kcchongnz blog
Investing during retirement, is it necessary? kcchongnz
Most retirees had had been hard working individuals working as an employee or in business. They worked hard to put food on the table, buying a house, to bring up children and support their education up to tertiary level, many even send their children for the costly overseas education, and even help them out when they first starting work like first payment for their house and car. That is our Asian culture.
However, one has to retire one day when he gets old; either it is because of statutory requirement, or that he just can’t carry on working any more due to his old age. And when he retires, does he have enough money to survive and live a comfortable life before he expires?
If you are retiring soon, aren’t you concern about whether you and your wife have enough money to last you for another 20-30 years? A retiree faces the longevity risk of living too long.
A recent survey by global insurance group AIA revealed that the average amount middle-class Malaysians desire to have in their savings for when they retire comes to RM1.9 million. However, according to recent figures from the Employees Provident Fund (EPF), the approximately 70,000 active 54-year-old contributors have an average savings of just 167000 in 2013, below the recommended minimum savings level of RM196800. The situation is made more alarming by the revelation that 69 per cent of all EPF contributors of the same age have less than RM50000 in their accounts.
As the average Malaysian is expected to live until 75, retiring at 60 with RM167000 would mean surviving on just RM700 a month for the rest of their days. Can that amount of money provide him with a comfortable life style?
Well I guess we need not deliberate the above as I am sure we all know if RM700 a month can provide us with a comfortable lifestyle. And it is also pointless to deliberate if he should invest his RM167000 in any other investment, except for putting it in a safe investment such as the bank deposit. The more pertinent thing the prospective retiree needs to do is to find another job and carry on working to save enough money for retiring later.
What about those who already accumulated say RM50m at retirement? Well, I guess he may still do some investment other than putting his money in bank. He may take out RM10 or RM20m to invest in stock market for some fun and excitement, to make his mind active during retirement. It may be good to do it by investing in foreign stock markets as a mean of geographical diversification, for hedging against Ringgit depreciation risks.
Well for some who has RM50m, and still borrow another RM50 margin finance to speculate in the stock market, I really have nothing to say, except it is an act of stupidity to the extreme level, despite of whatever favourable outcomes he has achieved.
Let us move straightaway to the question of,
“If you achieve your desire of RM1.9m saving at your retirement, will you and your wife have a comfortable retirement life to last you for the next 20-25 years?”
We assume that John retires at age 60 next year and he has accumulated RM1.9m for his retirement, with debts all paid off have no other obligations. He puts all his money in banks earning a return of 4%, the same as the inflation rate. To be a little prudent, he and his wife plans to live to age of 85, that is 25 years later. He can withdraw an annual amount of RM76000 in today’s Ringgit, until he is 85 years old.
This amount of RM76000 a year should be able to provide them with a reasonably comfortable lifestyle; driving a small car, occasionally having a good meal in coffee shops or at ordinary restaurants, going for some holidays at local places, and perhaps overseas tours in nearby countries once a while.
But what if they wish to have better lifestyle, such as having a bigger car, some food outings in some better and air-conditioned restaurants with better food, and may be travelling to more exotic places such as Europe, America, the Safari, etc.? What about better medical care at old age? This may require an allocation of RM100000 a year. But how to stretch the RM1.9m further to provide this type of lifestyle?
It turns out that if John have an asset allocation of 50%:50% in bank deposit and an investment yielding an annual return of 4% and 8.7% respectively, or a weighted average return of 6.4%, he is able to withdraw RM100000 a year for 25 years without finishing their saving before expire.
But as John is in retirement now, which investment can provide him a long-term return of 8.7% in a safe and more predictable manner?
Trading in forex, indices, stocks
I went out of town for a golf trip recently and have met up with a long lost classmate who introduced me to a fund he is selling, which involves forex trading. He told me his fund manager is so good that he has been earning an annual return of more than 10%, even more than 20% for some years, for the last few years. His money, as well as some of his client, have made so much money investing with this fund manager. He wanted my endorsement of his fund. This is what I told him without mincing any word.
“If something seems too good to be true, it is.”
