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.
No comments:
Post a Comment