Bookshelf ...

Time To Do Some Serious Reading !!!

I would like to recommend 4 books for your reading pleasure, and if possible please read it by sequence ... 

1)Secrets of the Millionaire Mind

T.Harv Eker is an author, businessman and motivational speaker known for his theories on wealth and motivation.

You will learn the importance of financial blueprint or mental attitudes that facilitate wealth







2)One Up On Wall Street

Peter Lynch is one of the most successful investor who achieved an annual average return of 29%, asset grew from $20 million to $14 billion during his 13 years as Fidelity Magellan fund manager. 

Learn from Peter Lynch how to make it happen !!! Personally I think he is as amazing as Warren Buffet.



3)30年股票投资心得(in Mandarin)


'Cold Eye' is an Malaysian investor who shared his 30 years experiences in stock investing based on fundamental analysis.

His book is published in Chinese language, simple yet comprehensive.





4)Crash Proof

Peter Schiff is an American investment broker, author and financial commentator.

He has his own definition for 'Money' and he believe only in Gold. Find out why ??

My personal favourite !!!

~Happy Reading~

Buy And Hold Strategy

The Definition
'Buy and Hold' is a investment strategy in which investor buys stocks or equivalent and holds them for long period of time (years) regardless of short term market fluctuation. 

The believers of 'Buy and Hold' strategy actively select stocks based on 'Fundamental Analysis' (assessment of a company's financial status), searching for undervalued or potential growth stock, and once in position, is unmoved by price movement.

Usually, investors will only sell the stocks if the company's financial strength deteriorated based on financial statement.

All public listed companies were required to submit a financial report consist of Balance sheet, Income Statement and Cash Flow statement every quarter (1 quarter = 3 months)  

Does it works?
There are arguments over whether a buy and hold strategy is actually superior to any other strategy, for instance trading using 'Technical Analysis' (charting using lagging indicators such as momentum to predict price movement), anyhow lets take a look at 2 case study below before drawing any conclusion.

Case Study 1 - Exxon Mobil (XOM)

If we invested XOM at 'A' @ year 1970 and hold it until 'B' @ year 2013, the total return is 4900% over 43 years as a result of compounding effect, excluding dividend. Financial freedom for sure after retirement, in this case 'Buy & Hold' strategy clearly demonstrate its worth.

Case Study 2 - Coca Cola (KO)

If we invested KO at 'A' @ year 1962 and hold it until 'C' @ year 2013, the total return is 4000% over 53 years as a result of compounding effect, excluding dividend. However if we made a awful decision to enter at 'B', the stock still worth the same price as 15 years ago, 'Buy & Hold' strategy seems like not fruitful at all.

'Buy & Hold' strategy will only works for who has the right knowledge to discover 'Unpolished Gem' in stock market, in addition to that, great discipline is also important to ensure 'The Golden Goose' is kept alive.


Good new is this is not the only strategy around for wealth accumulation ... So stay tune =)

The Financial Blueprint

What is a 'Blueprint' ??
Can you imagine to build a house without an architecture floor plan or design?? Or perhaps building a mechanical fixture without an engineering drawing?? 

Yeah, one can argue we don't necessary need that human being can reproduce almost anything based on 'EXPERIENCES'.

Unfortunately 'EXPERIENCES' were often built up at the expenses of gold and time, as a result from try and error. 

If a BLUEPRINT (architecture design/technical drawing) is made available before actual work get started, I believe we can get the job done with ease without heavily rely on 'EXPERIENCES'.

Our Own Financial Blueprint

We spent millions of hour with our parent as we grew up from kid to adult, subconsciously we were all influenced by every decision they made, every conversation they conducted and every idea they shared. 

As a result, we would either behave exactly the same as our parent or behave exactly the opposite way, with no exception to financial sense too.



Few examples :

Mr. X grew up witnessing his parent performed stock trading daily and finally burned all their saving. Since then he lost faith in stocks and vowed to stay away as far as he could, he has removed 'stock' from his 'Financial Blueprint'. But in fact, stock is one of the most effective investment vehicle in present time if manage properly.

etc etc etc ...

There is no right or wrong ways in financial sense, there is just that thing you do, but there are some basic ingredients needed to acquire a correct financial blueprint that lead to success. 

1) Unlearn your experience and knowledge
2) Keep your mind open for new informations

Get prepare to reprogram your Financial Blueprint 

The Story of Golden Goose

Ever heard about the fairy tale story of a goose that laid the golden eggs? If you haven't, please allow me to tell a simple and short story...

'Once upon a time, there once was a man who owned a wonderful goose. Every morning, the goose laid for him a big, beautiful egg — an egg made of pure, shiny, solid gold. Every morning, the man collected golden eggs. And little by little, egg by egg, he began to grow rich. But the man wanted more. “My goose has all those golden eggs insider her,” he kept thinking. “Why not get them all at once?” One day he couldn't wait any longer. He grabbed the goose and killed her. But there were no eggs inside her! “Why did I do that?” the man cried! "Now there will be no more golden eggs"'

Why is this story relevant ?

