Tuesday, June 30, 2009

Index Fund or Malaysia Stock Indics ?

You may see in below graphs that in long run, FBM30 and Hijrah are the top 2 performing indexes from 2003 to 2008 ( 5 years ).

Top 10 stocks in Hijrah index ...

Top 10 in FBM100 ...

source : FTSE
Putting all these together, what can you get out of it ?

First of all, if halal investment performance is important to you then the TOP 3 business you can invest in are :
Sime Darby : SIME 4197 $7.10
IOI : IOICORP 1961 $4.70
Telekom : TM 4863 $2.94
else, your ranked choices are :
Public Bank : PBBANK 1295 $9.05
Bumi Commerce Bank : COMMERZ 1023 $9.10
MISC 3816 $8.60
As you may see, any of the stocks above is less than $10 each. 1 lot size in Malaysia stock market is 100 units. So each of your investment transaction amount can be as low as $1,000 each.

Minimum brokerage fee $8 would apply in this case. Adding other fees like stamp duty and clearing fee, it sums up to about 1% of total stock fee. This applies to both buy and sell transactions, totalling one complete trade to 1.84%.

Each stock price may have a different 'tick' size, below table shows their equivalent percentage. You may see the actual percent loss is different in each stock depends on the price you buy. However, we can use 0.5% as the average.

Sum up the 1.84% fee and 0.53% gap loss rounds up to about 2.4%

So in comparison to investing on an index fund which charges 5.5% fee, one can also buy one of the largest business from the same index portfolio for only 2.4%. In both cases, Dollar Cost Averaging of putting $1,000 every month can be applied.

The biggest loop hole in this comparison ofcourse depends on which stock you ended up buying. The largest and best business at the moment may still under-perform as well as out-perform the index itself despite how big a portion this stock occupies the whole index portfolio. The beginning part of this article is an example of 'trying' to pick a business that can out perform the index it is in.

$8 is not always the minimum brokerage fee, other common numbers are $12 and $40. So the brokerage fee alone can be as high as 4%, in which case you shouldn't buy stock as a comparison to buying index fund with only $1,000 in each transaction.

However, in stock investment, you should also know what a MOTS (Minimum Optimized Trading Size) is. If the minimum brokerage fee is $8 or 0.1% then the MOTS is $8,000. So instead of $1,000 now we fix each of our investment amount at $8,000. That way, instead of the 1.84% stock fee, now it becomes 0.46%. This bring the total charges of buying an index stock to less than 1% !! In contrast to the 2.4% in the $1,000 example.


1. In addition to investing in an index fund, you may also buy one of the best stocks from that index portfolio. Espeically when you think you know which one will outperform the index itself. Doing so may help you save 50% of investment cost. ie. Apply Buy-Sell technique in this stock is better than doing so in the fund.

2. Investing in stock market would require a larger capital to optimize your strategy and investment positions.

Guest Post : Property as Passive Income

This is a guest post by Boon Ping. He is showing how one can turn property investment into long term passive income generator. This is actually a very common methods used in Australia, one of the world best property investment country. Altough recent down turn did affect Australia as well, but nevertheless still an area very active in this respect.

Do raise questions if you have any doubts in the comments area.

When we start in 2009, we put in $100K, buying an investment property at $500K with rental $25K per annum with loan amount $400K. Every year, we top up the loan based on its new market value to release equity(look at the Equity Released column on how much we get each year). We use the equity to cover any shorfall in mortgage repayment and also fund our income lifestyle. You see the equity balance keep increasing even though we keep spending.

You put in $100K, after 10 years you got $637K, 6x ROI. Remember this equity is tax free. What will you get after 10 years if you put in $100K into mutual fund? How much is left after tax?

Even we don't top up the loan each year, means the loan remain at $400K, the increase in rental is still sufficient to cover everything at the end, but this is not the strategy but just as worst case scenario.

This is with 1 property, what if you have 5, 10, etc.....

Basically the summary is in the excel file, noted that it's really a brief summary.

