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Over the course of the Movement Control Order in Malaysia, brought about by the global pandemic of COVID-19, the lives of every individual in the country have been upended in more ways than one. Changes to our daily routine that we would not have imagined half a year ago have become part and parcel of the “new normal” and almost second nature by now: wearing a mask in public spaces, having a bottle of hand sanitizer available on hand anywhere we go or constantly keeping a social distance from friends and colleagues.

Apart from adopting new habits, a silver lining has emerged where some have ended up discarding unhealthy habits such as late-night suppers, smoking or regularly eating out. Had it not been for circumstances forcing a change in lifestyle, many individuals would probably carry on less than ideal practices without giving much thought to them.

Likewise, when it comes to making investments, many individuals may not realise that some of their investment habits are actually detrimental to their financial health and can impede their ability to grow their wealth optimally. It is important that these “unhealthy” investment habits are recognised so that they can be addressed in a timely manner to avoid long term repercussions. These are some of the most common habits that we observe among many investors:

1. Investing TOO Safely

Many people particularly retirees may prefer to play safe by putting all their money in FD alone because it is deemed to be the safest form of investment. However, in the current market environment where FD rates are below 3%, the impact of inflation is very apparent.

The Rule of 72 states that when you take 72 and divide it by the rate of return, the answer will tell you the number of years required to double your money. So, if you are getting a 3% return, it will take you 24 years to double your money! With inflation eating into your money, your purchasing power 24 years later is going to be a lot less than today. In comparison, if you can navigate through a moderate risk diversified investment portfolio and earn an 8% annualised return, it would only take 9 years to double your money. 

2. Emotional Investing

Some investors tend to wait for the “right time” to invest, anticipating a feel-good factor when markets go up and this is when they decide to ride the wave of the moment in hopes of buying high to sell even higher.

In contrast, when the markets come down, they stay on the side-lines and play the waiting game, using negative market sentiment as justification for inaction when instead they should be taking the opportunity to bargain hunt. This is contrary to the investment philosophy of “buy low, sell high”.

3. Following The Crowd (FOMO: fear of missing out) Mentality

When it comes to investing, word of mouth among friends and relatives is a common approach. Often what you hear are the good things informed to them by the salesperson and passed on without verification of facts or supporting evidence.

Victims of investment scams are commonly “recruited” into it by people they know and trust. It usually starts off innocently enough with a nominal amount put in for the sake of maintaining a cordial relationship with the so-called referrer and also out of curiosity to see how the scheme pans out.

However, small losses can add up over time and the opportunity cost of missing out on bona fide investments is time permanently lost. 

4. Misplaced Sense of Confidence

This is when an investor applies knowledge garnered from certain investment exposure as THE investment strategy for all investment asset classes, not realising that expertise in one area does not necessarily translate to identical outcomes in other areas as far as investments are concerned.

For example, a share trader who is used to high frequency trading activities decides to apply the same investment strategy in diversified investments such as unit trust, but the experience might turn out to be entirely different. As a result, he decides to stick to investments which allow active trading like forex or crypto currency investing since high frequency trading is his forte.

5. Not Investing Based on the Best of Breed Investments

This is quite typical of investors who, perhaps due to lack of time to do the necessary research, tend to invest with a blinkered approach instead of comparing the best investments in the target category. In other words, are you considering all the available options for the similar type of product to compare, or are you limited to only one or two options as presented by the salesperson?

For example, an individual who wishes to invest in Malaysian small capitalised stocks should comb through the performance of various funds in the same category before arriving at a decision. Thereafter, this process should be repeated periodically to ensure that he remains in the best funds within the same category.

6. Investing Without a Strategic Asset Allocation in Mind

All investments can be loosely categorised as low, moderate or high risk. This categorisation is a function of the inherent price volatility of the investments. When one invests, it is important to understand the appropriate percentage or allocation of low, moderate and high risks assets and this is dependent on one’s risk profile.

As an example, the strategic asset allocation of a moderate risk investor should be around 10% of investable assets in low risk assets, 70-80% in moderate risk assets and the remaining 10-20% in high risk assets. Low risk assets will comprise of assets such as bank deposits, capital protected investments or investment grade bonds.