The power of compounding is simply amazing, however we need to be consistent and discipline for 20, 30 or even longer time before it becomes rewarding.

20 years is a long time, a lot of stuffs can happen between now and then ... Mr. X might be tempted to withdraw some fund to travel around the world, preventing it to be compounded ... Mr. Y might be forced to withdraw for disease treatment ... Mr. Z might be using the fund for new car purchase ... Any of the above actions are as good as KILLING THE GOLDEN GOOSE.

To kill the goose that lays the golden egg is to destroy something that provides a steady, long term gain.

If we have committed monthly fund into 'Play Account', travelling is not a concern.

If we have committed monthly fund as 'Long Term Saving', we would have money for a new car.

If we ensured ourself are insured by insurance, hospitalization bill is not a burden.

In conclusion, practising 'The Jar System' is essential for everyone who wants to enjoy the fruitful reward from compounding effect.

The Magic of Compounding

~ BY INVESTOPEDIA.COM~

Grow your 'FFA' Year Over Year

Assume we already had some money in 'Financial Freedom Account' and now is how to grow it on yearly basis ?? Before talking about investment vehicles, I would like to introduce an important concept called 'COMPOUND INTEREST'.

Say if we started with RM10K today and grow it 100% per annum, we'll end up with RM5 million in less then 10 years. 

Table below shows the power of compounding at work ...

The earlier you start the better !

Albert Einstein believed compounding is the eighth wonder of the world. Even though the amount doesn't look much at the beginning, it starts to gather momentum and magnifies return in the last few years before your retirement And the most important thing is 'Starting Early'..

Take below example for two different investor :

'Mr. Y starts at the age of 24 and invest RM2000 for consecutive 7 years. Starting 8th years he stops to contribute fund and let his money compound year over year at the rate of 15%.'

'Mr. X starts at the age of 31 after he finally has some money to invest after quitting party-boy life style. He contributes RM2000 every year until the age of 55. Same annual growth rate at 15%.'

End of the investment cycle, Mr. Y realise the larger investment sum at an impressive return of 5885% with his RM14000 in total compared to 879% return rate from RM50000 in total by Mr. X.
 

Mr. Y enjoy more return % with lower investment due to the power of compounding effect, no rocket science here.

Fix Deposit = Safe Haven ?

Majority of people love fix deposit because of its nature of protected capital as well as higher interest rate (if compared to conventional saving rate). However the good old day where fix deposit rate at 7-10% (year 1980-1998) already passed it, at 3% today it can even beat the inflation rate at 5-10%. 

Take below example for two different investor :

'Miss. A is a conservative girl who keep all her money as fix deposit in the bank. Deposit per annum is RM 2000 and interest rate is 3%.'

'Miss. B starts to invest in stock market with the same deposit of RM 2000 per annum. Even with the volatile market, she generates return at an average rate of 15%.'

At the age of 55, Miss B's net worth is RM1.3 million vs Miss A's RM110K, with the same investment of RM64K. Even if we understand compounding can magnify returns, we need to ENSURE RETURN IS HIGH enough for wealth accumulation.

Miss B now has a choice to convert everything into fix deposit, the 3% interest from RM1.3 million should be enough to cover majority of her expenses after retirement, not to forget she still has her net worth in 'Long Term Saving' (LTSS) account.

 

Miss A can't put her money into stock market because at this age she can't afford to risk her old day saving, and the 3% fix deposit interest from RM108K is just insignificant.

    

Risk it When You're Young ...
Risk your money in 'FFA' When You're Young ...

Insure Your Life - You Do It For Your Love One

There are quite a number of insurance products in the market, ranging from Life Term, Critical Illness, Income protection, hospitalization, annuity, saving, personal accident and etc 

But what we really need are Critical Illness, Hospitalization & Accident(optional). 

I am not against any other wealth accumulation policy, but just I believe we can generate better return and enjoy better cash liquidity if we put our money in stock market or equivalent investment vehicle. Always ask about 'SURRENDER VALUE' if an agent is trying to sell you a Saving Plan. =)

There are mainly two type of common policy in market stream :-

1) Investment-Linked Policy

2) Conventional Policy

And the typical differences are shown in the table below:-

Comprehensive explanation can be obtained from the link below :
    Investment-Linked vs Conventional 


Below are few scenario I would like to share:           

      "Miss X came is 24 years old, coming from an average family 
   and has limited income as a junior accountant. She believe she
   is the luckiest person in the world and therefore no policy 
   needed. Misfortune struck when she was diagnosed with kidney
   failure, the 'monster' wipe out her entire saving and her 
   family is burdened with huge medical expenses"

      "Miss Y came is 24 years old, coming from an average family 
   and has limited income as a clerk. She understands the 
   importances of insurance protection and bough an investment-
   linked policy @ RM1500 per annum. She got herself protected 
   with RM60,000 critical illness & hospitalization life time 
   limit RM200,000. If the same incident as Miss X struck, she is
   definitely in a better financial shape."

