Saturday, November 28, 2009

Malaysian Life Expectancy


I found this in one of the un-published drafts ...

Life expectancy at birth : male 69 / female 74

Healthy life expectancy at birth (2003): male 62 / female 65

Probability of dying under five (per 1 000 live births): 12 = 1.2%

Probability of dying between 15 and 60 years m/f (per 1 000 population): male 197 = 19.7% / female 109 = 10.9%

Basically a male Malaysian can expect to live healthily until age 62 and then drag 7 years before dying at age 69. Likewise women may drag 9 un-healthy years in average before passing away. Some people may have planned for their departure. But almost all people forget their lives WILL NOT just END like that. Instead, it will most probably be a .... ... ... kind of ending. You will most probably be causing troubles to yourself, your family or at least to the society! Other than the finance preparation, what else have you done to prepare for your golden years ?



Sunday, November 22, 2009

More Info : invest your EPF money in stock market direclty.


It was mentioned before that you can use your EPF money to invest directly in the stock market, especially through Jupiter and Amara. The main selling points are;
  1. cheaper than invest to Mutual Fund ( 5.5% ) vs 3% charged by Amara
  2. freedom to invest in any particular stock and not a whole portfolio.
Although Jupiter only charges 0.1% or minimum RM 10 brokerage fee but actually Amara, the licensed EPF withdrawal facilitator, have more charges other than the 3% one time drawn down fee.


The significant ones are
  • Transaction fee : 0.1% or minimum RM 15 per contract
  • Custody fee RM 0.005 per 1,000 shares per month
Add together with Jupiter's fee, your total brokerage fee may effectively be at 0.2% or minimum RM 25. So each MOTS (Minimum Optimized Trading Size) is RM 12,500. With RM 25,000 you can only make 2 transactions.

Assuming you fully load all your investment in the market and average price per share is RM 1. Then 25,000 shares /1,000 x 0.5 cent = RM 0.125 every month. 1 year would be RM 1.50. That would be 0.006% of your initial RM 25,000 investment.

At the end, you may still be paying 4-5% fee in the whole process. In contrast to mutual fund's 5.5%. If saving fee is your main target, perhaps becoming a mutual fund agent yourself could end up saving more. On the other hands, most of the EPF oriented mutual funds are charging less fee.

So if EPF gets a 5% return, you should be able to do more than 10% in order to 'invest yourself'. Else you may just be depleting your ASS - Automatic Saving System.

Also be reminded that if you make a lot of transactions, you may end up paying more than 6% fee.

Friday, November 20, 2009

You can use Your EPF money to invest in stocks ?

If you have enough money in your EPF, you can withdraw some of them into a stock trading account and invest for yourself. This may interest those who think they are more market savvy than EPF investment. ie. you were NOT happy with EPF past year performances or you think you can do better than them in future.

First of all, depends on what your age is, there is a certain amount of money you have to leave in account 1. After minus out this amount, you can withdraw up to 20% of whatever left in Account 1. However, the fund receiving party may not simply accept any small amount. A common minimum amount to be withdrawn is MYR 30,000.

Together with Amara, Jupiter Online recently has an offer where the minimum amount is lowered to MYR 25,000. This way, more EPF account holder can use their money for this purpose.

Fees being charged are
  • One time 3% drawn down fee. ( by Amara )
  • 0.1% or MYR 10 brokerage fee ( by Jupiter )
The following table shows how much you need in your Account 1 in your EPF so that you are eligible for this. If you have never withdrawn from your EPF before, Account 1 is 70% of your total EPF.

My advice ? Financially one shouldn't simply withdraw money from his Automatic Saving System. Statistically MOST people do not earn consistently from stock investment. Although many may think they did great but almost certainly they have miss calculated the power of compound saving. Not to mention most investors DO NO even have a systematic trading strategy and plans.

Assume foregoing EPF payout is 5% in average. Withdrawing would minus out 3% from the fund. So you can out perform EPF if you consistently gain 8.1% return. ( where does the extra 0.1% come from ?)

A good stock investor can get 6% to 12% so its still a viable option, especially if you agree with these ...
and perhaps some tools that can help you
  • see how the world moves before your market opens @ stock.malpf.com (the story)
  • use this tool to calculate price to buy with historical EPS and projected PE
Be reminded that the best investment gurus like Buffet and Benjamin only out perform market by 6.46%, full story here.