Moderate risk assets consist of investments such as balanced diversified portfolios, high dividend yielding shares, property investments or REITs. Lastly, high risk assets would encompass highly volatile assets such as growth focused or small cap stocks and alternative assets such as crypto currencies.  

Very often, we come across those who invest a very high allocation (>70%) of their investable funds in their favourite assets, either properties or shares or plain old fixed deposits.

While it is not wrong to invest in instruments that you are familiar with, choosing these over your ideal strategic asset allocation could result in an over exposure in certain asset classes that can leave you vulnerable during in a down market cycle of that asset class, or having to deal with very low yields as is the current scenario for FD investors.

7. No Active Performance Management

Another habitual tendency of investors is investing – full stop. What this means is once they put their money in an investment product, it’s hands-off from thereon. Active performance management is important because it allows:

• Tracking the performance of the investment and taking profit when there’s an opportunity;
• Reinvesting profit when the market goes down to average down your cost;
• Rebalancing your investment portfolio with a target asset allocation in mind; and
• Restructuring in order to move from an under-performing fund to a better performing fund in the same category.

Without active performance management, investors may miss out on time sensitive opportunities to better their investment returns.

In conclusion, while unhealthy investment habits may not bankrupt you overnight, they can potentially pose a large stumbling block to your wealth accumulation in the long run. In the current economic situation, most of us would agree that every ringgit counts. Replacing these habits with new, healthier investment practices only requires some willpower and determination and the rest will follow suit.

About the Author:

Felix Neoh CFP ^{CERT TM} is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth

Are you new to investing? Well, a lot of choices out there that can be used as your investment platform. But in this article, we will look more into one of the investments offered in Malaysia which is unit trusts.

Do you know what unit trust is? Maybe we heard it before but do we know how unit trust works? Is it better than any other investment scheme or is unit trust the safest investments for beginners?

Maybe this article will help you to understand more about this product, unit trust. Be advised that investment goals vary for each one of us. It also depends on our investment goals to decide on which type of product or platform suit us well.

What Are Unit Trusts?

Unit trusts can be simply said as mutual funds that will be invested in various places. It holds assets that will turn into profits which will be given to the investors. It pools money from various investors to invest in assets such as bonds and equities. Fund managers will manage the investments for you. All you need to do is just relax and enjoy your daily life.

But hey! You should understand that investing has its own risk. Your investment may be profitable or you may face some losses.

It’s good that we know and understand a few basic things in unit trusts.

1. Unit Trust
   Have you heard about Amanah Saham Bumiputera (ASB)? The concept is about the same. ASB is one of the funds in unit trust but it’s only for the Bumiputera. ASB will give you bonuses and dividends as your profit while you will gain profit from unit trusts via dividends and the increment of the funds’ price per unit.
2. Unit Trust Management Company (UTMC)
   Malaysia Security Commission (SC) monitored UTMC. For UTMC to operate in Malaysia, it will need approval from the Central Bank of Malaysia and the Ministry of Finance. Based on the report by SC, there are 39 approved unit trust management companies in Malaysia as of March 2022.
3. Fund
   Based on the same report from SC, there are 761 authorized funds and 279 of them are shariah-compliant funds.

Is It Safe To Invest In Unit Trusts?

As what being said before, any investment will have its own risks. Depending on our risk appetite, we can choose our investment that can cater to our needs in investment. Unit trusts make it easy to diversify our portfolio but different funds will have different risks and rewards. I’m sure that you’ve heard this before, but a high-risk investment will provide you with a high return. Be in mind that not only you’ll be served by a high return but there’s a chance your investment might not work well and prepare for your losses (most probably with high losses too!).

What Are The Fees Incurred In Unit Trusts Investment?

Unit trusts investment use fund managers to manage our pool of money to invest. There are fees that need to be paid even if the investment are not profitable.

