Monday, April 13, 2009

National Savings Bond by the Malaysian Government

Referring to the newspaper article by TheStar on RM5bil National Savings Bond on sale from April 14 , i was asked whether this investment is good or not, and whether should they invest in it.

The main features of the National Savings Bond is as below:
  • Investment amount - ranges from RM 1,000 to maximum of RM 50,000, and in multiples of RM 100.
  • Tenure - 3 years
  • Frequency of interest payment - Quarterly
  • Interest - 5% Guaranteed by the Government. So, it's "safer" than keeping money in the Bank.

Details of the Bond is available in BMN's website:

So, back to the question, "Is it good?". The answer to this, depends on what you're comparing with.
"Is running fast?" That depends on whether you're comparing with walking, or driving.

Since Malaysian FD rates is going at 2.5% per year, then obviously this Bond is better.

However, is that the only choice we have for our money?

At 5% return, it'll take 14.4 years for our money to double (using the simple "Rule 72"). As our money earns interest (or returns), our money is also "eaten" up by inflation. Does it take 14.4 years for our expenses to doubled? I believe it'll take less than 14.4 years for goods to double in price due to inflation. I would estimate, between 8 to 12 years for goods to double in price.

Saying this, goods would double in price (due to inflation) BEFORE our money would double at the rate of 5% per year. I don't see anything safe about this. Infact, i don't see anything fun with getting poor slowly, but SURELY.

Most people would compare which product is better without understanding and knowing their needs. Truth is, which product, tools or medicine is better depends on your needs, and not on the product itself!

If you're having a headache, it doesn't matter whether Viagra is better, or Cialis is better. Both won't help much in your headache condition. What you need is a Panadol, and not choosing between Viagra or Cialis!

So, in what situation is this National Savings Bond good for you? I believe it's good if:
  1. You need the money within these 3 to 4 years, or
  2. You want to find a place to make your "Emergency Fund" earns higher return.
  3. You have No Dependant, have set aside emergency and medical funding, knowing that your personal inflation rate is lower than 5% yearly, and have a Net Worth that is more than your remaining lifespan multipled by your current yearly expenses.
  4. You know that you don't know how to invest, and don't trust anyone with your money. (Same analogy goes to driving a car: You know that you don't know how to drive, and don't trust any "driver" to drive you to Singapore, so.... you WALK from Penang to Singapore!")
  5. Can't think of any other reasons why this is good.

However, i don't and won't invest in it because:

  1. My needs within the next 3 to 5 years is in Bond Fund, which i will be using almost entirely within the next 3 months. So, the difference (if any), would be insignificant.
  2. I'm happy with my current emergency fund, putting it in Bond Fund. And since my income is "safe", i feel comfortable with 2 month's expenses being set aside for emergency fund.
  3. I don't have enough to retire on. I don't have RM 3.5 Million currently if my annual expenses is RM 50,000 and my remaining lifespan is 70 years.
  4. I believe i know what i'm doing with my investments, and i choose something something which fits my long term needs. Just as Michael Schumacher believes he knows how to drive fast and safe, it doesn't mean that driving fast is not safe!
  5. I trust Warren Buffett (thru Berkshire Hathaway) with more than 30% of my Net Worth, I trust Public Mutual with 90% of my Net Worth, and I also trust some of the CEO's of Public Listed Companies with my fractional ownership these companies.
  6. I don't enjoy getting poor slowly but surely. I enjoy getting rich slowly but surely!.

Most important of all, I won't choose between Walking or Running if i want to travel from Penang to Singapore. I would rather choose between Firefly, AirAsia, MAS or Singapore Airlines (though i believe it doesn't make much difference in the speed and safety between them).

I don't foresee a need for more than 90% of my assets for the next 5 years or longer, so i rather choose other financial "vehicles" to reach my financial "destination".

What financial "vehicles" is the best for a person who won't be needing the money for the next 5 years? Definitely in Ownership (of Business, or Real Estate) ! I'll write more about it next time. :-)

Wednesday, April 1, 2009

Introducing my Father-in-law & my Wife. They're "models" in Personal Money magazine October 2005 Issue

Yes, my father-in-law and my wife were in the front cover of Personal Money magazine. That time, she was my girl friend, and her father, well.... let's just say that I used to live in their house most of the time.

Isn't she pretty? She's getting prettier day by day. Take a look at her blog here.

Why are they in the front cover of Personal Money magazine holding money?. Well, they joined the Investment Game organised by the magazine (sponsored by Hwang DBS) together with me.

The contest lasted for 1 year, and the winner was decided based on the investor's return after deduction of all charges and transaction fees. My father-in-law was the Champion, and my wife was 4th. How about me? I got 6th position.

The top 25 is as below:

Special mention: The No. 14 winner, Tan Seok Luan is my good friend, and my 1st agent who joined me in Public Mutual. I informed her about the contest, and suggested her to join as soon as possible, and invest in a low cost Bond Fund with good past performance.
She took my advice, and she kept the winnings. :-)

A few things the 3 portfolios (my Father-in-law, my wife and mine) had in common:
1) We all lived in the same house at that time.
2) We used the same computer.
3) We ate dinner together most of the time... hehehe..
4) All the 3 portfolios were being "advised" by the same person. :-)

The position, total return, and the prize winnings of the 3 portfolios are as below:
1st - 15.26%, winning RM 80,000
4th - 10.40%, winning RM 20,000
6th - 9.23%, winning RM 3,000

Total Prize money won = RM 103,000.
Average return from the 3 portfolios : 11.63%

They interviewed the top 5 winners, and each has their own page story. I missed the Top 5 mark by 0.09%.

My Father-in-law's full page interview

My Wife's full page interview

The Winner's Circle. My name was mentioned, though i wasn't "promoted" as husband, yet.

What's interesting, is this small side article:

There were 2,326 unique participants, with 3,153 portfolios (some joined 2 or more entries). Since each person had an initial RM 100,000 virtual fund to start with, they as a group, managed RM 315 Million.

Average Losses for the 3,153 portfolio is -1.41% !!

Meaning, these 3,153 participants ended up with less than RM 315 Million after the contest ended. Mind you, that period, the KLCI went from 827.49 points on August 2nd 2004 (dropping to a low 804.89 points on August 24th 2004) to close at 937.39 on July 29th 2005, one of the highest KLCI points of the contest!

The results show:

  1. These contestants will better off just by putting their money in FD. At least they won't get a -ve return.
  2. In fact, they will be better off by not doing anything with the money (rather than simply buying unit trust funds). This way, the overall portfolio would be 0%, which is better than -1.41%!
  3. Or it could simply mean that they took this contest for "fun", and thought that they could not possibly be among the top 25 (6th position to 25th will get RM 3,000 worth of Unit Trust by Hwang-DBS).

I know i did not take this contest for fun as there is real money at stake! Infact, all my money (then, now, and future) are serious money. I think carefully before I put my money anywhere. I always compare what I pay with what I get.

Being frugal is totally a different meaning compared to being a miser.

In one my future entries, maybe I would explain more about the 4th position portfolio 'Dynamic Asset Allocation' which I believe is supposed to shine out among the 3 portfolios.