Trading, whether it is for forex, stock indices, individual stocks or derivatives are zero sum speculative activities. You must know who you are betting against, which you have very little chance to succeed. The more so one shouldn’t gamble with his retirement money. I just heard from another friend just last night that he won RM300k betting on KLCI Index in a few days, and subsequently lost RM700k the next few days “investing” with a stock futures expert with a “sure win” trading strategy!
If you are speculating and carry out trading activities, you are playing in an uneven ground in other’s playfield. It is a loser’s game.
“If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.”
― Warren Buffett
Investing in unit trust agents and fund managers
Unit trust is a good form of investing for long-term, especially for those who has no time, or little investing knowledge. However, with the upfront fee of say 5%, annual management expense of 2%-3%, the asset under management fee and wrapped fee by financial adviser, and many other fees, it is highly unlikely one can get a real return of 8.7% a year over a long period of time investing in unit trust, unless one can spot a good fund manager. It has been shown again and again that a fund manager who performed well against the broad index in a year, way underperforms the following year.
http://klse.i3investor.com/blogs/kcchongnz/75376.jsp
My own experience in unit trust investing shows the huge underperformance against the broad index, mainly due to the various costs. Some investors may have different experience, but my hunch is, most investors don’t even know how to calculate and compare with the broad market the right way.
Invest with a qualified, independent, licensed financial advisor
I worked as one before in a firm with the largest number of qualified, independent and licensed advisors. it is quite sad to reveal that the industry focuses too much on pushing financial products rather than giving independent advice. Sorry to say that my own experience didn’t end well. Almost all investments, supposedly suitable for high net worth investors for overseas investments; Dominion Funds, Walton, Man fund, funds of funds etc., scores of them; few have positive results, and many investments tanked, and investors lost, or almost lost everything.
The next time any of them ask you to buy their products, first ask what they get out of it, and you will be able to make a better judgment whether to invest or not. There is huge conflict of interest in this industry.
Invest in the stock market on your own
If the experience investing above is so bad, why don’t invest on your own?
“It’s not supposed to be easy,” Berkshire Hathaway’s Charlie Munger says about investing. “Anyone who finds it easy is stupid.”
JP Morgan published the 1Q 2014 Guide to the markets. Based on their analysis, the average investor had a 2.3% annualized return over the 20 years from 1993 to 2012, way underperformed the broad market return of 8.4% during the same period. This return is not even enough to beat the rate of inflation during the same period, resulting in negative real return.
http://klse.i3investor.com/blogs/kcchongnz/75376.jsp
Hence to be able to have higher probability of success investing on your own, one really has to have something extra, some sound knowledge in investing ad good and proven strategies of investing.
Following stock tips
I have also just met up a friend from New Zealand who is now in Malaysia. This was what he told me.
He and his friends previously working in Singapore had been using this strategy”, i.e. following stock tips from friends and reading from newspapers and magazines. All his friends, including himself, lost huge amount of money doing that. Their CPF money had diminished in value by half or even two thirds following rumours and tips.
Well, that was his and his friends experience. Each and every one may have different experience. My own experience wasn’t good too. Looking at all the tips given at the end of last year, I doubt any of those following those hot tips end up well.
So what are you going to do if you wish to have a more comfortable retirement life in a safe and predictable manner, beating the gremlin of inflation and mitigating the risk of longevity and also uncertainties such as currency depreciation risks etc.?
You are welcome to contact me and discuss about it at
ckc14invest@gmail.com
KC Chong
CFP
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Discussions
3 people like this. Showing 39 of 39 comments
Well for some who has RM50m, and still borrow another RM50m margin finance to speculate in the stock market, I really have nothing to say, except it is an act of stupidity to the extreme level, despite of whatever favourable outcomes he has achieved.
Hmm....
2016-07-08 08:41
I think whether it's stupid or not also depends on his result at the end....if make money not stupid..if dont make then stupid....
