052 She's 21, and she's already worried about her retirement savings. Are you?

Just came back from a three-days roadshow in a shopping complexe. It was a very good experience. It was our first time there.

We met a few youngsters working there. Two of them, ladies, are in their mid and early twenties. They are interested in investing using their EPF savings but, obviously, they can't because of their amount.

One them, I get to chat, is only 21. She's just started her work there for about a year. She's young but she has started to wonder how much her retirement funds would be. She wanted me to calculate for her.

Her salary is RM1,500 per month, meaning 23% of EPF subscriptions would come up to RM345 per months. She wanted to assume her salary to stay flat. By using a financial calculator:-

Payment = -345

Periods = 468 months (assume contribution to age 60)

Annual Rates = 6%

Future Value = 643,141

The amount RM643,141 may seem high but I also highlighted we need to factor in inflation. So, if inflation is running at 6%, the RM643k is equivalent to RM66k today. Wow, it only worths 10% today's value.

Since she's contemplating going to work in Singapore. My suggestions is to save in unit trust to yield more returns. So, assuming the returns is 8% p.a. The future value would becomes RM1,108,128. Again, if the inflation is 6%, she would be left with RM114k today's value.

By increasing another 2% annually, the difference is double of original. The present value may seem, still, too little but it is based on an assumption of no increasing of monthly savings amount. Actually, she should progressively increase her savings as she gets, example, annual increment. Or she should does some ad hoc top up whenever she gets bonus, special allowances etc.

I am impressed with this lady. Young but is already planning for her retirement. If she really starts her savings today, I believe she will be more well prepared than many youngsters today.

051 Digi Annual Report 2014

I recently added Digi into my portfolio and intends to hold it for long term. One of the thing that strike me was the price movement chart. For a period of 5 years, the market price has appreciated. And I say to myself, if I were to hold a stock for long term with no worry, this should be it. I have long heard Digi is a generous dividend stock.

So, I bought it and got my first dividend of 7 sen per share.

Yesterday, I received my first Digi annual report. I read it.

Since the correct attitude to holding a stock to be buying a business behind it, or simply said joined as shareholder of the business - it is of utmost importance to know the business. The price of a share will reflect the business performance. It can be depressed for a long time, but over time, it will reflect the business. Remember this.

I can see Digi's subscribers base, revenue, net profit has been rising. Cost and depreciation & amortization has been kept in control. Digi is also spending on capex to expand its 3G and LTE network.

Look at the earnings per share (EPS) and dividend per share (DPS), they are rising. One of the things that I learnt from Warren Buffett's letter to shareholders is to link the EPS and DPS. The difference between EPS and DPS is called retained earnings. If a company earns 10 sen per share and only give out 6 sen per share, the 4 sen is called retained earnings. The company will then use the retained earnings to further grow the company business. Warren taught me that if the company use the retained earnings to grow more earnings. then it make sense to let the company retains the earnings. Else, it would be better to request the company to pay out the earnings as dividend because shareholder may have better investment.

So, I am impressed to see Digi distributed almost 100% of its retained earnings and, can, still grow further. I think this is a company that is worth owning. Over a five year period, their market price grew +277% compared to +66% of KLCI. I would be satisfied to see my holding grow, even only, 100% in 5 years.

Digi's financial summary is also very clear. I can see some basic info in a glance. I think a company which is willing to show its financial position is honest with its shareholders.

My reflection:- We investors like to chase against, and act upon, share price fluctuation - buying and selling unnecessarily. The frequent trading does not only cause us to pay more brokerage fees but also lose out on the long term market value appreciation. As for now, Public Bank, Lonpac Insurance (LPI) and Digi has proven to me holding their stocks, for long term, generate outstanding returns without fear.

050 Can a Christian invests in stocks?

I invested in unit trust for many many years ago. I admit that, at one time, I consider investing in stocks as risky. I only dare to invest in blue chip stock and my first was Maybank, followed by Public Bank. Both I hold until now.

Recently, a church member asked me if Christian can invests in stocks or unit trust? Is it risky? Will the value go below capital? I said investment can go up and down but over the long term, they go up. I have my result in unit trust and stocks.

I know many people consider investment in stocks as speculative. As long as an instrument can potentially go below its capital value, it is deemed risky, speculative and one must stay away. Ask Warren Buffett and he will tell you risky doesn't mean the fluctuation in market value.

Oh, Warren Buffett doesn't think investing in stocks is risky. He studied his stocks in depth before buying with a "margin of safety". He doesn't simply bought something.

Does the scripture prohibits believer to invests in stocks? I began to do some online searching. OF course, I will not touch any scripture here because I think I am not well learnt yet.

Of all the information, the one thing that they all remind are we are the steward of god's money. God wants us to manage the money He entrusted to us. He may want some of us to invest in low yield instruments and He may want some of us to invest in high yield instruments.

It is clear He wants us to know we do not know what will happen in the future. We should trust Him. Therefore, we are suppose to diversify our money into many portions because we do not know which will go wrong - but by diversifying we are ready. We have many instruments on hands - cash, money market fund, bonds, shares, REITs, gold and silver etc.

One of the issue we need to consider is our money may be for God's use in the future. And inflation is eating the value of our money if we let the money sitting idly in savings accounts. One of the way is to invest our money in a business. A business can be privately held or publicly held. In either way, if we join the business, we are the shareholder (or partner)  of the business. The difference is whether it is listed or not.

