Zombie Cat has left for greener pastures

December 4th 2009 will always be remembered by me as the last day of employment in Deloitte Malaysia. Although I've made my speech during the lovely farewell dinner organized by my audit team I would like to express my heartfelt gratitude once again. Thank you for being great colleagues!

I have now started my new job as a business development associate for a private security/law enforcement practice and so far, everything has been going smooth. I've also got my agency license from the Federation of Investment Managers Malaysia and will be dealing in Unit Trusts. So, if you ever want to know more about unit trusts and how it may work for you, do not hesitate to contact me. Likewise, if you need any private security services you know who to call =).

Shaun Ng, Signing Off. =)

PS: I'm now working on a financial model pertaining to the compounded cash value over time so tune in for more updates!

Are REIT funds an alternative to property investment?

I'm pretty sure everyone has gotten the hype of investing in real estate. I'm also quite sure that some of us had been in this situation: We run home to check out potential purchases after hearing about how 'easy' it is to earn money from buying and selling properties only to be discouraged by the initial start up costs (downpayment, monthly instalments, lawyer fees etc.). The point is, good deals are everywhere, places like Ara Damansara and DesaPark City all promise good returns because they are well planned townships and have reputable developers. But how many of us can actually afford them? Allow me to illustrate briefly on what it takes to own a piece of HOT property.

Assuming your piece of property is RM470,000.00 and you plan to pay a 10% downpayment (RM47,000.00). For ease of calculation I will not include the lawyer and other miscellaneous fees. Also note that you will be paying off this loan for the maximum duration: 30 years and your interest rate imposed by the bank is 5%^ (this is hardly even close to what they're normally charging). This means, for 30 years, you will be paying RM2,271.00. Now tell me, who has an initial start up of RM47,000.00 and RM2,271.00 every month to spare? Not a whole lot of people, I say. Furthermore, investing in properties this way will not yield returns because of the borrowing costs - I will get to this in a different article in the not so distant future =).

If you want to jump into the real estate market but do not have the high initial start up capital there is actually an alternative. That alternative is REIT. REIT is the acronym for [R]eal [E]state [I]nvestment [T]rust. REITs were created because large corporations were aware that most of us do not have large initial capital. They are also aware of the risks involved should an individual investor decide to gobble up a piece of property by himself/herself only to end up having indigestion. However, when a few individual investors decide to pool their funds together, risk is spread out thinner. In summary, REIT is a fund pooled by a large amount of investors with a common goal in mind - to invest in properties. REITs invest not only in properties for capital gain but also for rental purposes eg: Starhill, The Curve and Various serviced residences.

Thanks to REIT managers, we can enjoy a low initial start up capital and increased savings via economies of scale. Cost benefits include a reduced tax rate on returns (assuming you have a property rented, rental income is taxed normally whereas most REIT returns are completely tax exempt or taxed at a maximum rate of 15%*) and stamp duty exemptions. Borrowing costs are also reduced because REITs are only allowed a maximum of 50% gearing (most REITs do not even have borrowings!).

We also gain an emotional advantage where we no longer need to deal with that obnoxious tenant that calls us 3am in the morning complaining about a plumbing problem! We also do not need to worry about liquidity because REITs can be bought or sold with only a day of delay** whereas properties may take a few months to sell.

In summary, when investing in REITs, we may:-

1. Enjoy a peace of mind - no more calls from that tenant complaining about toilet problems
2. Enjoy lower risk - giving members of the public a chance to invest in properties without taking an individual risk
3. Enjoy lower tax rates - Returns earned are predominantly tax exempt
4. Potentially enjoy higher returns - Due to the large amount of the fund, quality buildings can be invested in***
5. Enjoy better liquidity - as REIT funds can be disposed easily and quickly in times of urgency

Shaun Ng, Signing Off. =)

^Based on the average borrowing rate of major banks in Malaysia for a 30 year housing loan
*The Star
**Depends on the engaged fund manager, may vary
***Axis REIT paid an annual dividend of 10.36% for the year ended 31.12.2006

Concept: Why fixed deposits are hell bent on making you lose wealth

I've often heard of people talking about how little their fixed deposits give them which got me thinking. Why, for the love of all that is holy and pure, do they not look for a better alternative? Procrastination? Perhaps - happens to a good percentage of our population. Or is it because of something much darker and sinister in nature? Oh yes you guys got it right - RISK.

Now, lots of people out there do not understand inflation. Upon understanding inflation, one will know that keeping your money in fixed deposits is actually putting your wealth at risk. Allow me to spend some time to explain briefly about what inflation is. The current estimated inflation rate (for 2009) is 5.7%*. That means that every year, the value of our money is depreciating by 5.7%. Assuming you had RM1,000.00 worth of fixed deposits in 2009 giving you a measly 2.1% return. By 2010 your RM1,000.00 will have grown to RM1,021.00. But lo and behold! Because of inflation, your money had dropped in value by RM5.7%! That means, instead of your money growing to RM1,021.00, it actually shrunk to RM964.00 (RM1,000-[1,000.00X(5.7%-2.1%)]) by including the effects of inflation. Of course, you would not see this in your fixed deposit statements. Rather, it will be reflected on the value of your money.

Putting in it laymen terms, lets say your grandma kept 20 cents under her pillow 15 years ago. For some odd reason she kept the money 15 years ago because she knew at that time she wanted to buy a bowl of cendol 15 years later. Imagine her horror when she finds out that 15 years later, 20 cents could only buy her 1/8 of a bowl of cendol!

