HfW: Having kids is a financial strain

Source here. Recently, in fact yesterday there was an article on this. Read on.

THE price of an S-Class Mercedes-Benz and a semi-detached house. That’s what urban parents can expect to pay to raise a child from primary school to university, say financial planners.

The high cost would just cover sending a child through school and university.

Personal financial management coach Yap Ming Hui estimated the cost of upbringing to be as much as the combined price of a luxury car and landed property in the Klang Valley.

“Easily, RM1.5mil,” he said, adding that tertiary education in a local university cost between RM30,000 and RM150,000, depending on whether it was a private or a public university.

Noting a growing demand for private and international schools in urban areas, he said education, especially for a degree abroad, would make the biggest dent in a family’s finances.

He said in urban areas, it would cost parents of a child in primary or secondary school about RM1,000 monthly, excluding extras like smartphones, data package charges, activities like music lessons, transportation and tuition fees.

“Previously, one tuition teacher would cover all subjects but today, teachers specialise and parents pay more.

“So, if you are planning to have three or four kids, you better think twice,” he said, adding that with higher living costs, it would cost much more than RM100,000 to raise a child from birth to the age of 18 today.

Financial coach Carol Yip cautioned parents against treating their kids as “insurance” for their old age.

“The more children you have, the less savings you will have left for your old age,” she said, advising parents to learn more about their children before investing.

“Before you spend all your money on their education in an international school or overseas, understand the child’s characteristic and needs first.

“A smart child will shine even in a normal school.”

Marziana Mohamed Alias, 33, a mother-of-two, spends close to RM1,500 monthly on her children, both of whom have health and education insurance.

“These are necessities. It’s so expensive when children get sick, even if it’s just a fever.”

The working mother still breastfeeds but also gives her daughter milk formula.

“Imagine how much more I would have to spend if I relied entirely on formula,” she said, adding that daycare took the biggest chunk out of her expenditure.

*Estimates based on how much middle-income families spend on necessities and perks. Expenditure includes the cost of food, tuition, transportation, clothing, extra-curricular activities, pocket money, health, insurance and education.

Things were much cheaper five years ago when her son was born.

She then paid RM290 in nursery fees but now the same nursery wants RM400 for her two-year-old daughter.

“It’s too much. I’m paying RM300 to a baby sitter instead.”

Her son’s pre-school fees cost RM500, and it is not even one of the branded chains.

She said she also had to set aside RM400 to buy new clothes every six months.

K. Anbalagan, 52, said the financial strain was even greater if the child had special needs.

His six-year-old autistic son needs RM1,800 monthly for his milk, vitamins and classes.

“He still wears diapers and will soon need speech therapy as well,” he said.

Rumah KIDS assistant coordinator P. Salvee said the “barest monthly minimum” to raise a child was RM500.

The home which houses 40 abused, orphaned and neglected children aged between six and 18 in the Klang Valley, spends an average of RM800 on each child.

Most of the home’s residents are children of single mothers who are too poor to raise them, she said.

The mothers are allowed to visit and even take their kids back when they are financially stable.

“Parents who leave their kids here have the love but not the means to care for their children. It’s heartbreaking.

“Food, schoolbus fees and tuition are not cheap. And, tuition is a necessity nowadays,” she said, adding that the home even paid for the children’s tuition.

Salvee said the Government should provide financial assistance beyond one-off yearly handouts if it wanted to encourage parents to have more children.

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Unit Trust Funds - The type of Investment for you

Source here

MANY have looked far and wide for Ms Right (Investment), the one with the sexy, super model looks and outgoing personality (attractive, high double-digit growth and guaranteed returns).

The good news is that Ms Right might actually have been with us all this time, amongst close friends (unit trust funds). Ms Right, however, might not necessarily have the glitzy characteristics; instead we have the humble, charming and loving personality (well diversified, proven track record and consistent returns).

Interested to know how to find Ms Right? Or are we avoiding a relationship with Ms Right because we won’t risk broken hearts (suffering losses)? For the relationship to work, there are some basic ground rules:

1) Know the purpose of your investment. Are you investing because everyone is making good returns and you feel left out? In this case, you might be investing on the wrong basis.