If I join in a business, does it make me participate in a speculative or risky investment? If doing a proper business is non speculative, buying stocks with non-speculative attitude shouldn't be prohibited right? Let's take an example of a poultry business. Let's say I partner with a friend to open a chicken farm to produce eggs and we split the profit. Let's say at the same time, I also buy a poultry stocks keep it for the dividend and price appreciation. Any difference?

We know business may make money or lose money because of something happens.So, if some incidents occur and the eggs price drop. Both businesses lose money. I don't get profit sharing from my first business and nobody wants to buy my share in the business. For my stocks, I don't get dividend or worse still stock price drop. Are these two scenarios the same? Does the price drop make the business speculative and thus prohibited?

My observations are that we should not fall into greed or fear because of the change of the figure of our money. In fear and greed, we do not trust God. I admit I cannot be 100% emotionally un-disturbed when seeing the price fluctuate but I keep telling myself not to. My Maybank and Public Bank shares were down during the financial crisis but they are still doubling my value after all these years.

I think we should choose those management that are doing the business with dignity; treating minority shareholder with equal pride; genuinely growing the business.

Of course we should prohibit from investing in shares dealing in religiously sinful activities such as gambling, tobacco, liquor, vice etc.

However, it seems like the best instrument is physical gold and silver because they carry real value. Alas, it is so difficult and unsafe to keep physical gold and silver.

049 A Youngster with a Financial Goal - A lesson

A fellow planner shared a fantastic with me today. An unknown stranger texts him to seek financial advice. He got the planner's name through online searching.

It appears that the stranger is a youngster by the age of 22. He works in Singapore with no contribution to CPF (Singapore version of EPF). He has a goal - to saved RM100k in ten years time.

The planner calculated the monthly investment amount to be RM1300 - with assumption of rate of return of 9% p.a. He is OK with the amount. With SGD exchanging for RM2.60, RM1300 is equivalent to SGD$500 only.

How nice to see this youngster has a financial goal and is willing to save to achieve it. Youngster nowadays normally spent first save later - normally save none. If I had started my investment like him, maybe my financial position will be much much better.

I invite all friends to save early. The earlier we started our investment program, the lesser amount needed, the faster we can achieve our goal. Below is a table that shows the projected value of a RM500 investment in different rate of returns and different length of years.

		Projected Value of Saving RM500
		Years
		5	10	15	20	25	30
Rate of return	3%	32,810	70,847	114,941	166,059	225,318	294,016
	5%	34,811	79,241	135,945	208,316	300,681	418,565
	7%	36,920	88,702	161,328	263,191	406,059	606,438
	9%	39,140	99,362	192,020	334,587	553,944	891,451

We can see if we saved in lower yield instrument, say 3% FD, the future amount is lesser than than those higher yield instrument. The difference for lower span of years may look small but as the years drag, the difference becomes bigger and bigger - compare value at 30 years.

As inflation gets things more and more expensive, we have to invest to grow our money. And to do that, we do not want investors to participate in any speculative instruments or invest with a speculative behavior. We want investors to focus on his jobs while leaving the investment to professional managers.

We recommend pool of funds or stocks that has track records - managed professionally with decent returns.

048 Investment Plan for a Young Conservative Investor

Ms GPL is a young teacher at the age of early 30. She is very conservative - satisfied with returns of 3% p.a. She had just place an FD for her future use. She is worried about her parents' medical expenses - a possible expenses needed in another ten years time. She has looked at her brothers and sisters financial status and opine she and one of her sister is more capable of saving for that expenses.

Her father had a bad experience investing in state unit trust fund. The fund, unfortunately, does not perform and had been losing money for the past 18 years. So, she is a bit skeptical about investing in unit trust for better returns.

Ms GPL acknowledged the need to save regularly to accumulate a sum for her goal - her parents' medical expenses. We make it a point this is her goal. She is, however, only wants to save through a money market fund only. So, I shared she can diversify a little bit of her monthly savings into a moderate unit trust fund to grow her money faster. She is willing to save RM600 per month - RM400 into a money market fund and RM200 into a equity fund.

That was the first interview.

I know I must make sure she is willing to take on a little bit extra risk to grow her money. I decided to stick to her proposal to let her feel at ease. I am sure she doesn't know how much she should have by the end of tenth years.

Money market fund cannot provide high returns but considering that it is better to put the RM400 in money market fund instead of normal savings account. To start a FD needs a minimum of RM1000. So, she can only put RM400 into a savings account only. The problem with money in savings accounts is the convenience of withdrawing it out for other expenses - whether necessary or unnecessary.

For the RM200 to be put in equity fund, I decide to propose a moderate growth fund with track record. I would not propose a new fund.

I use fund simulator to generate a mock investment result - pretending she had started her investment ten years ago. The results showed the returns of money market fund is a little bit below expectation. The good news is the growth funds generate more returns not only to cover the shortfall but also 20% higher than expected.

The second meeting was to highlight to her the expected returns, though not guaranteed, after ten years. I make sure she remembers her goal, I make sure she is willing to stay invested for ten years regardless of market conditions, I make sure she is not to worry if the growth funds does drop in value for, say, a period of one or two years.

Ms GPL is young. She has many years of investment period. Hopefully she can go through the investment cycle together before reaping the fruits. Being conservative doesn't mean totally shying away from equity funds unless she really can't take it.