1. Management Fee
   Charged once a year
2. Trustee Fee
   Charged once a year
3. Switching Fee
   Charged when switched to another fund
4. Redemption Fee
   Charged when unit sold
5. Sales Charge
   Charged for each ‘buy’ transaction

Safest Investment For Beginners?

Have you understood what unit trust is now? At least, you get a rough idea of what and how unit trusts work.

Do you think that unit trusts are the safest investment for beginners? Well, the answers are yes and no. Each one of us has a different risk appetite. Before you make any investment decision, make sure that you’ve studied and understand on how things work.

Don’t rush and jump into something that you’re not well of. Investment is a journey. It’s not some kind of Skim Cepat Kaya.

Investing for retirement is undoubtedly an investor’s biggest goal. After all, a successful retirement is not a birthright but something one must earn through hard work and proper – if not cautious – planning.

However, those approaching retirement have found themselves in a unique position today, with the Covid-19 pandemic giving way to market volatility. Businesses across almost all industries are affected, as are share prices, and the concern about losing money is one that equity investors know better than to take lightly.

Upping Your Nest Egg Game Plan

“By not investing, you are losing your purchasing power by almost 1% each year,” Alpine Advisory director Gor Sheau Shuenn tells Smart Investor.

As a result, most of the soon-to-be-retirees hesitate to retire and suffer from the ‘one-more-year’ syndrome, which sees them staying in the current job for one more year before they retire.

“For those who do not have the luxury of delaying their retirement, they will worry for their slowly-depleting life savings and thus, defeating the objective of retiring in the first place, which is to have a rewarding and worry-free life,” he adds.

Gor’s suggestion for those whose retirement is on the horizon?

“Start looking into your personal finances. You will need to understand how your retirement life is going to look like, and what are the possible hurdles and hassles that may affect your nest egg.

“Most of the time, retirees do not actually deplete their money by spending it on themselves but rather, to sponsor their children’s dreams or their parents’ medical expenses, or even dealing with the aftermath of a wrong investment decision.”

Therefore, he continues, every pre-retiree should have their financial plan on the table at least five years before they plan to retire. This enables them to adjust to their lifestyle, settle unwanted loan commitments and prepare adequate funds to sponsor their loved ones’ dreams, which will then prevent any premature withdrawals from their retirement fund.

Where To Put Your Money?

In general, as a person approaches their retirement (say less than three years), the less risk they are able to take.

“Given that today’s investment environment can be said to be uncertain with interest rates at a multi-year low, stock market valuation above their long-run fair valuation and an economic outlook that remains weak, it is only prudent to err on the side of caution,” Maybank Asset Management Sdn Bhd Head of Investments, Unit Trust Chen Fan Fai explains.

Having said this, the main chunk of a person’s capital should be allocated to low-risk assets like fixed income so that the income generated from coupons can at least match their minimum cashflow requirements without having to dip into capital.

Balancing the need for yield in these low-interest rates environment and the possibility of rates moving higher in the coming years, a duration of five to seven years may be considered.

“Should there be a surplus capital after the exercise, the balance can be invested into higher-risk assets such as REITs, equities and precious metals depending on one’s appetite for risk and desire for capital growth,” Chen adds.

Rethinking Financial And Retirement Strategies

The current market conditions and the pandemic should force you to rethink your financial and investment strategy for retirement.

“Again, time to retirement is an important factor to take into account,” Chen opines, adding that in situations where the time to retirement is relatively short, uncertainties like an on-going pandemic take on added importance.

“However, assuming that time to retirement is far longer – 10 to 20 years, for instance – then it may not be that critical and investors should place more emphasis on an asset with long-term return to enable them to achieve their retirement nest egg.

“In this case, we are talking about a riskier asset with higher long-term return potential.”

The underlying assumption made here, says Chen, is that all asset classes undergo periods of under- and over-performance as they go through different economic cycles and event risks. “However, when given enough time, they will revert to their long-run returns.”

For Alpine Advisory’s Gor, the investment objective during retirement would primarily be capital preservation while your retirement income strategy would encompass the timeline and the amount that you would receive in dividend income, fixed deposit, and/or business dividend pay-out, etc.