2) Then, establish a timeframe for your investments. Do you need the money in the short to medium term? If yes, then investing might not be for you.

Investment returns can be volatile over shorter periods. However, for the longer term, say four to six years, the returns from investments might very pleasantly surprise you.

3) Next, a proven strategy is essential. For example, dollar cost averaging, putting in regular investments, setting profit and loss target levels. At which point perhaps do we need to realign our portfolio? What about creating a suitable portfolio that caters for the amount of risk you can handle and looking out for opportunities during crisis periods?

4) Lastly, are your investments reviewed periodically? That does not mean daily, weekly or even monthly reviews. A six-monthly review can ensure our investments stay the course and are aligned to our goals.

A successful relationship with Ms Right needs nurturing, commitment, and constant input and feedback.

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10 Things To Consider Before You Hit Retirement

Point 6,7 and 9 are reasons why you need to start investing in mutual funds for long term investment.

Source here

You have been working your whole life, saving for your retirement. Most of us have millions of ideas about what it’ll be like when it finally comes to the moment where we break away from the 9-to-5 rut. However, with a few more years to go before the day finally arrives, it’s time to take serious action, and get things in order for your golden years ahead.

Most of us would want to achieve financial freedom by then and having not to worry about money any further. To ensure everything is in order when your last conventional pay cheque comes your way, here are 10 things you need to do:

1. Decide on your goal

Many a times when we plan for our retirement, we don’t have a clear picture of how we really want to retire. Do we want to retire at a small and quiet village, outside of town, or perhaps stay in a small(ish) condominium in town, where everything is within walking distance?

By this time, with just a few years to your retirement, you should really have a clear idea whether you want to upsize or downsize your lifestyle post-employment.

The first question you ought to ask yourself is what you want after you retire. Travel around the world and eventually, retire at one of the Caribbean islands? Whatever your goal is, you need to align your retirement plan towards achieving it.

2. List down your obligations

Before embarking on your adventure after retirement, you should consider any financial obligations you may have that can adversely affect your finances after employment.

Do you still have dependents (parents or children) you have to support even after you retire? Will your child(ren) still be in college, with hefty tuition fees coming your way every few months?

How about your lifestyle? If you have planned for your retirement optimally, you should not have to downsize your lifestyle too much. The key word here is sustainability. You should have a clear idea of how much you need every month during your retirement, and how long your retirement fund will last.

3. Clear your debt

Ideally, you should have cleared all your debts before you hit retirement. By clearing your debts, you improve your net worth and credit rating which might be helpful should you need to take another loan in the future.

Credit card debts are usually the first priority to be cleared off due to its high interest rates, followed by personal loans and car loans. There has been an ongoing debate on whether home loans should be cleared off sooner than needed for the peace of mind of being debt-free. If you think paying off home loan last is a better idea, perhaps you should look into the option of refinancing your mortgage.

Currently, Malaysia’s base lending rate is at 6.85%. Comparing with the historical rates, it might seem to be a little high too high to refinance your mortgage. But consider this: after retirement, you’ll lose your primary source of income (for some, only source of income) and your ability to take up a new loan diminishes.

If you have to refinance your mortgage by then, banks might quote you a higher rate, require a guarantor, or simply reject your application. Perhaps it might be a good idea to lock in a fixed mortgage rate to avoid being exposed to interest rate volatility in times of economic uncertainty.

4. Preserve your assets

When we are still earning an income, we mostly focus on accumulating assets. However, when retirement hits you, more focus should be put on preserving your existing assets.

A person may own multiple properties and be worth millions of Ringgit, but he or she may not be able to even afford lunch! In finance, two terms arise: solvency is the ability to meet its long-term ( more than two  years) financial obligations, and liquidity is the ability to meet short-term (less than two years) obligations by converting assets quickly into cash.

In other words, how we preserve our assets depends on our ability to sustain our short-term needs (daily expenses and outflow) without needing to liquidate (force sale) our assets. Consolidating your assets by consulting wealth management and financial planning advisories may be a good idea to have clearer view of your current financial health and have more control in monitoring and preserving your assets.

5. Create or update your will

To prevent your family from exploding into those family feuds infamously depicted in Hong Kong soap operas, updating your will (or create one if you don’t have one yet) is essential. Jokes aside, it is important to have estate planning so that you can be assured that your family is being taken care off  in the manner of your preference.

Having a will doesn’t just ensure your hard-earned assets are distributed properly and rightfully, according to your wishes, it also helps your family go through the process quicker and with greater ease. Remember, avoid hassles by having different wills for assets in different countries and jurisdictions.

6. Review your investment portfolio

As you retire, you would require a substantial steady stream of income to replace your previous conventional income that takes care of your daily expenses and other obligations.

As result, your capacity or holding power of your investment is limited. Perhaps toning down your investment appetite from aggressive high capital growth equities to a more conservative and passive, dividend paying funds such as bonds or government securities might be a good idea. Reviewing your risk tolerance is essential to sustain good cash flow and preserve your assets.

Here are some financial mistakes you should avoid before you hit retirement.

 7. Establish passive income

If the retirement you envisioned for yourself is one where you stop working completely, it becomes even more crucial for you to establish at least one source of passive income, which will be your new primary source of income.

As an alternative to your investments, you can also create another stream of income by working part-time or taking up freelance jobs. For those who have years of professional work experience, they can opt for consulting or an advisory role to other firms or institutions – this may not exactly be ‘passive’ but if it’s something you enjoy doing, it wont feel like a job for sure!

Setting up a mamak or a sundry shop as a small business might also be a good idea (seriously, mamaks rarely fail and typically have healthy profit margins).

8. Healthcare

The unfortunate thing with healthcare is that it becomes more expensive the older we get. Most people give up one their medical card due to the exorbitant price they have to pay — especially in view of the diminishing income after retirement.

Therefore, it is important for one to have a clear idea of their health and fitness level before they hit their golden years. Prevention is certainly better than cure.

Find out if you have any medical conditions that may require substantial amount of money to finance, especially when healthcare cost is escalating to the tune of 12% per annum. Maintain your medical card, review the policy to ensure it is adequate, then set up a budget for rainy days, that could include medical emergencies.

9. Withdraw your EPF

Should you withdraw everything or should you withdraw a set amount regularly? Prematurely withdrawing and depleting your EPF, even if you can, may bring adverse effect to your retirement savings. Unless you have a strong reason or solid financial plan to invest elsewhere that could potentially provide better returns, EPF should be remained untouched and used as a last resort as this will be retirement fund  for the next 10 to 20 years.

If you don’t think your EPF savings enough is adequate to outlive your retirement years, you can consider withdrawing some of the money for selected investments.

10. Continue working

Retirement is really just a phase that everyone goes through. According to the Life After Work survey conducted by HSBC, 22% of Malaysians plan to semi-retire because they need to bridge an income shortfall.

Review your retirement savings before your retirement to have an understanding of whether you stand financially post-employment. Will you be able to live comfortably on that savings, or do you need to continue working to generate income for your golden years?

For some, the idea of not doing anything for next one to two decades may not be conceivable at all! However, the point is to plan for your retirement so semi-retirement is an option and not a means to survive.

We need to start retirement planning as early as possible in order to have a comfortable retirement in years to come. However, planning your retirement is not just about saving money religiously, but also about making the right decisions at the right time to boost your savings.

These 10 steps should be done just a few years before you retire. This will still give you some room to make up for any shortfalls.

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Asian economies downshift, from China to Singapore

PUBLISHED: Jan 2, 2015 

China’s growth engine looks to have ended last year on a flat note as its massive factory sector sputtered in December, though ebbing price pressures also offered scope for more policy stimulus from Beijing and across much of Asia.

The tale was similar from Singapore to South Korea to Indonesia as manufacturers struggled with weak demand, both at home and abroad.

China’s official Purchasing Managers’ Index (PMI) slipped to 50.1 in December from November’s 50.3, its lowest level of the year and just above the 50-point level that is supposed to separate growth from contraction.

There was better news from China’s services sector, which accounts for close to half of the economy, where the PMI edged up to 54.1 in December from November’s 53.9.

Yet many analysts suspect economic growth for all of 2014 will undershoot the government’s 7.5% target, marking the weakest expansion in 24 years.

With factories able to make more than consumers wanted to buy, the pressure was intense to cut prices.

“The price measures show very strong disinflationary forces,” said analysts at Nomura.

“With no inflation pressure, we expect more policy easing in the first quarter, including a 50 basis-point cut in the bank reserve requirement ratio, to shore up domestic demand.”

Disinflation was a feature across much of the region.

India’s PMI showed input prices slumped to a near six-year low, even as overall manufacturing activity picked up to its fastest in two years.

The HSBC PMI, compiled by Markit, rose to 54.5 in December from 53.3, the 14th straight month above the 50-mark that separates growth from contraction.

Yet India’s annual inflation rate has slowed to only 4.38%, the lowest since the government started releasing the data in 2012 and potentially a green light for easing by the Reserve Bank of India (RBI).

“With the disinflationary trend gaining ground, the RBI is expected to find space for some rate cuts in 2015,” said Pranjul Bhandari, chief India economist at HSBC.

In South Korea, consumer prices grew at the slowest clip in more than 15 years in December, opening the door for further rate cuts there.

Its version of the PMI contracted slightly but did show some improvement in December to stand at 49.9, from 49.0 in November.

Indonesia was not even that fortunate as its PMI slipped to 47.6 in December, the lowest since the survey began in April 2011 and a third consecutive month of contraction.

Singapore also disappointed as economic growth slowed more than expected in the fourth quarter and the manufacturing sector contracted in the face of erratic global demand, which could continue to weigh on Asia’s trade-reliant economies well into the new year.

The city-state’s gross domestic product expanded by an annualised 1.6%, well short of the 3% analysts expected and mainly due to a reversal in manufacturing.

“The external demand story remains very lacklustre at this juncture,” said Selena Ling, an economist at Oversea-Chinese Banking Corp, adding that Japan, China and Europe were all slowing down.

“Unlike 2014, when we started on a strong note for the first half and after that the momentum tapered off, we could be starting 2015 on a relatively soft note, especially as people are looking forward to the Fed to normalise policy.”

Asian exporters will get some relief as the US economy shifts into higher gear, though they did not benefit as much from the American recovery in 2014 as they had in the past.

The US Federal Reserve has indicated it will start raising rates from zero later this year as long as the economy continues to improve and unemployment falls further.

The US Institute for Supply Management’s measure of manufacturing is due later on Friday and is expected to show a still strong reading around 57.6 for December.

In contrast, the December PMIs from the eurozone are seen staying subdued, which will only add to pressure for more aggressive action from the European Central Bank (ECB).

In an interview with German financial daily Handelsblatt published today, ECB president Mario Draghi acknowledged the risk that inflation would stay too low for too long.

“We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary to react to a too long period of low inflation,” he said.

“There is unanimity within the Governing Council on this.”

The ECB council meets on Jan 22 and markets are wagering heavily it will finally decide to start buying sovereign debt, a major reason the euro hit 29-month lows today.

Read more here

China Steps In as World's New Bank

Article here

Thanks to China, Christine Lagarde of the International Monetary Fund, Jim Yong Kim of the World Bank and Takehiko Nakao of the Asian Development Bank may no longer have much meaningful work to do.

Beijing's move to bail out Russia, on top of its recent aid for Venezuela and Argentina, signals the death of the post-war Bretton Woods world. It’s also marks the beginning of the end for America's linchpin role in the global economy and Japan's influence in Asia.

What is China's new Asian Infrastructure Investment Bank if not an ADB killer? If Japan, ADB's main benefactor, won't share the presidency with Asian peers, Beijing will just use its deep pockets to overpower it. Lagarde's and Kim’s shops also are looking at a future in which crisis-wracked governments call Beijing before Washington. 

China stepping up its role as lender of last resort upends an economic development game that's been decades in the making. The IMF, World Bank and ADB are bloated, change-adverse institutions.  When Ukraine received a $17 billion IMF-led bailout this year it was about shoring up a geopolitically important economy, not geopolitical blackmail.

Chinese President Xi Jinping's government doesn't care about upgrading economies, the health of tax regimes or central bank reserves. It cares about loyalty. The quid pro quo: For our generous assistance we expect your full support on everything from Taiwan to territorial disputes to deadening the West’s pesky focus on human rights.

This may sound hyperbolic; Russia, Argentina and Venezuela are already at odds with the U.S. and its allies. But what about Europe? In 2011 and 2012, it looked to Beijing to save euro bond markets through massive purchases. Expect more of this dynamic in 2015 should fresh turmoil hit the euro zone, at which time Beijing will expect European leaders to pull their diplomatic punches. What happens if the Federal Reserve’s tapering slams economies from India to Indonesia and governments look to China for help? Why would Cambodia, Laos or Vietnam bother with the IMF’s conditions when China writes big checks with few strings attached?

Beijing’s $24 billion currency swap program to help Russia is a sign of things to come. Russia, it's often said, is too nuclear to fail. As Moscow weathers the worst crisis since the 1998 default, it’s tempting to view China as a good global citizen. But Beijing is just enabling President Vladimir Putin, who’s now under zero pressure to diversify his economy away from oil. The same goes for China’s $2.3 billion currency swap with Argentina and its $4 billion loan to Venezuela. In the Chinese century, bad behavior has its rewards.

If ever there were a time for President Barack Obama to accelerate his "pivot" to Asia it's now. There's plenty to worry about as China tosses money at rogue governments like Sudan and Zimbabwe. But there’s also lots at stake for Asia's budding democracies. The so-called Washington consensus on economic policies isn't perfect, but is Beijing's model of autocratic state capitalism with scant press freedom really a better option? With China becoming Asia's sugar daddy, the temptation in, say, Myanmar might be to avoid the difficult process of creating credible institutions to oversee the economy.

There could be a silver lining to China lavishing its nearly $4 trillion of currency reserves on crisis-plagued nations: It might force the IMF, World Bank and ADB to raise their games. Competition, as Lagarde, Kim and Nakao would agree, is a good thing. But more likely, China's largess will encourage bad policy habits and impede development in ways that leave the global economy worse off.

HfW - When the Market Gets Scary

You really can't time the market — this time isn't any different!

This past Friday, the Dow Jones Industrial Average closed at 16,544. That's about 100 points higher than its close on January 2, the first trading day of the year.

Yes, the stock market is higher today than it was nine months ago.

That statistic might surprise you. After all, over the past couple of weeks, the stock market has been gyrating. The Dow fell 273 points last Tuesday - and then rose 275 points the next day. How can anyone make any sense out of that?

You can't - so don't even bother trying. That's why we instead focus on the long-term. Markets always react in the short-term, so it helps to remind ourselves that the stock market is higher today than it was two years ago, and it's ten thousand points higher than it was six years ago!

The market is now 10,000 points higher then it was in 2008!

But many people aren't focusing on that. They are worried about the economy in Europe, unrest in Ukraine and Hong Kong, threats from ISIS and, of course, Ebola. The media tend to overstate the bad news and underplay the good news - like the fact that unemployment is at the lowest level since 2007, mortgage delinquencies are at their lowest level in six years, the manufacturing index is at higher levels than it was prior to 2008 and U.S. auto sales are poised to set an all-time record this year.

And that's why we're writing to you today. We want to reassure you, and remind you that we've all seen this movie before, as our letter to you in August noted. Yes, stock prices since then have indeed been going down - but that's part of what stock prices do; the other part is that they also go up. And history tells us two things: After every down period, there's an up period, and every up period is larger and longer than each preceding down period, as the accompanying chart shows. Every down period, therefore, has proved to be a great time for you to add to your long-term portfolio.

Perhaps you're not convinced - maybe because Ebola is dominating the news lately. If that seems like scary stuff, it might help to put it into context. Before you ever heard of Ebola, the news was filled with stories about Mad Cow Disease. Before that it was SARS. Before that, Avian flu, and before that the "swine" flu. In 2011, stories warned that the Mayan calendar predicted that the world would end in 2012. Before that, of course, was Y2K.

There's always something out there that the media say is imminently going to cause our destruction. As comedian Alonzo Bodden said, "Weren't we all supposed to be dead by now? I don't know about you, but I stopped paying my bills."

His point is well taken. We mustn't let ourselves get upset by the latest headlines of doom. Experts in behavioral finance call this catastrophizing. We humans tend to take a piece of information and automatically assume the worst, filling ourselves with such fear that all rationality leaves us.

Your long term goals are what matter!

It's important that we stay focused on our long-term goals. If you have an effective strategy to achieve your long-term financial goals - and as our client, you do - all you need to do is stick with that strategy. It's as simple as that. Rest assured that we are monitoring your account daily, maintaining extensive diversification for you to help control risk and, as opportunities arise, we're exploiting the market's volatility to rebalance your account.

Of course, if something has changed in your life that might require alteration in that strategy (including a change in marital status, employment, income need, health or risk tolerance), please tell us. Otherwise, you can ignore the headlines with confidence.

And when you come upon others who express worry or fear, you can invite them to contact us, so we can help them obtain the same quiet confidence that you enjoy. We're happy to help your friends, family and colleagues, too, if they need our help. And if they're worrying, they really should call us.

As should you — anytime you have any questions or concerns.

As always, we'll continue to monitor your accounts and keep you informed.

Regards!

Ric Edelman
Chairman and CEO

David Bach
Vice Chairman

HfW - Where are you?

At some point in life you will need to financially plan for your well being. So where are you now?

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HfW - Food for Thought

Take a few moments to ponder and start asking yourself why. In the upcoming post I will share the age group for insolvency.

Health For Wealth

It doesn’t literally mean that you need to sacrifice your health in exchange for wealth. Duh!!

The social circles of today are ever chasing for wealth and any form of material. We have seen the most billionaires emerging from China and India in the last 10 years or so.

And that sets a trend. Many are jumping onto the bandwagon, chasing wealth at the expense of friendship, relationship and even health. I have to say that is stupid.

Has anyone of you heard of David Bach? David Bach is best known for his Finish Rich Book Series and Automatic Millionaire Series of motivational financial books under the Finish Rich® Brand. Eleven of Bach’s books have been national bestsellers, including nine consecutive New York Times bestsellers, two of which were consecutive #1 New York Times bestsellers (The Automatic Millionaire and Start Late, Finish Rich)

To know more about David Bach click here.

So what changed me?

Like I said earlier, both good and bad chains of events have taken place in my last 5 years of life; mostly good though.

I am pleased to have such a beautiful wife, ever caring and managing my 2 daughters. My 2 daughters have grown up so quickly to be even more beautiful than my wife what I could have imagined. Today they are 9 and 7 respectively.

In a very short 10 years from now, they will be moving on with their lives starting with tertiary education and slowly moving into the working world.

They will then leave my wife and I to cuddle each other apart from our unique arguments to begin a journey that is being set out for them.

In the last 5 years, everything that I have done has been for the family if not the kids. It has always been saving up for the kids. But the problem was the incremental savings year after year was not visible. Yeah, it was supposed to be incremental yet it wasn’t an amount that I would be glad of.

Our form of savings was to dump into conventional investments like Fixed Deposits. Slowly I started to venture out; from gold investments to foreign currency deposits to mutual funds / unit trust.

In the next 5 years, I have set a target to see my capital investments giving me a return of ~20% on an annualized average. Ok here comes my technical jargons.

Anyway to cut a long story short, with the constant nagging of my wife, I took up a financial license. And here so I am to share the beautiful news, awareness and experience.

Just a question to everyone before I end the post – if you saved up $100 a month, how much would that be in 10 years?

In my next post, I will share the generation mindset about savings.

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