Those are just recommendation base on finance and statistic. If you personally hate EPF or simply don't trust them with your money, you probably just want to take all out despite everything else. Keeping your money in the stock broker account usually gives you a slightly lower than Fix Deposit interest anyway.

Sunday, November 15, 2009

Is Buying New Car the Only Way ?


One of the previous articles showed a method to calculate how much one should pay for a car. In that example, the number is $1,300. That article then relates the $1,300 to a purchase of NEW car selling at $43,000 or below.

However buying new car shouldn't be your only way to have your very own transport.

Used Car
You may only get a SMALL NEW car with $40,000+ but you can get a pretty NICE USED car for only $20,000. That is an instant 50% saving !

Borrow
Do you have friends or relatives who have extra cars parking at their homes only being used once in a while ? There was once I drove my uncle's Mercedes for a month and I only paid $800 for it. Last weekend I visited 10 eligible neighbors telling them my car has broke down and I need to borrow their cars for a month. 3 of them are willing to do so for $500.

Car Pooling
Usually people don't car pool and there are many excuses for that. But at the moment I showed some cash, 15% of the drivers suddenly become more friendly. This is especially good for regular trips. As for the weekend get away, I looked for shopping and travel buddies who drive.




What other creative ways you can think of to use your transport money ?

Thursday, November 12, 2009

Govt. goes public - Don't subsidize the RM50 !

It was hinted before that government may try to stop banks to subsidize credit card users on the RM50 fee to be enforced by the government starting next year.

Today its no longer an internal warnings between government and banks. Government has made it public in the news on this. But of course it was made in a polite way,

if banks subsidize our RM 50
we will FAIL to reduce
Credit Card Debt problem !

Actually following one of the latest sharing commented by Alan in last post, banks faced many rejections on the ideas they proposed to bank negara. But BNM has no control whatsoever on the points accumulated in your credit cards. So when banks use the point system to return the RM 50 value to the credit card users, government fail to stop that approach. Hence, government goes public with news to add public social pressure to the banks.

Its interesting to see how politic and finance fight so fierce over our precious RM 50.

I am predicting the next move from bank is introducing 1Card - use ONE bank's credit card as to replace ALL other banks' card. Such Credit Card will have combined limit of all your other cards. The trouble they are facing now is to combine all the rebates offers because each bank only have contracts with certain retailers.

Imagine a Card that you can swipe up to $200,000 !! You can buy a house instantly with a plastic !!

Tuesday, November 10, 2009

How much should we buy that car ?


Most personal car purchases are sentimental and relate to quality of life ... however if purchasing a car is mainly a transport and finance matters then it could be iron out this way ...

First lets start with some facts of transport life around me;
  • Taxi is as good as my own car if not better ( its my own car + a driver ) but its costly
  • Bus stations are near by and can go almost anywhere but it takes too much of my precious time
  • Intra city trains are fast and efficient but only after you are IN the city
  • Car rental gives the highest flexibility but it could be expensive if park aside too long
So I will need a hybrid solution if I don't have my own car. For me, I will use Taxi - Train - Light Rail during normal days and Bus and Car Rental during weekend and holidays.

First I take a taxi to the near by train station (KTM), once in town I use light rails ( PUTRA, STAR, MONORAIL etc.) to travel almost anywhere within the city. Typically I would need to exchange once within the light rail systems to reach my destination. Return trip same path.
$8 : Taxi to station
$1.40 : Train to Town
$1.80 x 2 : Light rails within city

One way = $13
Return or one day = $26
5 days week = $130
50 weeks a year = $6,500
By weekend, I would rent a car and run away for 2 days ...
$180 / day x 2 days = $360
4 weeks or 1 month = $1,440
12 months or 1 year = $17,280
Adding both up is $23,780 a year.

If $2,000 a month of transportation fee seems ridiculously high, you probably do not need to rent a car every weekend, perhaps every bi-weekly or even every month if at all needed. Run your own numbers for your own scenarios. This example is trying to mimic the same lifestyle with a car.