2016-07-08 08:43
With hundred millions in hand (own capital plus margin) and assisted by OTB (and Koon Bee System) i think not easy for some old man to lose money...unless he sok sok again go to hentam more Xinquan and similar co like Xinquan
2016-07-08 08:46
Seriously after watching Bloomberg KS li interview not I understand my uncle koon is doing not because of $$. Is just to prove his view n approaches are in line n applicable... there is no right or wrong is just the destiny....overtime to tell. Conservative vs thinking out of box triz methodology. Cheers
2016-07-08 09:07
......The next time any of them ask you to buy their products, first ask what they get out of it,.....There is huge conflict of interest in this industry......
Interestingly that is exactly what all business and capitalism is about. Making money or profit. Whether one is selling a product or service that is the core objective. Unless is purely for charity or 100% for humanity purpose. Even then one can argue the entity needs to cover its operation cost for providing the charity work for long term sustainability. Capitalism is not evil or bad concept...but along the way greed has somehow make this world the way it is now.
So, back to this article. Do one needs to invest during retirement - Yes n No - Depend on one's current financial standing, current protection/insurance, lifestyle spending, human nature, purpose, life aspiration, family interest, etc. All that and also taking into considerations the country/location one is retiring, inflation rate, living / medical expenses to name a few major factors.
Than, the choice or type of investments available out there. I don't agree on a general blanket statement like invest in stock market on your own will incur loss, or unit trust investment is not much better compared to FD, EPF/CPF return in the end, etc for that matter. Yes, one can say high chances, likely, but there are also many other outcome in between. What work for you best or one think is the better choice may not necessary be. Just like whether one needs to invest during retirement or not, one needs to evaluate one's financial situation, spare money, risk tolerance, return expectation, etc when choosing type of investment and also how much money and the source for the investment capital taken from.
Aren't we all always fishing for something to gain? Yes, I am too, for my own-self, & FROM my own-self.
Cheers.
2016-07-08 11:29
If u follow Koon Bee, make sure u are his SVIP or VVIPS..dont be his Rm960 clients..
If U follow Kc then U have to be patient (and sometimes a bit boring too)
If U follow Icon8888, u may see yr profit very fast coming in...the rate of winning is quite high too...maybe 70% and above and u buy after Icon8888 and his wife / girlfriends bought...not too late
2016-07-08 15:58
Posted by jassmen > Jul 8, 2016 01:24 AM | Report Abuse
Reits ok boh?
http://klse.i3investor.com/blogs/kcchongnz/72196.jsp
2016-07-08 16:22
Mind to share how you get RM700 ?
As the average Malaysian is expected to live until 75, retiring at 60 with RM167000 would mean surviving on just RM700 a month for the rest of their days. Can that amount of money provide him with a comfortable life style?
2016-07-08 17:44
Cold eye is a retired man. He is still investing. He is a role model of investing during retirement.
2016-07-08 18:00
And he is doing very fine for the past 8 years...i think his wealth increases many many times
2016-07-08 18:03
Unlike wb who can buy insurance co to acquire cheap funds..most of us hv to use margin financing to enlarge our capital for investment
2016-07-08 18:07
Posted by yfchong > Jul 8, 2016 09:07 AM | Report Abuse
Seriously after watching Bloomberg KS li interview not I understand my uncle koon is doing not because of $$. Is just to prove his view n approaches are in line n applicable... there is no right or wrong is just the destiny....overtime to tell. Conservative vs thinking out of box triz methodology. Cheers
In that interview, Li KS shows the interviewer a certificate of AIG in a plaque which share price has dropped by 91%.
What is the lesson? Asked the girl
He said, "The lesson is don't treat investing as gambling".
2016-07-08 18:11
Many used margin n got burnt badly...while many also make good money very very fast using margin ac..if kc uses margin i believe he can do very well too
2016-07-08 18:12
However if u were cpteh i will not only advise u not to use margin...its better for u to quit stock mkt completely
2016-07-08 18:16
Posted by yfchong > Jul 8, 2016 09:07 AM | Report Abuse
Seriously after watching Bloomberg KS li interview not I understand my uncle koon is doing not because of $$. Is just to prove his view n approaches are in line n applicable... there is no right or wrong is just the destiny....overtime to tell. Conservative vs thinking out of box triz methodology. Cheers
In the same interview, he was asked, "What is the most important thing in your business?"