1) You start investing in a property worth $500K in 2009
2) Average annual capital growth = 10%
3) Average interest rate = 8.25%
4) Average inflation = 3%
5) Loan amount = 80% of market => Starting cost = $100K

Columns Definition:
Year => You know what it means
Value => Market value at that particular year
Original Loan => Loan amount when you first purchased the investment in 2009
Interest => Interest payable per annum based on ORIGINAL loan amount, ie loan amount x interest rate
Surplus => Rental - Interest - Maintenance
Equity => Different between current market value with ORIGINAL loan amount
New Loan => Loan amount based on 80% of the current market value
Equity Released => Different between current market value with NEW loan amount
Interest on New Loan = Interest payable per annum based on NEW loan amount
Maintenance => How much normally it need for maintenaning the property, eg council rates, management fee, repair, etc, 1% normally
Rental => Normally it's average 5% of the market value
Shortfall => How much you need to come out of own pocket money to pay for interest, maintenance after rental
Income => This is the passive income I am taking about, the income you need for living, spend, etc, increase each year
Total Spent Equity => How much equity that you spent
Equity Balance => Different between equity released and spent

I believe you sure got questions, feel free to fire back.

Sunday, June 28, 2009

the Khong and Khong ... the future mutual fund service provider ...

Malaysia is a small developing country. Personal Finance is a very small topic here. There are some people selling insurances, less in mutual fund. Almost noone to talk purely on Personal Finance without touching on what products to sell.

So in a land of not many choices, it is NOT easy to find talent or people with genuine interest. If by chance we meet some, it is our duties to share and spread despite any personal differences.

Taxsaya and Wangtool were mentioned before in software arena but today's story is the Khongs.

Khong and Khong ( not their real business name, just the way I call them here ), is a Father and Son team. Father Tony has been in Mutual Fund industry since the beginning of mutual fund in Malaysia. His experience, contacts and network is unspeakable influential. Son Jason is a handsome young man dedicated to doing what he loves.

What caught my interest is the chemistry within this team. Although older with experience, Tony is not stubborn when it comes to implementation where Jason has the competitive edge. And although young and energitic, Jason is able to iron out some impractical fancy ideas while setting the right priority on what to do first. Truly a scenario where legacy experience is re-maximized and applied in today's web solution for everybody's benefits.

Within a short 15 minutes random chats, Tony was able to pick out some very small ideas that could be useful for his project, shared it with Jason and thats it ! Another idea to expand market has just been initiated!

Because of Tony's experience, most of the Khongs services are provided in relation to mutual funds. They have ;

1. fundprice.my : a widget site to show the most recent fund prices from all companies by popularity. There is also a small graph next to the price showing the latest trend of the price movement, which I find rather interesting. You can also use their service for FREE and put this widget on your own web site. The Best Rate widget created by MalPF is inspired by fundprice.my

2. If you are one of those who have been buying many mutual funds from different companies, you will appreciate SingalInvest.com. Very often agents from one company always over emphasize their own fund performance while even discredit other companies with the hope you will put more money with them. All these bias talks actually make you very hard to compare the funds performance from one company to another. This is where SignalInvest.com comes to handy. You can track all funds from all companies yourself.

3. The most successful venture for Khongs does not come from above two. Remember Father Tony was an agency manager himself before ? He had to manage so many investors until it is almost impossible to do it manually. So Jason built a solution for him. After being tested in real life for real business for many many years, the solution is now also available to all other agency managers too.

invest.com.my is a solution for agent who has a large pool of investors to manage. Unlike solution provided by the fund manager's company which only track its own funds, invest.com.my can track ALL funds. Its an added advantage for agent to help his client to track all the client's funds, walk the extra miles so to speak.

Actually I haven't used any of these systems in depth yet. As mentioned in the beginning of this article, I am not here to promote their services. I am just sharing that I met someones who are genuine to provide useful services to mutual fund industry.

Not all of what they have is useful to you now but if you have something in mind please do share with them, I am quite sure they will value your input. And if anyone can help implement a solution for you, its this team !

I truly believe they can go far looking at their experience, passion and genuine interest to help.


Here in below showing their widget ...

What Michael Jackson has contributed to MalPF ?

The concepts that MalPF preaches which were influenced greatly by Michael Jackson ...

In the past 27 years, MJ has earned 120 billions. At the time he passed away, he left 12 billions while carrying a 14 billions debt. Resulting a net of owing 2 billions debt.

If even 120 billions is not enough to let one person simply spend as he wishes, do you still think getting rich is the key solution to TRUE financial freedom ?

But wait, guess what saves Michael's finance status ?

The change of his living status ultimately update his royalty tax status as well. Just the past few days alone may have already gathered more than 2 billions, not to mentioned an estimated collection of 100 billions in time to come.

Can you see the differences between active and passive income yet ?

source : 988 Radio

Mutual Fund, Buy-Sell or Buy-Keep ?

There are mainly 2 different schools in mutual fund believers.

1. Apply Dollar Cost Averaging, (DCA) put in money consistently for a long long time. Never take it out until you die, retire or you initially planned to. Lets call this Buy-Keep technique.