Now if I do all that with my own car, I would need to pay for
  • petrol : $400 a month
  • parking : $10 / day x 5 days x 4 weeks = $200 a month
  • maintainence : $100 a month
That is a total of $700 a month burn. That leaves $1,300 a month for the car itself. So if I can find a car that I have to pay monthly less than $1,300, it may just be a good deal.

So if I take 3 years car loan at 3% interest I probably should buy a car less than $43,000
if I take 5 years car loan instead, I could spend up to $67,826 for a car.

Consider the resell value as a bonus or final fund consolidation just in case maintainence shoots up or you ended up not using that car that much after all.


Thursday, November 5, 2009

Bus Fares = OK but ...


Bus fare usage in Kuala Lumpur is averaged at RM 1.70 per ride base on the following usage rates.
50% Zone 1 RM 1.10
30% Zone 2 RM 1.90
10% Zone 3 RM 2.50
10% Zone 4 RM 3.10
Typically one may need to take 2 bus routes to reach destination. So one trip is RM 3.40 or Return trips are RM 6.80

1 week or 5 working days would mean a cost of RM 34 or RM 136 a month or RM 1,632 a year.

Travel within Kuala Lumpur using private transport is average at half an hour. Relatively using buses for the same destinations would increase the travel time to 1.5 hours; include waiting and walking time.

There you go, if you use buses as your main transport, you may need more than RM 1,500 a year and 720 hours commute time. You may save some money yearly but in the cost of 480 hours.

Do you bus ?

New Bus Fares in West Malaysia effective 1 August 2009

KL Buses :
Zone1 RM 1 to RM 1.10
Zone2 RM 1.70 to RM 1.90
Zone3 RM 2.20 to RM 2.50
Zone4 RM 2.70 to RM 3.10

Other Buses :
(No Air Con) RM 0.62 first 2 km, RM 0.094 every km thereafter
(Air Con) RM 0.94 first 2 km, RM 0.094 every km thereafter

Mini Buses :
(No Air Con) RM 0.90 one way
(Air Con) RM 1 one way

School Buses:
(Town) Monthly RM 27.43 first km, RM 2.02 every km thereafter.
(Rural) Monthly RM 20.61 first km, RM 2.02 every km thereafter.

Express Buses : RM 0.085 / km

Wednesday, November 4, 2009

Malaysia Unit Trusts 5 years Return

Below table shows the return of Unit Trusts in Malaysia from 2001 to 2006. I added two columns to the right.

Average return per year is simply return divided by number of years, in this case, n / 5 years ie. 25.9 / 5 = 5.18

Equivalent Compound Return Rate is using the FV formula to calculate what the interest rate would be if you save $100 5 years ago to get the same return. This is the number you should use to compare with Fix Deposit interest rate.



Pit falls ? Not so much on that but some key concepts when reading numbers like this ...

These numbers don't mean much by themselves. You should compare them with other numbers to make more senses and decide course of action. For example;
  • Compare with Stock Market indexes. Mutual funds are suppose to outperform certain benchmarks. So a fund is only really doing well when it is BETTER than ....
  • Compare with Fix Deposit interest. Are these rates significantly higher than FD through the same period ?
  • Compare with Inflation rates. Similar to FD comparison but from a different angle.
  • Compare with itself. How are the performances 2002-2007, 2003-2008 etc ? 2007 to 2008 are losing years. If one uses 2001-2006 as the 'BEST' years, then numbers of 2007 to 2008 should also be analysed as the 'WORST' years - as in comparing reward and risk ratio.
Lastly, match past record to today's situation. Index Tracking funds did the best during economy recovering years from 2001-2006. Is today's economy like 2001 ? If yes we should buy ! Or is today more like 2006 where economy is booming but due to doom ? If yes we should probably cash out. Or is today in between ?

Don't know what this is all about ? Apply Dollar Cost Averaging.

Remember that if you apply DCA, above mentioned returns do not apply to you neither.