As such, a full roadmap of a retiree’s or soon-to-be-retiree’s monthly cashflow statement (which includes large annual expenses such as insurance premiums, car insurance renewals, road tax renewals and assessment tax, for example) is crucial.

At the same time, they will also need to consider incoming cashflows from multiple investment portfolios that will continue to generate passive investment income, and also the capital appreciation to generate enough income to fund the living expenses as laid out in their financial plan.

“Despite retiring soon, you shouldn’t forget that you could possibly live on for another 20 to 30 years, and should therefore diversify your investment into different time horizons – short, medium and long term.

“The advantages of having separate portfolios is to serve as an indicator as to how disciplined a retiree is in terms of his expenditure during retirement.

“This way, you wouldn’t have to panic sell during an economic downturn (if the underlying investment asset is solid) and become stressed out when there is no monthly income credited to your bank account in the first few months of your retirement,” Gor explains.

Building A Resilient Retirement Portfolio

One of the most important factors to take into consideration when building a resilient and growing retirement portfolio is diversification, says Maybank Asset Management’s Chen.

This is in addition to time to retirement, the required rate of return to reach retirement sum, the ability to take on risk and the long-run return and risk of different asset classes.

“We are talking about diversification of not just asset class but also investment style or diversification of fund managers as history has shown time and again that even the best plan can go wrong,” he explains.

With a plethora of investment products in the market with different characteristics that investors can consider, Chen further points out there are many ways to invest for one’s retirement, and everyone has their own personal circumstances.

That being said, there is no standard solution, and the important thing is to keep in mind the aforesaid factors as you go about planning for your retirement.

“One seemingly obvious solution is to buy a fund (or a few of these funds to diversify across fund managers) that are specifically tailored for retirement needs. These funds are commonly known as lifestyle or life cycle funds and they will normally specify the year when retirement is expected.

“An investor will then choose the fund that matches their retirement year. Essentially what the fund does is gradually rebalance the investor’s asset mix to reduce risk as the retirement year edges closer. However, the results have been mixed,” he reveals.

The second option is to construct a portfolio of funds yourself or with your financial advisers taking into consideration the previously-mentioned factors.

“To do this well, you and/or your financial adviser will need to have a good understanding of the financial markets. In general, I find mixed asset funds and absolute return funds to be very useful building blocks for a retirement plan,” says Chen.

Helping Clients Achieve Their Retirement Goals

Before deciding on any form of investment, Alpine Advisory director Gor Sheau Shuenn believes one must have a clear understanding of their current financial position. And based on that, the next thing that needs to be done is to determine the gap between what one has now and their retirement goal.

Why is this important?

“Look at it this way. You see a doctor for pain in one of your knees, telling the doctor, ‘My knee hurts’ and stopping at that. What do you think the doctor will do? Surely, he will ask ‘Which knee, what kind of pain, when did it start, was it a result from a fall?’

“The doctor will then proceed to examine your knee to determine whether there is a fracture or is the knee just inflamed. Only then will the doctor prescribe the necessary medication.

“Investment is like that. In order for you to decide how and where to invest, you need to have a clear idea of how much you have, how much you need and how much time you have to achieve it.

“Investing without a purpose is like sailing out into the seas without a sail, rudder and compass – you will most probably get swept away by the undercurrent, or worse still, capsize during a storm,” he explains.

Once you have determined all these, the next step is to allocate the right proportion into bank saving accounts, fixed deposits, bonds, shares, mutual funds, properties, lands, antiques and other alternative investment products.

Your investment journey is not about finding the best product to invest in but about finding the right product that meets and suits your retirement needs, he adds.

“The most important thing you need to remember is to never invest in something you do not understand, especially when it comes to how the product is managed. Cliched as it is, when something sounds too good to be true, it normally is,” says Gor.

Earlier this year in March, the Securities Commission of Malaysia (SC) announced the approval of two operators to conduct Initial Exchange Offerings (IEO). This is an exciting and consequential development because IEOs create a whole asset class for investors with new financial instruments.