      "Miss Z bought the same insurance as Miss Y at the same age 
   and now she is 44 years old. She found out that premium has 
   been increasing from RM1500 per annum to RM4000 over years 
   (Sum of insured still RM60,000). Her agent told her that 
   market is not performing and the premium might be even higher 
   next year. She asked for quote of conventional policy so that 
   she can enjoy flat premium but to her surprise the premium now 
   is RM4500, where she was quoted only at RM2200 at the age of 
   24 years old."

      "Miss A bought a conventional policy at the age of 24 years 
   old, she paid RM2000 per annum for a RM80,000 critical 
   illness and RM600 per annum for a medical card. 20 years 
   passed, she is still paying the same premium at RM2000 and to 
   her surprise too sum of insured has increased to RM160,000
   without a hike in premium"

From each scenario as stated above, we can conclude that :

Investment-Link Policy offers better protection and coverage during young day, very affordable but premium will become ridiculously high when we get older. Your paid premium is divided  to a Investment:Protection ratio, for instance 1:9, income from investment activities will use to offset policy premium. 

Conventional Policy usually required higher premium and a separate medical card for hospitalization is needed. Not very affordable for young people but more worthy in long term


So which policy suit you ?? For me I would say both ...

Option 1:

1. Get a investment-linked policy during young day to avoid overstress of your financial power, include Rider - an option that continue to pay annual premium on behalf of ourself at the event of permanent disability.
2. Get another conventional policy when we can afford (best before 30 years old to enjoy lower premium)
3. Adjust the weightage of Investment:Protection in investment-linked policy towards investment to generate more return for premium payment. In addition to that, adjust protection portfolio towards Hospitalization.

Option 2:

1. Get a conventional policy + a medical card, stick to it until end of our journey. But make sure we can afford the higher premium and not affecting the built up of Long Term Saving & Financial Freedom Account.

Bottom line is we need protection, but don't financially overstress ourself with insurance premium

The Jar System

5 years ago I attended a seminar called Wealth Summit 2008 (free ticket) in KLCC Convention Center organized by Success Resource. It was an event that promoting wealth building workshop/programmes.

I signed up for a two days seminar called 'Millionaire Mind Intensive' facilitated by T Harv Eker, and it turned up to be one of the most inspiring session I ever had in my life.    

The most important concept from the workshop that I would like to share here is 'The Jar System', no rocket science but just a simple system that help people to start financial planning by distributing income into 6 different categories. Anyone can start with putting cash into 6 separate jars as shown in the following pictures or fund transfer to 6 separate band accounts, I opted for the second option =)

The definition of each accounts are :-
1)'NEC' or Necessity 
   - Fund for daily expenses and usually accounted most portion 
     of the income. The most important element here is Insurance  
     Protection, where a single bill from hospital nowadays might 
     wipe out all your hard saving.

      "Mr X has 200K long term saving after 10 years hard work 
       but unfortunately he is diagnosed with chronic disease  
       that need his entire saving for complicated medical 
       procedures. This scenario won't happen if he had bought 
       insurance that only cost RM1000 per annum"

2)'LTSS' or Long Term Saving 
   - Cash or cash equivalent for future expenses such as 
     marriage, new house, car or serve as emergency fund. When 
     one facing financial difficulties, the last person who will 
     help you is BANK. So cash is very important. 
     KWSP contribution excluded as long term saving

      "Mr Y is under voluntary separation scheme after working 
       for 10 years in a company, he loss his sole income source 
       but fortunately he has cash of 6 months necessity expenses
       in the bank to sustain his daily needs until he finds a 
       new job"

3)'FFA' or Financial Freedom Account 
   - Perhaps the most important account !!! Funding investment 
     (stock/mutual fund etc) related activities or start up 
     business to generate passive income. Not a single penny 
     should withdrawn for this account else the golden goose is
     killed halfway 

      "Mr Z is a saver where he put every single penny in bank as 
       fix deposit to earn 3.0% interest. After retirement he 
       found out his fund is insufficient for daily needs, WHY ??
       Inflation...Inflation...Inflation of 5.0% annually that
       eroding his power of money. Mr Z is so regret he did not
       invest in other investment vehicle such as mutual   
       fund/stock that would generate more return than fix 
       deposit since young"

4)'EDUC' or Education
   - Not for your kids but for yourself. Attending 
     Seminar / training workshop.

      "Mr A does not know neither stock nor mutual fund, so he 
       decided to participate in a course "Value Investing In
       Stock Market". Since then he is able to generate 
       substantial return from the stock market"

5)'PLAY' 
   - My favourite account ^.^. Spend every single penny out of 
     this account for travelling, partying etc to explore new 
     experiences or recharge your mind energy   

      "Mr B always reserve some fund in Play account and every
       year he is able to travel with his love one. Work-Life 
       Balance"

6)'Give' 
   - When you start 'giving', you will 'gain' more in the future. 
     For your social responsibility fulfilment and perhaps for 
     your parent. 

$$$ AMOUNT IS NOT IMPORTANT How much money you put into each jar is not important, what really matter here is the HABIT you cultivate along the way. 

Discipline is the key for this practice and if you did, your financial status would be in a good shape in the future.

So Why Wait ?? Start today when you are still YOUNG