2. Buy Low Sell High, when market is bad, buy more, when market is good, sell them to take profit then buy again when market is low again. This way you maximize your return, the more you roll the bigger you get. Lets call this Buy-Sell technique.
There may be some simple answers : (a) Its really a personal preference; (b) If you know DCA you use DCA, if you know the market, you use Buy-Sell techniques. But at the end of this article, there may be a distinctive answer NO MATTER if you have a preference or understand anything on DCA and the market.
DCA is boring. All it says is you save a FIX amount of money PERIODICALLY. It doesn't tell you when you can take profit, when to withdraw. It doesn't care what the market is doing now. It just say save, save save ...

The good thing about DCA is it is simple. You just need to know (1) the amount and (2) the period. And both of these parameters are 100% under your control. You decide the amount and you decide the period. Another good thing about DCA is it is usually 'cheaper' - as low as $50 or $100 for each transaction.

The good side of DCA's simplicity can also be viewed as its disadvantage. Simple may also be viewed as lack of abundance, or in this case, ignorant. Admit it, its kind of stupid to think that if I want to earn money, all I need to do is to decide the amount and period !? Having said that, DCA is not really easy to implement neither. Simple concept is NOT always Easy to execute persistently. Unfortunately This has been statistically proven.

The good stuff about Buy-Sell technique is its exciting. You may read news, find info, analyse finance data or even play with charts in order to know the up down of the market. You may even be very well verse in some particular industries that you have secretive insider knowledge. Either ways, it is exciting. You may be able to gain big profit when your decisions are right.

The unhappy moments of Buy-Sell technique is when your intrepretation of the market is wrong. Or may be you are still right, just that the market goes the other way. It could be big guys play you out, natural disaster or simply that you thought you knew but actually you didn't. On this method, you will need to spend some effort to analyse the 'timing'. You need to know when to buy and you need to know when to sell. If you spend too much time on the timing, it may be disqualified as a passive income generator afterall.

If you are reading sequentialy, there may not be any apparent answer yet. It still seems like a preference issue.

Lets look at the risk-reward of both techniques. In long run, DCA seems like to be able to cushion the risk, but it would also provide lower return. So relatively, it seems like a lower risk lower return. Buy-Sell on the other hand is very investor dependant and therefore high risk high return.

Athough a weird dude run some numbers and said that in DCA, when you lose, you lose less and when you win, you win more. But in this context, Buy-Sell technique would still provide higher return than DCA while carrying more risk. Buy-Sell technique can also claims that the longer one practise it, the more experience one will gain and therefore, the longer it is the higher chance one may win. ( hardly a truth neither )

Ok, by now can you see any distinctive answer yet ? If not, then we will have to run some numbers again ...

Says you use DCA method and put in $1,000 a month for 5 years. You would have put in $60,000 in total. If you are paying 5% charges, the total fee you have paid is $3,000 through out the 5 years period.

On the other technique, lets say you buy-sell twice a year, that would be 10 times in 5 years. Assuming the average of each transaction amount is the same as your initial capital, $60,000. The total fee you have paid would be $15,000. Equivalent to 25% of your initial capital. Comparing to 5% from DCA method, this method is disadvantage by 20%, not in practice, but in strategy.

So if out of the 10 times you buy and sell, your total lost-win ratio is 50-50, then you would most probably ended up with performing 20% lower than DCA method ( not really, read on ). In other words, in order to eliminate this potential strategy short fall, your lost-win ratio should be at least 40-60 in order to break even. ( Conceptually, not exact by numbers because other parameters are needed for full calculation ).

Another way to put it, if you earn the SAME return in both techniques and you have a net profit of $1 in DCA, Buy-Sell technique would have given you $0.80 only.

If we go back to the fundamental in mutual fund is that we pay HIGH fee for professional services. If after paying them such a HIGH fee, you turn around making your own calls. It would be equivalent to wasting all the HIGH fee you pay them at the first place, wouldn't it be ?

No doubt Buy-Sell technique is a good method but why would you ever want to pay 5-6% fee comparing to other tools that charges less than 1% and yet allow you to buy sell much easier ?

So no matter if you have a preference between Buy-Sell vs Buy-Keep, no matter if you really understand DCA, no matter if you know the market, you should NEVER apply Buy-Sell techniques in mutual fund.

If you still insist to Buy-Sell mutual fund, then please understand this formula ....