Having considered that fixed deposits are well...fixed. *rolleyes*. Whereby the returns are fixed in a way (very minimal fluctuations) and in a very ironic sense, fixed deposits are also 'fixed' on making us lose money in a 'fixed' sort of way, why do we not consider other forms of saving? For instance, mutual funds that will give you a chance to leverage against inflation because they are NOT fixed. Why doom yourselves to a fixed rate of wealth declination. Why not choose to invest somewhere else and gain a chance? Repent now!

*Reuters

Shaun Ng, Signing Off. =)

Concept: Why the rich get richer and the poor get poorer

Being poor is not a social malady that some of us had been led to believe. It is a mindset. Being poor is doing things at all the wrong times. Doing things at all the wrong times would encompass things like buying unnecessarily and/or selling unnecessarily. In contrast, doing all the right things mean buying NECESSARILY and selling SMARTLY.

I've gotten comments from some of my readers that my entries are sometimes boring, so I've decided to spice it up a little by including some real life examples- things that we always see everyday. In explaining this, I would like you guys to meet two of my lady friends: 'Always want to glamour auntie' (referred to AWTGA hereon) and the 'chilled and relaxed auntie' (referred to CARA hereon).

AWTGA is your typical bimbo, fashion victim and credit spender. She goes for the latest fashion, has 5487 pairs of shoes and 215 different bags. Their sole purpose in this world is to look glamourous and to put their bank accounts on a diminishing decline. AWTGA buys without thinking and believes in making minimum payments to their ever growing credit card debt.

CARA, on the other hand, is just as fashionable but does not have 5487 pairs of shoes and 215 different bags. She only has 2-3 pairs of shoes and 1-2 bags for every occasion. Their purpose in this world is to be aware of the future, to be enriching their wealth and buying NECESSARILY.

Now that we've understood the two ladies fairly well, which one of them do you think hold themselves together better? A good way to find out is to put them in a scenario that we see occasionally - SALES! Now, because AWTGA spends all her money every month buying everything she can get her hands on and turns out dry, she will never be able to fully take advantage of the savings she may get from a sale. This was because money was not put aside, thus, when a sale comes, she was not able to get as many things as CARA who had been putting aside money. AWTGA, being the poor wretch she already is (having a mountanious credit card debt), is becoming even poorer by spending more than CARA.

In a larger view, the same goes for businesses. Companies that are cash-rich always get the advantage of going into the fray first and emerging as winners. Companies that are not cash-rich will always be a wee bit later than others because upon identifying an opportunity, they scurry around for money and by the time they were ready (or at least thought they were), the opportunity has already come and gone.

Lets go back to the title of the post, shall we? Why the rich get richer? Because they have the competitive advantage of grabbing opportunities first and thus, making the most out of everything before the market gets saturated. Why the poor get poorer? Because they do NOT have the competitive advantage of going in first and will always be going in after market saturation, yielding minimum benefits (in AWTGA's case, NOT AT ALL!).

Ever seen something that you really like go on sale and you just don't have the juice to buy it? You get the idea. Start spending wisely! Think like the rich, Act like the rich and Live like the rich.

Shaun Ng signing off. =)

The perfect breakfast

Recently I gotten into the habit of waking up early in the morning and making myself breakfast. It's actually pretty good and would like to recommend it to you guys. Well, my work starts at around 9am so normally I would wake up 2 hours earlier. Would do some light exercises which would include 1-2 sets (depending on how motivated I am =P) of 20 push ups, 20 squats and 20 sit up crunches to get the blood going. However, don't forget to do some light stretches and have a glass of milk or orange juice with high fibre contents before starting the light workout.

After a quick shower, I would make a cup of 'Ipoh White Coffee' and make some cereals topped with strawberries, kiwi fruits and grapes. Favourite cereal for me would be Nestle Honey Stars!! All these would give you the energy you need for the rest of the day and will provide you with a nice blend of vital vitamins and fibres.

Try it. =)

Signing off.

Calculating Your Estimated Capital Gains

Seeing that I've been getting lots of questions from my family and friends regarding how we can calculate our capital gains/losses from investing in mutual funds, I've decided to post about 'Calculating your capital gains'. First off, there are 3 elements in the formula that we have to get ourselves familiar with.

1. NAV (Net Asset Value)
Your NAV is normally stated in your periodical statements (depending on how frequent your fund manager updates you) as the current value of your fund. It will include your principal (explained below) amount, the capital gains/interests and the reinvestments of dividends (if any).

2. P (Principal Amount Invested)
This is the total amount of money you have put in. However, it does not include any past interest gained from the fund and any dividends reinvested. Only the money you have taken out of your pocket to invest.

3. N (Number of Years)
Because interest is always stated as 'per annum' meaning yearly, N means the total number of years you have kept this fund under your portfolio. This way, we will be able to gauge how well your fund is performing compared to what I would call 'safe' investments (Fixed Deposits, Saving Accounts).

Here's the formula:-
[(NAV - P)/P]/N

I know that this may look really complicated for people who are not familiar with financial terminology but do not fret, as I will explain to the best of my abilities below. If you still do not understand or require further explanations feel free to drop a comment and I will respond asap.

In words, it would simply mean dividing the net of your NAV less P against P. This will show you how much in monetary value you have gained so far. (Ie: NAV = $10,000.00, P = $8,000.00. So, the net of NAV less P would be =$10,000.00 - $8,000.00 = $2,000.00.) We will then divide this with P. By doing this, we will be able to know how much in percentage we have gained with the total amount of money we have invested so far. (Ie: $2,000.00/$8,000.00 = 0.25 = 25%). Now, assuming that you have had this fund active for 5 years, this will simply mean that your N = 5. So, 25%/5 = 5% p.a. The 5% tells you that your fund had yielded a 5% return per year.

Hope that this helps. =)

Work sucks!

Seeing that I have nothing better to do right now, I decided to post some random nonsense on this blog.