on the current market price. The one-time special dividend comes from the sale of an 80% stake in Asia Aviation Capital (AAC) which is said to garner a valuation of at least RM3.5 billion.

Want more good news? With my analysis, and excluding this special dividend, AirAsia underlying value is roughly RM2.90 per share. Another food for thought, as of last month, CEO Tony Fernandes and Kamarudin Meranun have both raised their combined stake of 32.3% in the company which was largely funded by loans. I believe they will declare a large amount in the form of special dividends which would enable them to settle the aforementioned loans.

That being said, there are of course the ever hovering external risks associated with airlines ie. jet fuel prices and airport charges. Let’s not forget our weak Ringgit and the competition from MAS and Malindo.

Previously, I sold my AA shares at RM2.95, making a handsome 79% gain in the process.

AirAsia to Establish LCC in China

[UPDATE] 15 May 2017 – RM3.40
AirAsia China JV

AirAsia Bhd has signed a memorandum of understanding (MoU) with China Everbright Group and Henan Government Working Group to establish a low-cost carrier (LCC) in China.

It outlines how the parties will incorporate a joint-venture to be known as AirAsia (China) for the purposes of operating a low-cost aviation business based in Zhengzhou, the capital of Henan province in central China.

In addition, AirAsia (China) will invest in aviation infrastructure, including a dedicated LCC terminal at Zhengzhou airport and an aviation academy to train pilots, crew and engineers, as well as maintenance, repair and overhaul (MRO) facilities to service aircraft.

The MoU was exchanged between AirAsia Group Chief Executive Officer, Tan Sri Tony Fernandes, Everbright Financial Investment Holding Executive Director and President, Wang Weifeng and Henan Airport Group General Manager, Li Weidong at China World Hotel here on Sunday.

The ceremony was witnessed by Prime Minister Datuk Seri Najib Tun Razak who is on a five-day working visit to China.

AirAsia was the first foreign LCC to enter China and has carried more than 40 million guests since its inaugural route to China in April 2005. AirAsia and AirAsia X currently fly to 15 destinations in China and is the largest foreign LCC operating into the country.

(Bernama)

This is huge news for AirAsia and will translate to a big slice of the pie in China’s aviation market for the company if the deal materializes. China has 1.37 billion vs Malaysia’s 30 million. Malaysia is only 2% of China. Think of the possibilities!

With this latest piece of good news, I’m pretty sure the counter will go past the RM3.50 per share mark. Please be aware that the deal has yet to materialize and even if it does, it’ll be a few years before it adds to the company’s bottom line. But again! Think of the possibilities and growth potential AirAsia has. We’ve conquered ASEAN and we’re establishing ourselves and gaining a strong foothold in the world’s most populous nation.

AirAsia is looking to become one of THE long term stocks to hold on to.

AirAsia’s Special Dividends

[UPDATE] 29 August 2019 – RM1.75

Tony Fernandes and gang have so far declared and paid out two rounds of special dividends during my tenure so far as an AirAsia shareholder.

Round 1 – 28 December 2018

The first round was back in December 2018.

The company declared a 40 sen dividend per share and I received a total of RM5,320 in dividend income then.

Round 2 – 29 August 2019

This year, AirAsia again declared 90 sen in dividend per share. Giving me a total of RM11,970.

Total AirAsia Special Dividends

In total, I’ve received RM17,290 in special dividends from the airline.

Total dividends received – RM22,462.00
Gross Investment – RM41,481.37

That’s about 54% of my capital back in my pocket in dividends alone. The average bought price for me, however, is at RM3.1189, today it is at RM1.75. That’s a 43% drop.

End.

In pure numbers, AirAsia is still positive in the Freedom Fund.

Can’t wait to see where the budget airline goes from here. I am especially excited about its role in the logistics industry.

As always, invest at your own risk.

The 7 Stages of Financial Independence

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Filed Under: Financial Independence, FI/RE, Financial Planning, Investment 8

Financial Independence (F.I.) in Malaysia

There are a lot of misconceptions about financial independence and early retirement (FI/RE) here in Malaysia. People think you have a high income if you’re able to retire early. No doubt, having a high income helps, but the crucial part of the whole F.I. equation, in my opinion, is our ability to save and invest.

As with all things in life, financial independence can be broken down and achieved in stages, even after you’ve retired, you still have to work at it to keep your money flowing in. It’s a lifelong process.