The only scenario where Buy-Sell mutual fund is NOT strategically disadvantage is when you found a particular fund that already has a large number of stocks that you planned to invest into anyway. In that case, there is a chance that the 5-6% high fee is average down by the number of stocks until it is even LOWER than the stock invetment fees.

Saturday, June 27, 2009

Mutual Fund is the highest return passive finance tool

Mutual fund is one of the personal finance vehicles that can provide us highest return with managed risk and yet do NOT require us to really know much about it.

According to malpf's wealth pyramid, Mutual Fund is at the top part of the pyramid, only below Shares or stock investment. However, the distinct difference between mutual fund and stocks is that stock would require you to REALLY learn 'something' about it before you can "consistently" gain from it. While in mutual fund, you can still gain from it no matter if you know or don't know much about it, almost like a Fix Deposit (well, not exactly).

Basically when you put your hard earn money into mutual fund, you are 'trusting' the fund manager who is certified as profession by your country, will help you maximize return for you. Although such certification could be questionable, but the chances to go wrong is way less than those who are NOT certified.

The key component in a successful company is the boss, the key to a stock is its CEO so the key to a mutual fund is its fund manger. It has been emphasized before that you should follow the fund manager, not the fund itself.

There are only a few key components when investing in mutual fund;

1. Fund Manager : who make the decisions for this fund, have they been performing well ?
2. Objective of the fund : what this fund will and can invest into ?

So if the fund manager or the company is 'somewhat' reputable and the fund's objective matches your own personal view point, you can rest assure to put your money into that fund.

Not as easy as Fix Deposit where you don't need to worry about above 2 questions but 8-12% potential return (mutual fund) is very much higher than 2-5% return (FD). So the effort needed could still be considered low, while the return could be high and continous - as a passive income.

Even if you do not know the fund manager NOR the objective of a fund when you invest into it, it is still NOT as bad as in stocks or businesses. When the right strategies are applied, what you have got yourself into is just lower return as the price of ignorance.

Having said that, its not a totally worry free finance vehicle. These are the common problems of mutual funds which are valid;

1. Expensive or High Fee Charges .... 5.5% is charged when you invest into equity mutual fund, as compare to stock's fee at 0.7% and Fix Deposit at 0% or NO charges. ( read here for comparisons of mutual fund with FD and stocks , compare mutual fund and stock's fee)

3. Unit price can still go down as well as up, so the so called 12% return may not be realized after all.

... and many more ...

There are also many different views on mutual funds ...

1. People who want to get rich, had experience in stocks or properties usually distrust on mutual fund.

2. Some active mutual fund investors buy and sell as often as they can, "keeping the fund will NOT earn us anything", they think.


However, ALL issues raised on mutual fund can be settled with only TWO strategies ...

1. To buy or NOT to buy

... more will or may be posted on each of the concern above ....

Other related articles

Tuesday, June 23, 2009

KLSE:KNM 090623

Stock market is exciting again ... :)

Observe below that on 8 June, all the big guys are dumping KNM ... guess what ?

8 June also marks the END of KNM up trend which has been going up since March. Then the trend finally broke the support line on 15 June and trumbling down. Why do you think they bulk sell on that day ?

The next support line is 0.75 as shown above supporting by 7, 18 and 22 May. This support line is actually touched TODAY at 11am ( see below ) and instead of breaking it, it bounced back all the way to 0.825, that is 10% jump in a day.

Because of this sudden 10% jump, Stochastic 14-3-3 shows a Buy signal by EOD. The signal will be stronger if it also cross above the 20% line tomorrow.

MACD 26-12 however did not react. Half day rebounce does NOT really show a True rebounce. So it may take a few more up days to see effect in MACD.

On the other hand, if 0.75 is really broken, the next support line seems to be at 0.55 which is a 27% drop.

The ceiling is 0.95, also a 27% raise. A 50-50 win-lose ration is kind of a 'good bet' for speculators, thats why strong rebounce is observed today at 0.75

Speculation wise, what to do now ?

bought some today : Keep and wait for 0.95 ceiling, but also keep a trailing profit at -3%.
haven't bought yet: You still can get in below 0.84 for this short term speculation

Long term investment wise, don't forget KNM is worth buying below MYR 1.10 and it should give you 15% compound return for the next 10 years where its price will hit above MYR 2.00 during next10 years period.

KNM is one of the very few financially very sound businesses but with a lot of fishy smell ( see 1st paragraph above ). Its one of the few golden reference points if a financially sound business can make it or will it flop like some developed country's business. However, as long as Petroleum is in demand, I don't forsee KNM turns into Oilcorp in any near future.

who can challenge my Will and what I can do about it?