"Cash flows." Li KS said.
Investing in a share is akin to investing in a business, part of a business to be exact. But how many people, some pouring milliosn in "investing", know what "cash flow" is?
2016-07-08 18:32
Posted by 15% to 20% > Jul 8, 2016 05:44 PM | Report Abuse
Mind to share how you get RM700 ?
As the average Malaysian is expected to live until 75, retiring at 60 with RM167000 would mean surviving on just RM700 a month for the rest of their days. Can that amount of money provide him with a comfortable life style?
Assuming the retirement fund is placed in bank deposit yielding 4%, the same as inflation rate,
Yearly withdrawal in today's money = 167000/15 years , which is about RM700 a month.
2016-07-08 21:16
Posted by murali > Jul 8, 2016 06:02 PM | Report Abuse
Cold eye uses margin ac i think
Posted by murali > Jul 8, 2016 06:03 PM | Report Abuse
And he is doing very fine for the past 8 years...i think his wealth increases many many times
Coldeye did do well in the past and he continues to do well. This is because he has good investing principles and methodologies.
If he uses margin account, it is probably alright. Bear in mind he has his down time too.
Every one has his right what to do in investing; whether he uses margin or not, what methods he uses etc.
But newbies and young people here are not Coldeye. Have you seen or read that he encourages and promoting youngsters and newbies to use margin finance before? I haven't, but I only read what he says here.
不过，切忌借钱买股票，理由是利息是固定的，收入却难以预测，故借不得。 Coldeye
He further says,
猜股市如抓黄鳝
我确实不知道明天，下个月或明年股市会怎样，我也不认为有谁有这样的本领。
http://klse.i3investor.com/blogs/kcchongnz/88651.jsp
2016-07-09 08:35
Yes, cold eye is my most respected sifu in stock market, in terms of his investing knowledge, willingness n selfless sharing and most importantly his intention is noble,unlike someone who is selling when he asked us to buy with margin. We all knew the difference.
My point is margin is a useful tool,but only to a certain qualified investors and u are one of them.
2016-07-09 08:59
Someone could be richer than cold eye,but in terms of investing and reputation, one is dog while one is god.
2016-07-09 09:03
Posted by murali > Jul 9, 2016 08:59 AM | Report Abuse
My point is margin is a useful tool,but only to a certain qualified investors and u are one of them.
Thanks for your looking up on me in your last sentence. It is hard to get such compliment from a straight talking fellow like you who doesn't mince his words. It is my honour.
When I wrote my first article on the pitfall of margin financing here, you can see i did use leverage and made amplified gain
http://klse.i3investor.com/blogs/kcchongnz/44344.jsp
But I don't tell in the public how great was i using OPM. It is not a great thing to tell the public how great is making money in the stock market using margin, something which can be very damaging to anyone if thing turns the other way,and it often does.
http://klse.i3investor.com/blogs/kcchongnz/82699.jsp
If you murali sincerely seek my advice if you should use margin, I will tell you no, not because you are not good in investing, but because the market can be highly uncertain and unpredictable.
Of course if you use margin, or anyone else does, it is your prerogative. I won't criticize you or anyone, not unless you propagate that to the general public, which then i think I have an obligation to do so.
2016-07-09 09:23
Fully agreed with u as i went thru 1998 n saw many people got burnt especially in second board counters where rm10+ counters limited down for several days to become penny stocks n then delisted...
I have been using margin ac for several years n so far so good as i hv my own margin of safety rules.anyway i dont promote ard on it
2016-07-09 09:42
As u may noticed, my comments towards you are always positive (though I may make fun on you in koon koon case occasionally).To me I see some of cold eye"s shadow inside u....
While at the same time I admit I have very low tolerance against conman n idiots here thus with the harsh comments.
2016-07-09 10:07
We simply have too many crooks (old n young,rich n poor) in i3. We certainly need people like you ,icon8888 n others
2016-07-09 10:24
The calculation of the monthly saving of RM 700 is a simplified version by assuming the 4% return is eaten up by the 4% inflation rate.