Just as SC became the first to regulate equity crowd funding (ECF) in Southeast Asia in 2015,[1] IEOs are poised to launch our local capital markets into the digital asset age.

However, public interest seems subdued. The public is largely unaware of what IEO is, without much investor education or media attention out there. Some just think this is another ECF clone.

Or maybe the news got overshadowed by the digital banks announcement that came weeks later. Furthermore, since IEOs are digital assets which are similar to cryptocurrencies, there is a certain stigma to overcome.

This three-part article series aim to explain IEOs from the perspectives of (1) the investor who buys these assets, (2) the issuer who sells these assets, and (3) the operator who runs the platform that brings investors and issuers together. Hopefully this can simplify, in ordinary business language, some of the technical concepts related to IEO investments.

It also presents some of the challenges and limitations of IEO in its current state which smart investors like you may consider before coming onboard. 

What Are Initial Exchange Offerings?

Basically put, these are privately issued assets in the form of digital tokens. Privately held businesses, which must be tech-related and can be of different maturity stages, can issue these tokens and sell to the investor public for the purpose of fundraising of up to RM100 million. This activity can be only performed through the IEO operators within a regulated setting.

You’d be surprised that the IEO name itself is somewhat misleading as there is no exchange involved. None of the digital asset exchanges (DAX) in Malaysia are allowed to place out IEOs. The commonly used name is Initial Coin Offering (ICO), but this has a negative connotation as it conjures memories of scams back in the day.

For ease of understanding, an IEO works like an Initial Public Offering (IPO) – where a company that wants to go public will issue and float its shares in the open market. In the context of an IEO, digital tokens are used instead of shares.

Wait, Digital Tokens Are Not Shares?

Our domestic law makes it very clear that digital tokens are neither shares (equity) nor debentures (debt).[2] It should also not be confused with unit trusts. In other words, please don’t expect to get payouts in the form of dividend or interest when you invest in these tokens. You also don’t get to have voting rights or attend annual general meetings like normal shareholders do.

Since this is not debt, you are generally not considered a creditor to the company that issued the tokens to you. And assuming that your tokens are not secured to assets of the company, you won’t know what your priority of repayment is if the company goes under. Therefore, it is important to ascertain the exact nature of your rights before you invest.

If digital tokens are not shares, what are they? That’s a good question.

They are prescribed as securities, which are defined in the Capital Markets and Services Act (CMSA) 2007 as shares, debentures or unit trusts, or “any right, option or interest in respect there of”. The latter sentence will presumably take on an expansive meaning depending on how creatively structured the tokens are.

One thing to remember: It is always sensible to approach and analyse these tokens like an investment contract. What underlying asset is your money going into, what is being represented and promised to you, and what are the downside risks including the worst-case scenario?

Are These Investment Products Legitimate?

Being legitimate is not necessarily the same as being legal. Digital tokens have the legitimacy as a regulated financial instrument, and they are handled by recognised market operators (RMO) with the oversight of SC. The legal certainty of it, however, is another matter.

Digital tokens are not legal tender, and each token offering is different based on its own set of facts. As and when disputes arise, they will have to be brought before the judicial courts to decide on the legal merits.

According to the landmark case Luno Pte Ltd & Another v Robert Ong Thien Cheng, it was decided (and affirmed on appeal) that digital assets like bitcoin can be used as consideration to seal a contract between parties. There is value attached to digital assets in the same way as value is attached to shares.[3]

Nevertheless, there are questions with respect to how digital tokens, which use ‘smart contract’ code, can effect legally binding signatures between two parties. It is also important to note that the rights in contract differ significantly from the rights in property which are more complex. Whether digital assets can represent legal and beneficial interests in real property have not been ascertained yet.

In fact, courts around the world are ruling on whether digital assets, in their intangible or incorporeal form, can be rightfully considered ‘property’. There is no legislation in Malaysia to recognise them as such. There is also an insufficient body of precedents here and in other Common Law jurisdictions to make a conclusion at this stage.

Ultimately it depends on the financial engineering of the tokens, for example, whether the tokens represent ownership of property assets, or are backed by them as collateral, or are merely claims. You will need to read the fine print carefully.