Writting a Will conceptually makes a person to think about how to allocate his wealth. It is also commonly thought that a Will can speed up the process of handling down the estates faster. Malpf actually teaches that Will is NOT the ONLY, NOR the Best solution in this regard. However, writting a Will is still one of the Easiest ways on this regard due to vast availability of market service providers and the direct implication of Will. ie. you don't need to take a class to learn what a Will is for.

Also because it is easy to understand, many people may have some miss-conceptions on it too. Some may think once you have a Will, your estates are Guaranteed to be distributed in the way you planned for. At least that is what the estate planners market talk about. But in real life after you are dead, your 'plan' can still be challenged! Below shares a couple of common scenarios when a Will can be challenged with high success rate;

1. If your family members have reasons to believe that you didn't have a clear mind (sound mind) or were forced (pressure or duress) into making a Will, they can appeal to disqualify your Will. Family members include those who are beneficiary and those who are not. So if you are setting up a Will in a hospital, it is best you get your doctor to be one of the Witness who can later certify your sanity at the time the Will is made.

2. If you didn't allocate anything to your dependents especially spouse, single daugher, retard or ill child to take care of their daily living needs, your Will can be challenged. If you intend NOT to give ANYTHING, specify clearly your reasons in your Will. The reasons will be used by the judge to determine if the challenges will be accepted as a court case. There is NO simple full proof Reasons for this arrangement, you may need to prepare proof and get a proper lawyer to draft using sensitive terms but the challengers can still find better lawyers to find loop holes in your reasoning. If you can have an apparent reason, that is good. Else just allocate Simple Living Needs to them. Challenging un-adequote is harder than leaving nothing to them.

Other than challenging your Will, one can also raise a dispute by claiming your Will is NOT the latest Will. Since each New Will Voids all Old Wills, authentication checks will be performed upon the so called 'New' Will.

A will written by under age 18 automatically invalid the Will.

If the witness did not actually see the Will being signed, invalid! (attestation clause)

Challenges will NOT void your Will automatically. When someone raises an issue on your Will, the judge will need to consider it. So your Will may still get executed eventually anyway but it is almost certain that the process will be delay.

My left over for my Legacy ...

Related articles
Write your own Will forFREE ( coming in future )
Trust - better than Will ( coming in future )

Monday, June 22, 2009

Write your own Will for FREE ?

You can write your own will. All you need is 2 witnesses. It will be as legitimate as any 'standard Wills' created by professionals. But if you think your will may be challenged, you should consult a real lawyer whose focus is on wills business, preferably also your 'real' friend.

Witnesses DO NOT need to see the content. Just get them to sign their parts, seal the envelop in front of them and thanks them.

Safe keep your will and only share with those need-to-know bases. Usually the Executor and/or the Beneficiary. Whoever they are, they are the ones who know . . . when you die.

There are many more tips and tricks but the relevancy really depends on your own specific situation. Consult wills experts to skip all the convoluted knowledge and convenient yourself. That is what the RM100-RM300 you pay for.




(Full Names and Surname)


( NRIC / Police Number / Army ID )




1. Declaration

I hereby declare that this is my last will and testament and that I hereby revoke, cancel and annul all wills and codicils previously made by me either jointly or severally. I declare that I am of legal age to make this will and of sound mind and that this last will and testament expresses my wishes without undue influence or duress.

2. Family Details

I am married to _____________________________ hereinafter referred to as my spouse.

I have the following children:

Name: ______________________ Date of Birth _________

Name: ______________________ Date of Birth _________

Name: ______________________ Date of Birth _________

3. Appointment of Executors

3.1. I hereby nominate, constitute and appoint _________________________ as Executor or if this Executor is unable or unwilling to serve then I appoint _______________________ as alternate Executor.

3.2. I hereby give and grant the Executor all powers and authority as are required or allowed in law, and especially that of assumption.

3.3. I hereby direct that my Executors shall not be required to furnish security and shall serve without any bond.

3.4. Pending the distribution of my estate my Executors shall have authority to carry on any business, venture or partnership in which I may have any interest at the time of my death.

3.5. My Executors shall have full and absolute power in his/her discretion to sell all or any assets of my estate, whether by public auction or private sale and shall be entitled to let any property in my estate on such terms and conditions as may be acceptable to my beneficiaries.

3.6. My Executors shall have authority to borrow money for any purpose connected with the liquidation and administration of my estate and to that end may encumber any of the assets of my estate.