The Road to Financial Independence

Stage 1 – Dependence / Reliance 

We all begin here at this first stage. We start off being reliant on financial support from our families. They provide us with our daily necessities for the initial years of our lives. We then slowly being to chip away at this dependence when we earn our first salary.

Some of us may get a head start by having part-time jobs while still in school. Some may have gotten lucrative scholarships which gives an allowance. All of these help us break free from our reliance and dependence on financial support eventually.

Stage 2 –  Dependence (Continued)

After we are finally financially independent from our parents, guess what? We are still at the Dependence / Reliance stage. Moving out and living on your own doesn’t automatically make you independent. You are now in fact, heavily dependent and indebted to our various financial institutions.

The majority of us after ‘gaining independence’ from our families would have taken out a huge loan to buy their first home. You’re still in this stage if you spend more than you earn (if you’re digging deeper into debt). Basically, if you’re not earning a “profit”, you are dependent on somebody else. You are not financially independent.

After you start having a surplus — and again, this means you’re earning more than you’re spending — you FINALLY make your way down the path to financial freedom. One sure-fire way to do is to live frugally, which is how I was able to build my portfolio slowly.

Stage 3 – Solvency 

Stages of Financial Independence Solvency

Solvency is the ability to meet your financial commitments.

You reach this stage when you no longer rely on anyone for financial support. When you have surplus savings at the end of every month, you’re at this stage. This is where you’re no longer accumulating debt. You might still have loads of loan payments, but you’re not accumulating additional debt.

As a Certified Financial Planner, I’ve found that to get a person to go from the Dependence stage to Solvency is one of the toughest. It is not only taxing physically but also mentally exhaustive for someone to overcome Stages 1 and 2. But once a person finally finds themselves with a surplus at the end of the month, they will have the confidence to sail through the next 4 stages.

Remember, it varies from person to person how long it takes for us to reach stage 3. Some people reach this stage in their teens. Some never reach it. But even when it seems impossible, if you start taking charge of your finances,, I guarantee you’ll see the light at the end of the tunnel.

Stage 4 – Stability / Resilience

Stages of Financial Independence DEBT

You achieve stability after you’ve repaid your bad debts (ie. credit cards), established some emergency savings, and continue to increase your savings. 

You’ll feel an immense weight lift off your shoulders the moment you make the final payment to your debts. Trust me, it is a great feeling.

It is important to have your emergency fund built up to prevent yourself from falling back to stage 3 due to unforeseen circumstances. The usual recommendation is to save up to 6 months of your salary as your buffer. But if you’re feeling more risk-averse, there is no harm in going up to 1 -2 years.

Now you’ve built a buffer of savings to protect you from unfortunate events, you’re ready to put the extra funds to work by investing.

Stage 5 – Security

You reach the Security stage when your investment income can cover your BASIC needs. At this stage of financial independence, you have the ability to live and work as you choose. You have enough saved that you could quit your job at a moment’s notice without hesitation. I am still striving to reach this stage of financial independence. I estimate my basic needs as a young adult in Malaysia to be about RM1,500 per month. With the dividends from my portfolio – the Freedom Fund, I’m almost there.

Update Nov’2020.
Fortunately, I’m now at Stage 5. I’m able to cover my basic needs through my passive income from dividends. Stage 6 here I come!

Based on how much you have saved and invested, you could live a meager existence for the rest of your life without worrying about money. Even if you never worked again, you could afford shelter, basic food, daily essentials, and medical care.

Stages of Financial Independence Time > Money

Starting from Stage 5 on the road to financial freedom, your concerns are no longer just about survival. Money is no longer a safety net. It is now a tool to help you thrive and build the life you want. People who reach this stage will truly understand that money is just a tool. You will learn the value of your time. Instead of spending 8 hours a day for your monthly salary, you start to think about using money to free up your time for yourself and your family. Knowing what gives you meaning and purpose is a vital part of financial freedom and I believe it should be the starting point on this journey.

Stage 6 – Independence

Financial Independence

This is the Financial Independence we should all aim and strive for where your INVESTMENT income can support your current standard of living. At stage 5, you are merely able to cover your basic needs. At this stage, you can finally declare true financial independence. The money you have saved and invested would allow you to live like you do today until the day you die… and then some more.