Who Are the Target Investors?

While retail investors can participate in these offerings, they are limited to RM2000 per issuer and a grand total of RM20,000 within a 12-month period. If Alice picks Company X, she can only invest a maximum of RM2000 in its tokens. If Alice has more cash to spare, she will have to spread it to other companies.

This way, Alice can limit her exposure to Company X and stop-loss at RM2000. But it also means she cannot meaningfully participate in the upside of Company X if its tokens eventually grow by leaps and bounds. 

The objective of this regulatory limit is to protect ordinary folks like mom-and-pops from putting too much money on these investments which are intrinsically risky. On the other hand, accredited investors and those with high net worth have no such limits imposed on them.

Can I Sell and Trade Digital Tokens?

At this point, IEOs are offered only at the primary market level, that is, between the issuer and the end investor. There are no guidelines from SC to open up the secondary market yet for trading among investors.

In other words, Alice cannot transfer her tokens to Bob. Eventually this will be facilitated by the four registered digital asset exchanges (DAX), which will need to comply with the admission rules for listing IEO tokens.

Given that IEO platforms have not even started operating, and have been given nine months to prepare, you will not see the trading of tokens in the immediate future. Which means that investors will not have the options to exit freely in the open market yet.

In a sense, investing in an IEO can be less liquid than investing in a close-ended fund (CEF). There are no new tokens issued and no new investors onboarded once the offering closes. Investors can neither redeem their tokens from the issuer nor expect repurchase or buyback.

Even if the tokens are listed, there is also the question whether the secondary market and price discovery process will be vibrant enough to make it worth their while.

In the next two articles, we will dive into how tech businesses can capitalise on IEOs, the benefits compared to conventional funding strategies, and the potential problems. While IEOs can democratise venture capital (VC) investing for ordinary investors and change the way entrepreneurs raise funds, the Malaysian context is quite unique from global practice and needs to be taken into account.

About the Author

Edmund Yong is the managing partner of Celebrus Advisory and appointed by MDEC as part of its Talent Expert Network (formerly known as Digital Expert Panel) for blockchain technology. He is also the resident consultant for GLT Law, a multi-award-winning legal practice with specialisation in digital assets. All opinions expressed are the author’s own.

Resource:

[1] https://www.sc.com.my/resources/media/media-release/sc-introduces-regulatory-framework-to-facilitate-peer-to-peer-financing

[2] Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019.

[3] Robert Ong Thien Cheng v Luno Pte & Another (Civil Appeal No. 12BNCVC-91-10-2018), Shah Alam High Court. 

As our lives gradually regain some normalcy after years of restrictions, many businesses too are starting to get back on their feet and (hopefully) make up for lost time.

Most of us, whether salaried employees or business owners, were likely to have our income streams affected to a certain extent during the Movement Control Order (MCO) period of limited operation and closures.

At the same time, we are also concerned with the state of our financial situation especially if we have dependents, fixed commitments and stacks of bills to pay at the end of every month.

During trying times like these it is natural for us to imagine a future where we do not have to deal with the daily stress and pressure of depending on continuous monthly income just to ensure that household expenses are covered.

If only we could be free of financial burdens, then our lives could be better spent with our loved ones, sans the worries and sleepless nights thinking of bills and more bills.

Many may wonder how would it be remotely possible to one day achieve financial freedom when there are countless other pressing financial issues on the table that need to be dealt with, particularly in the aftermath of the MCO.

One thing is for sure; financial freedom is not an overnight transformation, neither is it going to happen by chance such as striking a winning lottery ticket.

We Will Bounce Back Stronger

It will take time and there are no guarantees that the process is going to be a bed of roses without sacrifices along the way. But with the right mindset and attitude, financial freedom is an attainable goal for more people than you would imagine.

However, before you attempt to dive headlong into it and say “Tell me the 5 things I need to do to achieve financial freedom”, I have to be upfront that there is no standard magical formula because financial freedom means different things to different people.