4. Guardian

4.1. Failing the survival of my spouse as natural guardian I appoint _____________________ or failing him / her I appoint ______________________ to be the legal Guardian of my minor children named:




until such time as they attain the age of _____________ years.

4.2. I direct that my nominated Guardian shall not be required to furnish security for acting in that capacity.

5. Beneficiary

I bequeath the whole of my estate, property and effects, whether movable or immovable, wheresoever situated and of whatsoever nature to my spouse ________________________.

6. Alternate Beneficiaries

6.1. Should my spouse not survive me by thirty (30) days I direct that the whole of my estate, property and effects, whether movable or immovable, wheresoever situated and of whatsoever nature be divided amongst my children named in 2. above in equal shares.

6.2. Should my said spouse and I and my children all die simultaneously or within thirty (30) days of each other as a result of the same accident or calamity, then and in that event, I direct that the whole of my estate, property and effects, whether movable or immovable, wheresoever situated and of whatsoever nature shall devolve as follows:




7. Special Requests

I direct that on my death my remains shall be cremated and all cremation expenses shall be paid out of my estate.


I direct that on my death my remains shall be buried at _______________________ and all funeral expenses shall be paid out of my estate.

8. General

8.1. Words signifying one gender shall include the others and words signifying the singular shall include the plural and vice versa where appropriate.

8.2. Should any provision of this will be judged by an appropriate court of law as invalid it shall not affect any of the remaining provisions whatsoever.

IN WITNESS WHEREOF I hereby set my hand on this _________________ day of _________________20_____ at _______________________________________ in the presence of the undersigned witnesses.

SIGNED: _______________________________


As witnesses we declare that we are of sound mind and of legal age to witness a will and that to the best of our knowledge ____________________ is of legal age to make a will, appears to be of sound mind and signed this will willingly and free of undue influence or duress. We declare that he / she signed this will in our presence as we signed as witnesses in the presence of each other, all being present at the same time. Under penalty of perjury we declare these statements to be true and correct on this ________________ day of _________________ 20 __ at ________________________________.

Witness 1.

Name: ______________________

Address: ________________________________________

Signature: ________________________

Witness 2.


Address: ________________________________________

Signature: ________________________

Friday, June 19, 2009

A Wrong Way in Gold Investment - Pawning

Recently I came across a blog that teaches people in gold investment. Basically it is asking you to buy gold, then pawn it to get back 65% (Arahnu) cash, then use the money to buy more gold. It then shows you if the gold price goes up a little bit, you earn a lot more than just simply buy once. At the very end it also mention there is 'a bit risky' but absolutely in a misleading way.

Basically this is a method called Leverage. You have $10 and you know you can earn $1 out of it but if you apply Leverage techniques you can get more than $1. It is also the same way how Bank can lend out 10 times more than what they actually have. ( currency turns evil story )

However, his teaching is one of those 'seems cool' but Absolutely 'Digging your own grave' case! Which also shows how absolutely a nonsense fool can spread knowledge to make more fools. Also exactly the reason why there are still 90% of world population will NEVER achieve true finance freedom, while digging deeper to their own graves.

This so called Gold Pawn is a very common pratice among one of Malaysia's ethnic group. There is even a standard govern policy for it. Basically you can pawn your gold with them, get back 65% cash. Then you need to pay about 0.75% safekeeping fee per month. Usually You will need to repay your borrowed amount in 6 months.

If you have been following malpf, you may have known one key preaching topic is that 'you must look at the real numbers and NOT just the general concept'. To simplify this discussion, lets ignore the normal 4% price gap in gold trading. Lets just assume we only need to pay 0.75% for one month and the price move up down 10% in one month.

Case 1 : Buy Gold
You invest $10,000 and price moves up 10% in one month, you earn 10%

Case 2 : Buy Gold, Pawn Once and use the pawn money to buy gold again.
The price moves up 10% only, but after minusing the safekeeping fee and repawn back the gold to sell all, you will get 16.46% net return. (sample calculation)

Case 3 : Pawn twice so its as if you have 3 golds, but 2 at the pawn shop, 1 at your hand.
Price moves up 10% a month, your net earning would be 20.66%

As you can see, the total amount of capital is the same, $10,000 but you could earn 10% - 16% or 21%. That is the power of Leverage. But wait, lets see what happened when the price goes DOWN 10% instead.

Case 4 : Buy Gold once
Price goes down 10%, you lost 10%.

Case 5 : Pawn Once
You lost 16.54% (sample calculation)

Case 6 : Pawn Twice
You lost 20.79%

You may already observe that there is a slight difference between winning and losing ratio.
When you win, you win less and
when you lose, you lose slightly more.

Pawn Once : Win 16.46% Lost 16.54% Difference 0.08% Disadvantage
Pawn Twice : Win 20.66% Lost 20.79% Difference 0.13% Disadvantage

Basically there are 2 facts you can get out of this :

1) The longer you use this Leverage technique, the more you will lose.
2) The more number of times you pawn, the more you will lose.

Back to the beginning of this article, the Risk of this technique is NOT a bit but the Risk is DEFINITELY higher than the Reward. The best argument he can legitimately comes up with is the disadvantage rate is not that high. Ie. compares to casino gambling where the disadvantage is at the range of 4%.

Think you found a golden goose ? Look carefully next time ....

Wednesday, June 17, 2009

Mutual Fund vs Unit Trust

Practically both the terms Mutual Fund and Unit Trust can be used interchangeably in Malaysia but there could actually be slight differences between the 2.

Mutual Fund is more a USA term while Unit Trust is a UK term.

Instinctly implied, Mutual Fund is just a pool of collected investment money. The money is usually pooled for a specific purpose. Its also implied some special people are 'in charge' of the pool of money to achieve the purpose.

Unit is a special measurement method when there are more than one type of items to refer to; And yet one needs to use ONE system to measure all the items. So generally instead of gram, meter etc. 'Unit' is used instead. Trust instinctly implied confidence and someone who we can rely on. So Unit Trust is basically a 'system' you can rely on while it may consist of multiple elements in it. Despite its potential complexity, it should be easily understood by using its 'unit'.

As you may see by comparison now, Mutual Fund does not necessary have to have the Trust element in it. Unit Trust on the other hand, doesn't have to have more than 1 investor. In short, I can pool up all my friend's money and invest for them as a mutual fund. Nonetheless an illegal one because such activity require licenses in most part of the world. On the other hand, I can use part of my wealth to set up a unit trust to earn money from Melbourne real estates.

A little more than just layman talks

Trust is also a finance term where a 3rd party is brought into the transaction between 2 persons, acting as a balance entity fullfilling the interest for all. For example, Sandy has a oil mill that she wants to pass down to Benny but Benny doesn't know anything about it. So Sandy passes the ownership to Tan with the agreement that Tan will manage the whole operation but pass all the benefits to Benny.

Sandy is usually caleed the Settlor
Tan is Trustee
Benny is the Beneficiary

Usually Tan will charge a service fee and usually only large and stable finance institution can be considered as the real Trustee.

There are also some sayings that Unit Trust is part of Mutual Fund because Unit Trust is basically a Mutual Fund that has an extra element of Trust in it. The reason why both of these terms are used interchangeably is because all legitime Mutual Funds must setup a Trust in Malaysia. Which mean the fund company can manage the money but can NEVER take the money to their own possession as its own by the Trustee, not them. That way, the investors' money is safeguarded.

Frequently the corporate finance guys may also refer Mutual Fund and Unit Trust as Open End Fund. Which basically means investors buy and sell directly with the Fund Manager without the need to worry about other investors.

No Changes to FBM KLCI

extracted from OSK circulation - for full report, subscribe OSK services :)

FTSE and Bursa Malaysia announced in their half-yearly review yesterday that there is no
revision to the component stocks in the FBM30 index. As such, all existing FBM30 members will
make up the new FBM KLCI on July 6, ‘09. The weightage of the Banking, Plantation, Utilities,
Telco and Gaming sectors on the new FBM KLCI will go up, with Resorts, YTL Power and
Parkson being the biggest beneficiaries given that they are now members of the new FBM30
although they are not part of the present KLCI. IJM, Gamuda and Lafarge are the 3 biggest dropouts
from the new index. Over the next 1 month, stocks ranked 31st to 50th in the current 100-
member KLCI may experience the most selling pressure except for IJM, Gamuda and Lafarge,
due to portfolio rebalancing.

Monday, June 8, 2009

MALPF : 21st Century Personal Finance

A very good day to all who are reading this page right now! MalPF is an initiative promoting TRUE personal finance especially in this 21st century.

About 50 years ago, personal insurance was perceived very negatively and talking about it was like hinting earlier death. 30 years ago, mutual fund or unit trust was once considered a Big Scam among the wet market talks. Then 15 years ago, Personal Finance has slowly sipped into both insurance and unit trust industries.

Today enough evidences have shown that the introduction of Personal Finance is splitted by both insurance and unit trust industries. Despite their differences, both are tweaked into a revenue generating machine rather than true education to general public. Many certifications are adopted, created and twisted with the purpose of earning more course and exam fees; At the cost of more confusion if not deeper ignorance in True Personal Finance.