It is the ultimate goal and dream of mine to reach this stage as I’m sure it is for many of you. All the savings and investments I’m doing has been to eventually be able to reach this stage. Financial independence varies from each person. For some of you, FI is achieved at RM12,000 per annum. Some will only be satisfied with RM24,000 per annum. For me, the sweet spot is RM36,000 per annum. Decide on your number now and start working your ass off towards it.

Stage 7 – Abundance

Financial Independence

In the final stage of financial freedom, you have more than enough. Your passive income will not only fund your lifestyle forever, you can even turn it up a notch or two. Now is the time to indulge in the luxuries in life and enjoy the fruits of your long tedious labour.

Here’s the bottom line: The more money you save, the more freedom you have, and the more risks you can take. As your financial independence increases, you chip away at the wall of worry. You’re able to make financial decisions proactively rather than reactively.

End.

There are tonnes of resources out there on Financial Independence each with their different stages. I’ve sifted through them all throughout the years and tried my best to compile them to best fit Malaysians.

The regular readers here are likely to be professionals (or at least semi-pros) of the personal finance world. We should take the time out to help others out of the financial binds they find themselves in. I think it’s in our best interest — in the best interest of everyone, really — to get more people into the ‘game’ of Financial Independence.

The more Malaysians we can get on the road to financial freedom, the better off we all will be. I hope I’m able to start cultivating the Financial Independence mindset here at Dividend Magic.

For the next article of the FI/RE and Savings Series, check out article 006 – Basic Financial Plan for Malaysians.

As always, follow my Facebook and Instagram to keep up to date!

Investing in Malaysia is Simple – Get Started!

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Filed Under: Investment, FI/RE, Portfolio - Freedom Fund 26

Do you want Financial Freedom? Save, Invest and Start Early.

There are countless ways to get rich here in Malaysia. For the average and majority of Malaysians, I urge you all not to get caught up in the many get-rich-quick shortcuts out there. Instead, opt for the winding but proven path of hard work, savings and consistent diligent investing.

The crucial and key thing is to get started and get started early. It’s best to save and begin investing in Malaysia at an early age. You should even start saving and investing on behalf of your kids the moment they’re born to give them an edge in this dog-eat-dog world. And trust me, saving as little as RM100 a month for your children the day they’re born will help them start off with about RM50K in their accounts on their 18th birthday. If I had RM50K to start with, I’m sure my portfolio would be much much bigger now. Start early!

Yes, saving money isn’t fun. Investing in boring index funds and the stock market for the long term isn’t sexy. And yes, it takes years, decades even, to build wealth this way. But trust me, it’ll all be well worth your while when you realize you have enough passive income to sustain your lifestyle.

One advantage I had was learning about the importance of investing at an early age. I was fascinated with the concept of passive income during my university days and started learning how to value stocks. I read tons of books on investments and decided at an early age to embrace frugality and diligent investment. I devoured and poured through books on investing and personal finance. Every day I checked the share prices of stocks I was watching in the newspaper. I loved it!

Investing isn’t just for the Rich

Because I’ve been asked this a thousand times over, I’d like to emphasize – Investing is simple and you can start with ANY amount. The crucial part is just to GET STARTED!

As of 2018, I’m 28 this year with a portfolio (my Freedom Fund) of RM300,000 in stocks. I started out with just over RM10K saved up from my university days. Too many people around me have put off their finances because they claim not to know a thing about investing. The most important step for you to take is to get started. Save up, pick a stock you can understand and invest in it. It doesn’t matter if you have a million dollars or only RM1,000. Just get started.

In fact my very own portfolio is built on frugality. Make savings a priority, get your emergency fund set up, and then get to investing!

Investing in Malaysia is Simple - Get Started!

Investing Analogy

Here’s an analogy on investing I love.

Let’s say you are a farmer, you buy a little baby calf for RM2,000. It eats a lot of grass and over time grows into this big, beautiful, strong cow that’s now worth RM10,000. On a nice Sunday morning, you walk your cow down to the farmer’s market in town, and you sell it for RM10,000. Boom, an RM8,000 profit (and you didn’t even have to pay for the grass). This is your capital gain. Now, in the period before you sold off your cow, your cow produced milk which you consumed and sold off to your neighbours. This is your dividends.

  1. Your cow – Stocks (Asset)
  2. Your milk – Dividends (Cash flow)

Investing is really that simple, and you can start with any amount of money.

Now, let’s take it to another level. You could’ve kept that RM2,000 you had at the beginning in your savings account. Over 20 years based on the 3% interest rate banks are paying now, your RM2,000 is now worth RM3,612.22.

OR, you can invest RM2,000 in the stock market. The KLSE index rose from 838 to close at 1813 on 29th November 2013 from 4 years ago for a total gain of 116%. On average, the compounded annual growth (CAGR) each year is 11%. Historically the markets around the world earn about 10% per annum, so here’s how much RM2,000 might be worth over 20 years, compounded at 10% per annum – RM13,455.00. (Note, this is the simplest illustration and example I could come up with, of course, many other factors come into play when one invests.)

Now compare investing to saving. Which one of these looks like the option to build wealth? Right, investing.

Mutual Funds and Their Damned Fees

You’ve probably heard of investments like mutual funds, target date funds, or index funds. You might even own some of them. All of these funds have fees (also called the expense ratio), and if you’re smart you can save money on them.

Dividend Magic - Mutual Fund & Unit Trust Fees

Mutual funds are the worst (especially in Malaysia) because they rarely beat the market and usually have the highest fees, the average in Malaysia is a whopping 3%, and I’ve seen some as high as 5%. These might all seem like insignificant numbers, so why does it even matter? It matters. Here, I’ll do some calculations to show you.

Let’s say you invest RM10,000 and earn 7% over 50 years.

0.0% fee: RM10,000 grows to RM294,570
1.0% fee: RM10,000 grows to RM184,202, and you lose RM110,369 in fees
2.0% fee: RM10,000 grows to RM114,674, and you lose RM179,896 in fees
3.0% fee: RM10,000 grows to RM71,066.83, and you lose RM223,503 in fees

I cannot emphasize how fees can kill your investments. I hope the above illustration will get through to my fellow investors out there. With a 2% fee, you’re essentially losing more than 50% of your investment to fees alone. What’s even worse is that the above example assumes you’re earning a 7% return p.a., what if you’re losing money? The funds still collect the fees from you! Isn’t that outrageous?

Investing in your own portfolio of shares means more money for you, and less for the fund houses. Also to note are low-cost Index Funds from companies like Vanguard that serve to mimic the market. The day that they come to Malaysia is the day I’ll dump most if not all of my savings into them.

(I understand some of you may be mutual fund agents and investors here so if you disagree, please do provide me your reasons for it. Don’t just send me hate messages and emails.)

I’ve written an updated article on mutual funds and unit trust here.

Hacking inflation

Dividend Magic - Inflation

People love to get really worked up about inflation. Here’s what I think about it.

The best savings accounts earn about 1-3%. These accounts are great to stash money for an emergency, or to save a down payment for a house. The best Fixed Deposits (which you can only get if you deposit about RM10,000 and above for a few years) usually earn just less than 4%.

With Malaysia’s official inflation rate averaging roughly 3% (we all know it is much higher, I reckon it is close to 4.5%), keeping money in a savings account or FD are bad for building wealth because they don’t even keep up with inflation.

However, I always recommend keeping roughly 6 months of your take-home pay in FDs as your emergency fund. The rest should be invested.

Going from RM0 to RM1,000,000

I want to show you something. Assume you’re 25 right now, and by age 50 you want RM1 million. To accomplish this goal, assisted by a conservative 7% return p.a., you need to save and invest just RM1,235.24 a month. Think about what happens when you increase this amount as you progress in your career. RM1 million isn’t a far-fetched dream, it’s actually very much attainable and we should in fact aim higher.

The key takeaway from all this? If you really want to build wealth, you need to start investing right now. The longer you put it off the harder it becomes. And for you people whose time is not on your side, you should start investing too, it is never too late. More importantly, instil this lesson in your children and future generations.

GET STARTED!

If you find the above makes sense and you’re ready to start investing, I suggest taking a look at – A Guide to Stock Investment in Malaysia. 

If you’re interested in the stocks I invest in, you may find a full list of them in my portfolio – The Freedom Fund.

Again, be sure to read up and understand the company you’re planning to invest in. Keep it simple and consistent, and invest for the long term. Remember, start early and start now.

For the next article of the Investing Series, check out article 008 – DIVIDEND MAGIC Recommends: Stuff I Use.

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“The best time to plant a tree was 20 years ago. The second best time is now.” 

I’ll see you in 30 years.

Dividend Magic - Invest - "The best time to plant a tree was 20 years ago. The second best time is now."