Thursday, November 19, 2009

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!


Shaun Ng, Signing Off. =)

Thursday, November 12, 2009

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. =)

Wednesday, November 4, 2009

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.

Monday, November 2, 2009

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. =)