The correct way of calculating the annual withdrawal with an initial sum of RM 167,000 for a period of 15 years with an annual return of 4% should be:
(A + P/r)*(1+r)^n – P/r = 0
A= RM 167,000
R = 4%
n =15
P = annual withdrawal.
(167,000 + P/0.04)*(1+0.04)^15 – P/0.04 = 0
(167,000 + P/0.04)*1.8=P/0.04
300,600 = P/0.04 – 1.8P/0.04
P*(25-45) = 300,600
P = 300,600/-20
P = - 15,030 (which work out to be around RM 1,252.5 per month)
2016-07-09 11:25
For a simplified reverse calculation everyone can do to get how much you need for retirement (general estimate):
- Assuming one is retiring at 55
- Expected lifespan to 80
- No more liability / loan / children education, etc
- Maintaining 80% of current lifestyle expenses (without liability)
e.g. 5k a month = 25 x 12 x 5k = 1.5m per person
If one start saving for retirement from age 25:
1.5m/30/12 = 4.16k++/month
Note:
- The compounded interest & EPF dividend will be sufficient to cover inflation rate with a bit of extra assuming you only save in FD and from EPF saving only - minimal return)
- If one's spouse can do the same; 8.33k/month for both of you without any liability.
Good enough 8.33k/month? Every year want to go oversea holiday? Than adjust accordingly.
Worried cannot even save enough for comfortable retirement? Assuming you do not want to pass your properties / house, etc to your children, you can sell to supplement as a last resort - 500k, 1m worth?
Welcome any comments or share your thoughts on this fast n crude retirement calculation / plan.
Cheers.
2016-07-09 13:51
The message from this article is to learn how to optimize return from your investments (defensive or growth) with minimum risks especially when you have retired.
If you can consistently get above general inflation return, then you can stretch your retirement funds. The ideal situation is to accumulate enough retirement nest egg to generate passive income to replace 80% of your active income as nobody know when is our last day.
When we retired and aged, medical expenses is a major issue depending your health condition. You need to be adequately insured especially on critically illness when you are young or prepared to set aside a tidy sum as emergency funds.
2016-07-09 20:14
Ks55, what is your view of investing in reit such as igbreit, sunreit, pavreit or even stock like tasek than give better dividend more than 8%. I only worry about the consistency of the dividend compare to epf.
2016-07-09 21:17
Posted by Ordinaryman > Jul 9, 2016 02:38 PM | Report Abuse
167,000/ 15 / 12 = 928
Dont know why 700.
Ignore 3.8% interest rate because same like inflation
The calculation above is correct. The RM700 is for 20 years.
Note one must use real return. In this case the real return is zero when gross return is the same as inflation rate.
2016-07-09 21:46
Alphabeta,
The way you are doing is the withdraw is a gross amount when you use a gross return of 4%.
This gross amount cannot buy the same thing 10 years into your retirement. A burger may cost double it is now 15 years later.
We should work in term of real number, amount taking inflation into consideration. The real amount can buy the same thing every year.
Hence you should use the real return, instead of the gross return.
Real return = (gross return - inflation)/(1+inflation rate)
Posted by Alphabeta > Jul 9, 2016 11:25 AM | Report Abuse
The calculation of the monthly saving of RM 700 is a simplified version by assuming the 4% return is eaten up by the 4% inflation rate.
The correct way of calculating the annual withdrawal with an initial sum of RM 167,000 for a period of 15 years with an annual return of 4% should be:
(A + P/r)*(1+r)^n – P/r = 0
A= RM 167,000
R = 4%
n =15
P = annual withdrawal.
(167,000 + P/0.04)*(1+0.04)^15 – P/0.04 = 0
(167,000 + P/0.04)*1.8=P/0.04
300,600 = P/0.04 – 1.8P/0.04
P*(25-45) = 300,600
P = 300,600/-20
P = - 15,030 (which work out to be around RM 1,252.5 per month)
2016-07-09 22:19
As long as you are paying 5% commission for unit trust, chances of making any money is very very low. Why not invest in unit trust through online portal minus the agent?
2016-08-01 16:40
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probability
"an act of stupidity to the extreme level"..i like that quote..ha hah ha....
2016-07-08 00:00