Therefore, you need to first understand what financial freedom means to YOU, then and only then can you chart your financial path towards that goal by implementing good long-term financial habits.

While financial freedom may have varied definitions for every individual, there are a few common ones that many of us share, such as:

1. Having sufficient assets or income to support your expenses and financial goals  

2. Having assets that generate sufficient income to cover expenses

3. Not being dependent on active income generation

4. Doing what you love (for passion) rather than working for money

You may find that more than one definition of financial freedom relates to you which you wish to achieve, and that is perfectly fine as these goals are not mutually exclusive. Many individuals have a combination of financial freedom goals to aspire towards, sometimes at different stages in their lives.

Having identified what your financial freedom goals are, the next critical step is to determine your financial freedom number. This refers to your targeted financial freedom fund amount that you require in order to achieve your set goals.

Knowing what number is right for you and why it is so is important because the number is, by all accounts, a goal in itself and should be one that is specific, measurable, achievable, realistic and time-bound (SMART).

The way to go about determining your financial freedom number is by asking yourself these few questions:

a) What kind of retirement lifestyle do you aspire to have?

While typical idyllic responses tend to be “travel the world”, “play golf daily” or “look forward to grandchildren”, don’t forget the potential scenarios that are closer to home such as:

• Any outstanding loan commitments? You may want to replace your executive sedan with a more fuel-efficient vehicle, so don’t forget to factor in a car loan if any.

• Will your children have completed their university education by then and be able to start working? Best be prepared that fresh graduates may not be able to find a suitable job immediately and you may be required to help support them for a little while longer.

• Any plans for home renovations or modifications to make it more senior friendly?

• Additional health-related expenses that you may not be spending on now but are likely to do so in future, such as comprehensive medical check-ups or procedures that may crop up eventually like cataract operations or joint replacements.

b) What is the cost of that retirement lifestyle in today’s value?

c) What will it cost in the future, after factoring in inflation?

Once you have a financial freedom number with a big red bullseye painted on which may be cause for concern because as far as you are aware, all they money you currently have in your savings, EPF, insurance and retirement fund is not even close to that amount. 

But you still have an advantage in terms of time which is why the sooner one determines his/her financial freedom goal, the better.

With more time ahead of you, funding your financial freedom is doable and the best part is that you will be in better control of how you want to achieve it. You will not have to subscribe to any “Secret tips for financial freedom” by a glorified money guru telling you to invest X amount in this, buy Y worth of that, etc.

A viable way to fund your financial freedom is by adopting the following 8 healthy financial habits and values that have been tried and tested:

#1. Automate your savings and invest in diversified investments instead of going for the ‘hot’ market investment ideas;

#2. Aim to increase your savings rate every year to correspond with your salary increment;

#3. Be mindful of personal lifestyle inflation where there is a tendency to upgrade your lifestyle at the expense of savings which should be the priority;

#4. Avoid falling for the herd mentality when societal and peer pressure influence your spending decisions. Financial matters are personal and should not be a reason to keep up with the Joneses due to fear of missing out;

#5. Pay attention to good debt vs bad debt when making investments to identify which has the potential to appreciate, for example taking a car loan vs an education loan to upgrade your skills;

#6. Diversify your income streams so that you do not become over reliant on any single source;

#7. Optimise your time well to maximise productivity. This means consider monetising your free time whilst in pursuit of your interest. For example, if you love to paint as a hobby, why not put your works of art up for sale?

#8. Leverage on the expertise of others. If you find yourself too busy or lacking sufficient technical know-how to manage your financial affairs, it is good to seek advice from the professionals. Just make sure that you select the right person to speak to, one who is knowledgeable, trustworthy and reliable.

The key to achieving your target financial freedom fund (which also translates into meeting your financial freedom goals) is to start by incorporating the right behavioural changes when it comes to making financial decisions. You will soon see that it is not an impossible dream to achieve that target number after all. 

In fact, you may even discover that by consistently practicing these 8 healthy financial values in the long run, the finish line of your financial freedom marathon can be nearer than you think.

About the Author:

Felix Neoh CFP ^{CERT TM} is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth