HLA Cash Promise : The latest buzz in financial industry

HLA Income Builder sold off so successful on end of February this year. But the demand for another Hong Leong Assurance saving plan is huge.

Thus, HLA launched the new saving plan, HLA Cash Promise, that promise you more than just a saving plan!

There are some enhancements on this new plan compared with Income Builder. Below are the key features and benefits:

FEATURES & BENEFITS

• GUARANTEED short pay of premium for 6 years only
• GUARANTEED yearly income for 25 years
• GUARANTEED death benefit
• GUARANTEED maturity benefit
• Full refund of premium paid with future premium waived upon TPD during first 6 years
• Enhanced death benefit 
• Enhance TPD benefit 
• Nomination to serve more effective than Will for Wealth Distribution
• Tax relief

For more info on this latest buzz in town, just give me a call/SMS or Whatsapp me: +6017-8865207 (Cheng)

This is a newly Structured Saving Plan brought to you by Hong Leong Assurance that helps you to achieve your financial goals.

Difference of Private Retirement Scheme and Deferred Annuity Plan

I have done a comparison between Private Retirement Scheme and Deferred Annuity. We can see that these two categories share the same RM3000 tax relief.

The Private Retirement Scheme is governed under the Security Commission, whereas the Deferred Annuity is governed by Bank Negara Malaysia.

PRS is offered by Unit Trust Companies, whereas Deferred Annuity is offered by Insurance Companies.

With PRS, there are No Fixed Amount of intervals or term of contribution. Here you can put in whatever amount at any time you wish – there’s no fixed amount of interval. For example, let’s say you want to skip one or two years. It doesn’t matter. Whereas for Deferred Annuity, once you fixed the amount, let’s say RM3000 a year, you will have to put it aside for ten years once you decided on it. This, of course, depends on how much or how far you would like to enjoy the tax relief.

Another difference is that the capital not guaranteed if you place your money in the Equity Funds. On the other hand, with Deferred Annuity, annual income is guaranteed.

For PRS many parties are involved: you have a Private Pension Authority, you have the PRS Provider which is a Unit Trust Company, and you also have the Scheme Trustee. This is because the government want the Unit Trust Company to make sure that the trust fund is in good hands. For Deferred Annuity, only the insurance company is involved, which is governed by Bank Negara.

With PRS, the money is subjected to estate freezing. When the money falls into estate after a person dies, you’ll need to bring a GP (Grand of Probate) or LA (Letter of Estate Administration) to unfreeze and withdraw money. With Deferred Annuity you will just need to do a nomination. As it will not be frozen if nomination is done properly, there is no need to bring GP, run a probate, or LA to withdraw money.

Which one is better? PRS or Deferred Annuity plan? It depends on the customer and how he or she wants to make use of the tax relief.

Reasons to venture into Property Investment

There are a lot of advantages or benefits that you can enjoy in real estate property investments. If you are looking for a type of investment which can provide you with income without doing much, give you a lot of chance for socializing and meeting other people, or ease you from worry of financial loses then investing in real estate property is the next best thing. It provides a lot of advantages which other types of investments, such as stocks or gold investments, cannot give you.

1. Rich people have many properties

The first reason is, this is my personal reason, because I find that many rich people invest in properties. You, yourself would be able to notice that most millionaire investors have a long list of real estate properties on their assets. It is either they buy a lot of real estate properties using their money earned from their business or they are in the business of building and selling real estate. In the later case, I am referring to those developers and building contractors.

Why would these rich people do this? They sure did saw something that is worth it in real estate investing. There is a simple fact from PropertyShowRooms.com which says that 50% of the names mentioned on the Times’ “Rich List” made their money through investing in property. It is a proof that most rich people earn their wealth by investing in real estate. This is a plain proof that one of the most important investments which made millionaires out of them, is real estate investing. If these “rich” people made a fortune by investing in properties, then it could probably be also a way for you to become one

2. Available to anyone

The second reason is that real estate investment is available to anyone. Because real estate is simply everywhere; you can see land, you can see houses – basically you will find that in any place where there are people living, there will be real estate for sale. It is like a basic human need, just as food and clothing are a necessity for people to survive. Real estate property is available in any place or location and it is also very much affordable for almost anyone.

You can start it, in Malaysia, for as low as RM10,000. You can buy a property with a capital as small as that and you can already start on the business of real estate property investing. It does not necessarily take a lot of money in order to invest in real estate. It is very affordable to acquire real estate property which is contrary to what most people think. You do not need to be a millionaire already in order to be able to afford a real estate property. You will always find a property that suits your level of investment.

3. Leverage

The third reason why you should invest in real estate is because of the leverage that you get. Leverage means that you use just a portion of the money required to get the whole control of a very big investment. With just a relatively small amount of money, you will be able to buy and “own” something which costs a lot of money. It is also called in the art of investment which is to use other people’s money to make more money.

I would like to show you this quote. I like this quote a lot: “you see in real estate investment, no other type of investment allows you to purchase with other people’s money, so in this case the bank’s money, and pay this back, with other people’s money too.(In this case it is the rental income from the tenant).

For instance in Malaysia, if you want to buy the first property, say a RM100,000 residential apartment, you can just pay about RM10,000 down payment or even sometimes, it can be structured that you don’t even have to put down any money at all. So as you can see, investing in real estate property is really one of the smartest ways to put your money into an investment. With just a very small amount or even none at all, you are able to gain control of such a big investment. That is definitely leverage. You can do more with less. In what other type of investment can you do that?

4. Appreciation

Aside from that, you can also get more capital to buy more property. You see the house price change so every year. You can see that the percentage of increase is always positive over the years in every year which is unlike if you invest in stocks or commodities where the price are always on the verge of falling or rising depending on the way the market dictates. In Kuala Lumpur every year it is appreciating about 5% to 7% every year for the past decade or so. 

This definitely shows that houses will appreciate over time and you will gain a profit. And this will soon lead to another advantage of investing in real property which is …The fourth reason is that real estate is going to appreciate over time due to the effect of inflation. 

Since inflation is inevitable, the prices of goods, petrol and other commodities are just going to rise over time. And due to that fact, because real estate is made of something real (it is built out of cement, brick and mortar), the property price is going to rise over time. So when it rises, you have more equity built up and you can also do refinancing to get more money. Even if you do not do much about your investment you will gain a lot of profit because of inflation.

5. No need to sell

You don’t really need to sell it to realize a gain. You do not need to sacrifice your property just so that you will be able to enjoy the profits. Of course if you are buying other things like gold, you have to buy low and then sell high and before you sell it, you don’t see any profit that you are making. It is just paper profit. You are not able to see any of your profit in cash only the one which is written on paper, and how do you think are you going to enjoy it?

But in property investment, even if you don’t sell it you will be able to realize the gain. The simplest way that you can do is by refinancing. It allows you to acquire money which is greater than the original amount that you paid for the house when you originally bought it, without the need to sell it. Say you bought the property at about RM100,000 and then after 5 years its value increases to RM150,000. You don’t have to sell the property at RM150,000 in order to realize a gain of RM50,000. You can simply refinance it and you will get the extra 50,000 out from your properties without losing ownership of the property.

6. Income-generating Assets

If after paying the mortgage you still have money left, then you are getting passive income from there. You can use that additional money to invest in other investments which will also be able to provide you with more profits. You do not only earn the profit when you sell it, you earn a profit by renting it out to someone else. 

You will be able to enjoy your profits early and not on some distant future when you will already be able to sell it at a higher cost.Real estate properties are income-generating assets. That means when you own a property, you don’t need to sell it in order for you to gain an income. It is going to produce the income for you by renting it to somebody else.

And that somebody else, the tenant, is going to pay for the mortgage, too. So, you are already gaining profit from your property even when you have not even paid for it in full. The tenant shares some of the burden of paying for the loan while you also earn money through it. This is one of the most amazing aspects of real estate investing.

7. Inflation-friendly rental income.

Another advantage having rental income is that it is inflation-friendly. What I say inflation-friendly is when property values appreciate and its price gets higher and higher, it will result in more people cannot afford to buy a house. With the higher costs of purchasing a house, more and more people would choose to rent instead.

This is just a logical thought – more people will get to rent a place to stay, instead of owning one when the properties are getting less affordable. So if you cannot afford to buy a house, you have to or you will be forced to rent a place. 

This means, that your property will have more clients just at the time or moment when homes and rental incomes are at their peak or highest. That is if you own a property and due to the inflation, property values increase, the rental income also increase because there will be more demand for your rental property. This is great news for you when it is not so for other non-property-owners! You do not lose clients due to inflation; you gain them because of inflation.

8. Control

Another control you get is that you can do some adding value kind of activities like furnishing your properties. You can choose to do this improvement in any time you want. You can fix it up and then through that property improvement, you also increase your property value. You can get a high “after repair value”. 

It is the amount that you are getting after you buy a property, then fix it up and you can sell it at a higher price. For example, you buy a RM100,000 house and let’s say you put in RM10,000 for the renovation and furnishings and later sell it at RM130,000. That means you made about RM20k of profit. So, you get to control the amount of profits that you make at your own will or decision.

The next reason why people invest in real property is that it gives you a lot of control over your investment. The first control is – the flexibility to choose the type of tenants that you want. Not all types of investment will give you the option to choose the people that you deal with. If you want business tenant, you will buy a commercial property. If you want a residential tenant, you can buy an apartment to rent it out. So you got to choose your tenant. You got to interview them and you can decide whether to rent to a certain type of person or not.

9. Market Price Stability

Let’s go to the next benefit. What we are going to talk about is the market price stability. It is unlike some other commodities or stock, the market price of real estate will not go up and down like a roller coaster. It is not going to be in this case. In the long term of course it appreciates slowly. Sometimes in the same neighborhood you may find a property selling at RM100,000 and the other at RM120,000. There is no fixed price for real estate properties. It is not a very efficient market if you compare house price to stock and commodities price movement. It depends very much on your ability to find a good buyer for your property or your ability to get a desperate desperate seller to sell his property to you at a discount. You will not have to depend on what is the current pricing trend in the market.

In this situation when the market price is not reflected daily, you will have less emotional unease. So you will not feel like“tonight it’s very hard to sleep because today my house just depreciated by RM10,000.”It is not going to happen in that sense. You will be less emotionally disturbed due to the market price stability feature of real estate properties. You will not have to worry about your investment suddenly losing its value overnight.

10. Tax Benefits

One other thing that will benefit real estate investors is on the tax advantage of owning a property. In Malaysia there is Real Property Gains Tax (RPGT). After five years you don’t have to pay any tax if you finally decide to sell it. But if you are not going to sell it, the rental income can be lessened with other deductible expenses such as interest paid for the mortgage and your repair for the house or commissions paid to the agent in order to get you a new tenant. Tax-wise, owning a real estate property have some similar treatments like what a business would get. There are a lot of possibilities in which you can lessen the amount of your tax due to government , which is definitely an advantage to landlords.

11. The Most Forgiving Investment

And the other thing I want to talk about is that real estate is probably the most forgiving type of investment. If you are buying a property at a wrong place, at a wrong location or probably at a wrong time when price is at a peak, and it is not giving you the returns or the profit that you are looking for, provided that you have the holding power to wait 3 to 5 years, the profit will ultimately come. 

You will not always be buying the right kind of real estate investment at the right location and time. There will be instances in which your judgment will not give you the best outcomes and you may be blaming yourself a lot because of it. But the good thing about real estate investment is that time will eventually correct the mistake that you have done. It just comes later in the form of delayed profit. So this feature is giving you, I say, the most forgiving type of investment you can do.

On the other hand, if you bought some shares of a bad companies, it may eventually go bankrupt and you may lose all your investment capitals as a result.

Investing in Stock Market: 7 common mistakes and their remedy

Though investing in stock market has emerged as a great resource of making money, it always has some risks involved, just like any investing activity. There are some common investment mistakes which can easily be avoided if someone follows the footsteps of the investment legends.

As preached by many gurus and teachers, the fastest way to succeed is to copy the methods of those who had done it. The proven tactics learnt from investment experts are very helpful to achieve quick success in investment. Generally, you should go for some investment books written by the most renowned investment gurus or experts like Peter Lynch, Warren Buffett etc. In the local market, we don’t have many books to refer to. But you still have some very well-written books on share investment by Ho Kok Mun, Martin Wong and some other bloggers who regularly share their findings on the Internet.

In addition to the lessons from the investment experts, someone can have great knowledge from the common mistakes made by otherinvestors, especially those who make retail investments. When we have sufficient knowledge on the most common mistakes and the key factors behind losing money, it becomes very easy for us to get rid of such mistakes that our fellow investors have previously made. It can even help to maximize our profit by applying the opposite strategy.

Let’s have a look on some of the most common investment mistakes:

1. To Hurry to Take Profit

It has been observed that in a hurry of taking profit, most of the investors sell out the money-making stocks instead of the loss-making stocks. In this process they run out of quality stocks and become a typical accumulator of “rubbish”.

When the investors take early profit they are exposed to a number of mistakes. Hence, the right approaches are as follows:

• Taking early profit should never be applicable for investment-grade stock but may applicable stocks meant for trading.
• The investors need to preserve quality stocks instead of the poor quality stocks.
• It is important for investors to adopt a cut-loss strategy as the profit-taking strategy alone doesn’t make any sense.

2. Not Prepared to Take Losses

Generally, the local investors are very much reluctant to cut losses and it can be considered as one the greatest mistakes made by the investors. Apart from the emerging investment markets, this phenomenon exists even in the developed markets like that of US where the investors appear to be savvier.

As a matter of fact, the intensity of pain goes higher when someone is confronted with a loss. It is evident from a study that the intensity of pain due to suffering a 30% loss is about 2.5 times higher than the pleasure from having a 30% gain.

As the investors are reluctant to face the pain, they keep their loss-making stocks year after year. They don’t feel the pain until they sell these loss-making stocks. It does sound silly but that is the way people deal with pain and pleasure. Sooner or later, you will kind of “forget” about the losing stocks and also the pain associated with it.

It is not surprising at all to find a long list of loss-making low quality stocks in an investor’s portfolio. They make the delay in selling these stocks as they believe that it would be able to recover its cost in the course of time. The hope remains alive until the stock is sold. In fact, there is no underlying principle other than hope in holding on these poor stocks. The odds of a profit-making company to continue making even more profit is much higher than a poor-performing company to turn the company around.

But the most dangerous thing is that the poor quality stocks may ultimately delisted as the fundamentals go on deteriorating. The investors may eventually find all their hopes ending in smoke in such a situation where 70% deterioration in price may result in 100% loss.

3. Lack of Specific Goal and Strategy

The lack of specific investment goal and strategy can be considered as one of the most common mistakes among the investors. Despite having different characteristics, investors generally mix up the investment stock with trading stock. It is highly recommended to treat these two types of stocks separately when investment strategy is concerned.

Investors generally purchase trading stock depending on rumor or predictions which ultimately may not turn out to be fruitful. On the other hand, the investment-grade stocks are purchased after reviewing fundamentals which include business potential, earning outlook, growth prospects etc. So, a trading stock needs to be monitored based on the dependability of the information source. The study of charts reflecting the trend of a stock can be very effective for an investor to decide when to sell, to hold on or even buy more.

On some occasions, investors get involved with a low grade stock knowingly with an intention to make some quick gains. But once the stock comes to a loss position, they treat it as an investment-grade stock by holding on for a long period. This is how a gamble of making some quick profits ends up as a pain of holding up some poor stocks for several years.

It has also been observed that some investors initially go for investment-grade stock with a view to make a long term investment after evaluating fundamentals or dividends of such stock. But they become panic as the price goes down a little bit. They sell out the stock in a fear that the price might go down further. In this process a long term investment now evolves into a short term trade when early profit is concerned.

As long as the investors fail to specify their goals and remain confused between trading and investment stocks, between short term speculation and long term investment, their investment will be in danger. Of course, there are different kind of investors in the market today and regardless of your investing style (trading, buy and hold, buy based on dividend yield, buy based on profit growth etc), you will eventually make money if you know what you are doing.

4. Going for Penny Stocks

Fundamental value has a great significance when investment is concerned. Undoubtedly, the main objective of purchasing stock is to ensure future earnings. In general sense, a stock of RM0.50 is cheaper than a stock of RM10.00. But the perception is quite different in investment market where a RM0.50 stock appears to be more expensive than a RM10.00 stock in terms of profit obtained from per share.

The penny stocks are generally known as retail stocks which obviously lacks fundamentals. This type of low priced stocks are popular among retail investors but not among the institutional investors. The gamblers and syndicates target these stocks as it is very easy to exaggerate or move up. In fact, the price of these penny stocks is unable to move up without help of the so-called syndicates as no fresh money is involved in lifting the prices of such shares.

On the other hand, price of heavyweight stocks goes up with the improvement of fundamentals which in turn attracts more money including foreign funds as well. Moreover, these prospective stocks having the characteristic of more demand than supply and are generally benefited by strong price support, results in a steady price appreciation over time.

5. Easily Influenced by Tips

It has so far been a popular practice among the retail investors to depend on tips to prosper in investment market. Unfortunately, the tips didn’t work for most of them and the loss was such a huge amount that some of them left the market for good. Though trading on the basis of tips seems to be exciting, the experienced investors would definitely acknowledge that it is not so easy to make money just only relying on tips.

At first, we need to know about ‘tips’. It can be a piece of news or information obtained from an insider who has a clear perception on the things that are going to happen. The insider could be someone like company directors, senior member of a management team, corporate lawyers, auditors or even bankers. These types of individuals generally have access to some confidential information. Even the lawyers, analysts, fund managers on any person who have a close contact with senior management of an organization, can be a great source of tips.

Few tips might be very useful but the most are pure speculation and the rest are fabricated by the so called syndicates as a part of their gamble. The tips are generally spread in market through an insider. It is not firsthand information to an investor as it passes down over several hands. If there is any change to the information, the investors are the last person to know it. By the time they become aware of the scenario, it is too late for any remedy.

6. Becoming Impatient

Impatience of the investors can be treated as one of the most common mistakes. It is more common among the retail investors who generally want to make quick gains. They generally don’t have any interest in the stocks which yields 10% per year. They rather go for those stocks which make 10% within a week or become double within a year.

Moreover, the retail investors mostly rely on tips and keep monitoring the stock very closely immediately after purchasing it. They praise the person for his tips when the prices go up. On the other hand, if the prices don’t move up within a few weeks, they become very impatient. But according to the investment experts, investment grade stocks need to be kept for a long time with minimal monitoring for getting the best outcome.

7. Always Buy High and Try to Sell Higher

As the retail investors are very impatient, they are not interested to buy when the market is down and wait until the prices move up once again. They have a tendency to chase a stock. Since they are keen to make some quick profit, they always like to buy high and sell even higher. For being the fool, they are trying to find another fool to who are willing to buy at a higher price for something less worthy.

This is a common phenomenon in a bull market. This clearly indicates why the retail investors are seen in a huge number during a bull market. And, such investors are hardly found when prices are low.

Obviously, the risk is higher in a strategy of ‘buy high and sell higher’ than that of ‘buy low and sell high’. The strategy of ‘buy high and sell higher’ is not inappropriate indeed, yet the investors have to quit the market if they make even a single mistake. As a matter of fact, it is very painful for most of the people to cut loss and unfortunately many retail investors get caught in the same trap again and again.

The Lessons to be learnt for Remedy

Before you make any investment, you need to get prepared to accept losses as a business component. At the same time, you need to be rational and consider stocks from an impartial point of view. 

In case of any mistake, you should not hesitate to take losses and cut the stock as much as possible. You can also choose a small time frame to sell out the loss-making stocks at a slight higher price. You can trim down those stocks (if any) further, as your main objective should be to get rid of those poor stocks as early as possible.

Another important thing is that there is no alternative to a specific and solid investment plan. There should not be any mix up between investment stock and trading stock. You need to have different strategy while dealing with these two types of stocks with different characteristics. You can’t afford to make a blunder to keep a short term trading stock like a long term investment stock. 

It is unwise to sell out investment-grade stocks and accumulate speculative trading stocks.

Finally, it should always be remembered that speculative stocks are trading stocks and you need to specify a time frame to make proper utilization of tips. It is always helpful to have a close look on the tips or to make some simple analysis on stocks. This is like a game where win and loss are the natural phenomenon.

This post is originally written by Ang Kok Heng who has 20 years of experience in research and investment. He is currently the chief investment officer of Phillip Capital Management Sdn Bhd.