Not all are evil, some used to be great concepts are just getting old by nature and may no longer be applicable in today's world. Likewise, some very distinctive fundamentals are never taught and has caused all sort of finance problems even among the most 'qualified' personal finance consultants.

MalPF or short for Multiple Attitudes and Leverages Personal Finance will try to focus on discussing all the above issues. If enough momentum can be gathered, hopefully such an effort can be continued in a systematic manner through all education channels.

MalPF can also be short for Malaysia Personal Finance, Major At Laugh PF etc. Can you think of some other funny names for MalPF ? suggest here ...

some of MalPF sharings ...
  • income is NOT a part of Personal Fniance
  • Getting RICH has NOTHING to do with Personal Finance
  • Truly understand the Concepts is Great but NOT a MUST
  • Executing the RIGHT actions bluntly may mean more than you can ever think of


Monday, June 1, 2009

FREE info on BEST Rates in Malaysia

Its been a while since I start sharing the latest BEST rates in Malaysia including Saving Accounts, Fix Deposit, Car and House Loan, BLR etc. The orange color bar start with wordings "Best Rates..." at the top right angle on this page is an example. Or you can see one below here too ...

Since then it has been made into a widget and anyone can include this info at their own blog / web site by following some simple instruction here.

It is NOT easy to simply pick a number out of the long list of available choices and call it Best rate. Furthermore, there are so many considerations and factors that it is almost imposible for other people to 'decide' which rate is the BEST rate for you. Hence, lets review why and how malpf makes its list.

Fix Deposit is a finance tool you use when you have a sum of money that you will NOT be using for a while and you can gain Higher saving interest than normal saving account. So the higher the rate the better it is. Hence the interest rate is mark in blue color.

One of the greatest pit fall in FD is that if you withdraw before its maturity date, you may lose your interest or even have to pay penalty to it - liquidity problem. On another aspect, its best to increase the frequency of 'taking' the interest and put in back into the FD itself to enjoy the power of compounding interest. Hence keeping these 2 in mind (liquidity and compound interest), 1 month FD is the better choice compare to other longer term FD even if longer term FD may give higher return. Choosing compound more frequent with lower rate is better than locking the fund with a rate that seems high today.

Hence when comparing FD rate, 1 month FD is used and the higher the rate is the better.

BLR or Base Lending Rate is another important number where most of the variable loan will use as the reference loan rate. The lower this number is, the better it is. Hence the rate is marked with RED color. Just to add a note that business loan can benefit more from lower BLR than housing loan.

Saving account is one of the hardest ones to compare due to its large variation in future. There are junior and senior accounts, ordinary and islamic accounts etc. However, if we focus on the fundamental of saving account, it is a finance tool to 'temporary' keep our money to maintain our cash flow, ie. day to day liquidity. So the ease of interest calculation is important and we shall focus mainly on working adults ( Not Junior Nor Senior accounts ). For ease of calculation, multi-tier rates are less welcome. Certain accounts who impose minimum amount before paying interest is also less welcome. After considering these factors, we can pick the highest interest rate as the Best Rate (in blue).

Car Loan is usually fix loan rate. Car loan for used car and new car is very different. However, use car's selling price is very largely different as well. So when used car loan rate is too high, simply shop around more looking for a cheaper car will do. Hence back to the Best rates consideration, it is more reliable to consider NEW car loan rate where the car price is pretty much standard. In this case, the lower the number the better it is. ( red )

Lastly is House Loan, which is also a very tough call for Best Rate. However, borrowing principals from saving accounts, multi-tier rates are less favorable here. Getting 1-2 years of Zero interest by committing to potentially high rate in future is NOT exactly a great way to go. Therefore malpf only concentrates on the simplest BLR-X% where the Higher the X is the Better it is, ( blue )

Among all other best rates, house loan best rate may be the least influencing one because all other considerations like Zero Moving Cost and the most recent flexi all in one account, overdraft without the overdraft rate feature makes it really tough to generalize their good and bad.

Alright, thats the start of why and how these rates are choosen.

Check out below on some of the new Best Rates too, some of them may be useful to some people too ... ie.

FD12mth : 12 months Fix Deposit for those who are really sure will not touch those money for a year
Save1mil : Saving account that has MORE than 1 million in it
Save15k : Saving account thas has MORE than RM 15,000 in it
iSave : Islamic Saving account
UsedCarL : Car Loan rate for used cars