EPF Interest Calculation - Pro Rated

EPF's interest calculation is one of the weird ones. Somehow they don't use the straight forward FV formula. Although it may seems like they are stupid and don't know math but the actual reasons are;

1) They don't really know how much to pay you until after financial closing at year end
2) your employer may submit your contribution to EPF LATE
3) legacy system left over from British colony time

In short, EPF interest calculation is pro rated. So

1) Whatever you have left last year will enjoy full interest payment this year.
ie. $100,000 x 4% = $4,000

2) Amount you save on 1st month will enjoy 11 month interest, 2nd month will enjoy 10 months interest etc.
ie. in January $100 x 4% x 11 / 12
ie. in February $100 x 4% x 10 / 12

The exact words from KWSP

»How is the EPF dividend calculated?
In order to determine the dividend rate, factors that need to be taken into consideration include net income and total for 1% dividend at year-end.

For example:

Dividend Rate = Net income (a) x 1% Total for a 1% dividend (b)

  • Investment income + Non-investment income - Expenses
  • Total for a 1% dividend is based on:
    • Opening balance of contribution (after withdrawal) that obtain dividend for a 12-month period, and
    • Monthly contribution that obtain pro rated dividend i.e. dividend for the n-month will get (12-n) month dividend. For example, the September contribution (n=9) will obtain a 3 months dividend.
Under Section 27 of the EPF Act 1991, the guaranteed minimum dividend rate is 2.5% per
year on members' savings.

Example Calculation based on this article : MYR300 FREE Money


This document can be found here

There are many EPF calculation tools online. Unfortunately, none of them will show the same figures. So above calculation is actually different than what some of the banks web site will tell you. Even the EPF web site itself will show different figures than the banks and this article. However, this calculation method posted here, has been shown to KWSP HQ 2 years ago and the officers confirm correctness.

So treat this as one of the ways to calculate EPF interest, not the absolute correct and only way. I have seen 2 person EPF return calculated differently. After reporting to KWSP, they simply pick the lower payout methods without much justification. Since then, we do not report inconsistency in their calculation anymore unless it is LESS than what we should get.

Tuesday, November 3, 2009

Its NOT just a finance game ... unfortunately


A short while ago, I wrote that charging MYR50 to credit card users is an ineffective way to reduce credit card debt. I even predicted that government would soon realize this mistake and relax in execution later on. Quite a few large finance institutions thinks the same too. But of course they have their own agenda.

But I was wrong. Life is never monotonous. Personal Finance is NOT just about personal and finance. If you live on a land that has a country name, there are politics. And Politics matter, especially in this case.

This is my Right !
I can DO THIS and
I AM DOING IT !!

Perhaps we push too fast, too strong and making our finance ministry looks like a fool. Hence, our TOP decision maker has now publicly declared that HE is going to charge the MYR 50 NO MATTER WHAT !

Rumors or insider news, bankers are warn NOT to absorb the MYR 50 or else they will face indirect penalty withdrawing other facilities have been given to them. HE is very determined to collect this MYR 556 millions !!

You have a Problem ?
You Come Talk to me !


Ok, ok I will pay you MYR 50 ....

Monday, November 2, 2009

Malaysia Taxi Fares = developed nation


Nowadays taxi drivers in Malaysia love to use Meter to calculate the fares, in contrast to before where they would ask for a fix fee when passengers hop on their cab. This is because they would earn so much more simply by using the new taxi fare system.

The fee is MYR 3 for the first kilometer and then MYR 1.74 for every kilometer there after.

As many may have known, public transport in Malaysia is not exactly efficient. One of the problems is the location of varies train stations. Generally and averagely speaking, a person may need to travel 2-4 kilometers before reaching a station. That would be half an hour to one hour walking time. If one doesn't have that time or the stamina, she will have to take a taxi. That would be MYR 6.50 for one person one way excluding reservation or call surcharge. Return would be MYR 13. MYR 65 / week, MYR 260 a month and more than MYR 3,000 a year.
What is your distance to the nearest public transport station other than bus station ?



note: above calculation is based on my own experience where I paid RM 3 for the first 1km and then RM 0.20 for every 115 meter onwards. However, the new published rates are;

Klang Valley, KL, Johor Bahru, Melaka, KT
RM 3 ( first km or first 3 mins ) and
RM 0.10 every ( 115 meter or 21 seconds ) onwards

Penang
RM 4 ( first km or first 3 mins ) and
RM 0.10 every ( 115 meter or 21 seconds ) onwards

I am not sure if I was caught in between transition and being charged RM 0.20 or was I financially abused by the taxi driver specifically ...