21. HOW DID I BUILD MY INVESTMENT PORTFOLIO TO ACHIEVE FINANCIAL INDEPENDENCE AND TIME FREEDOM BEFORE 50?
“Time, patience, and perseverance will accomplish all things” -- Anonymous
Every individual is unique. Your investment portfolio is largely depending on your personal character, behaviour, personality, preference, risk appetite, and age.
What is deemed safe to you may be considered risky for me. What is interesting to you may be boring for me. You may prefer stock investment more than real estate. Some others just simply don't believe in papers in stocks and they just prefer bricks and mortals all the way. You may be a big earner but also a big spender. You may be a small earner but you live on credit. Or you may be a big earner but at the same time live frugally. You may be earning less but you are very good in saving and taking risk.
Personally, I classify myself as someone who prefers the "safe" zone. I love to live a simple life, save as much as I can without sacrificing the quality of my life.
To you, living in a homestay or dormitory sharing a room with 5-7 others might be unbearable and torturing. But to me, mixing with different people from all over the world and learning about their lives yet saving money at the same time is the greatest joy!
I take risk but only calculated risk. I can't stand the roller coaster rides of stock market but I enjoy the roller coaster rides in Disneyland, exciting surfing in Bali, mystical scuba diving in east coast Malaysia, and ziplining through the rainforest in Thailand.
Whenever I see red in the stock market, I feel very nervous as if my heart is jumping out of my lung. I am contented with slower, lesser returns as long as I can sleep at night peacefully for my health.
I am more than happy to make up for lesser return in my investment returns through working hard at work and more money savings. Earn more through better job performance and save more through frugal living and at work are two factors I can control. As to how much the investment return is, it's totally beyond my control. Therefore, I would rather focus on what I can control and minimise my worries on what I can't control.
My diversified investment portfolio
Over the years, through time, patience and perseverance, not to forget mistakes and lessons, I’ve managed to build an investment portfolio that has allowed me to achieve financial independence and retire three months before my 50th birthday.
So, what does my diversified investment portfolio look like today? Here is the summary breakdown by percentage for your reference:
No | My investment portfolio | Type | Risk level | % |
1 | EPF retirement savings | Mix | Very low | 30% |
2 | Stocks - Private unit trust 8% - Amanah Saham Nasional 2% - Share trading 5% | Growth | High | 15% |
3 | Real estate | Growth | Medium | 45% |
4 | Bonds | Defensive | Low | 5% |
5 | Cash / fixed deposits | Defensive | Very low | 5% |
Total | 100% | |||
30% of my total investment portfolio is through forced savings with EPF for retirement planning since my first job in 1991. Another 70% of my total investment portfolio is through 27 years of earning monthly salaries, living frugally, and finding ways to make my savings work harder through various investment vehicles.
I have allocated 15 % of my investment in stocks, a high risk asset class. Out of which, 8% is through private unit trust, 2% is through Amanah Saham Nasional, and the balance of 5% is through direct share trading.
I'm very lousy at investing directly in the stock market picking individual stocks. I’m worried I will become an emotional investor. I might die young from heart attack.
That’s why I personally prefer to have my investment managed by private unit trust company and Amanah Saham Nasional. In fact, 67% of my stock investment is through these channels.
Even though the investment returns can be slightly lower due to various reasons (upfront sales charges, annual professional management fees, etc), I still feel more comfortable letting the financial experts do their job.
I still trade shares using my own personal share trading account investing in selected stocks, but it’s only 33% of my total stock investments. Hence, the risk is still bearable for a risk averse person like me. I still can sleep peacefully every night.
To diversity my investment portfolio, I have also allocated 45% of my total investment in real estate, a medium risk asset class. I don't invest in any gold, silver, palm oil, etc. I only invest in real estate properties. A part of me is still very Asian, very old school. Brick and mortal give me peace. It’s something I can see physically. I’m glad that now I carry zero debts for real estate.
As of now, bonds investment stands at 5% of my total investment portfolio. However, these are my direct bonds investment. Within my stock investment portfolio via unit trust company, certain percentage of the investment (i.e. balanced funds) has gone to bonds as well.
Lastly, the remaining 5% of my total investment stays put in a very low risk investment type - the traditional cash and fixed deposits.
They might not provide high returns that I want but they are safe and stable with virtually no risk. They also serve as emergency funds and provide money for my living expenses.
The challenge is to find ways to stay above 3% inflation rate so that the money will not devalue too much over the years due to inflation. As fixed deposit rates from banks have been dropping due to covid-19 pandemic and economy downturn, slowly but surely bonds will be an area that I will put more focus on instead of fixed deposits in coming years.
To recap, my current overall investment portfolio mix is: 30% in EPF retirement savings, 15% in stocks, 45% in real estate, 5% in cash, and 5% in bonds.
Not exactly equal asset allocation between stocks and bonds at my age
As you may have noticed, I didn’t follow exactly the asset allocation’s convention model of using age 100 minus my age for the stocks and bonds allocation.
If I did, my stocks and bonds investment would have been pretty much equal (half each) in distribution: 50% in stocks and 50% in bonds at my age. But in actual fact, it looks like I have invested three times (3x) more in stocks than bonds over the years.
How about diversified investment portfolio mix including real estate and cash?
If I refer to the general asset allocation guideline that includes real estate, tangible assets and cash in addition to stocks and bonds, I should have 30% in stocks, 40% in real estate, 20% in bonds, and 10% in cash / fixed deposits at my current age.
Category | Stocks | Real Estate | Bonds | Cash |
50-59 years old | 30% | 40% | 20% | 10% |
My investment portfolio without EPF retirement savings | 22% | 64% | 7% | 7% |
Difference | -8% | +24% | -13% | -3% |
It looks like I’m way off from the general asset allocation guideline. Apparently, I’m more inclined to invest in real estate, a growth investment with medium level of risk, as compared to stocks, which is with higher risk.
However, my combined stocks and real estate investments stand at 86%, which is higher than 70% as per the guideline. It shows that overall, my risk appetite for medium and high growth investments is still relatively high.
In order to minimise my risk in stocks, I have rebalanced my stock investment portfolio, moving from aggressive high-growth stocks to more consistent dividend-based stocks.
As for my current bond investment, it’s below the general guideline for my age. As I grow older, I am gradually moving part of my stock and real estate investments to bond investments.
Even though there is slight variance on cash allocation percentage, I’m still quite comfortable with 7% instead of 10%.
Again, I would like to stress that my asset allocation mix is only for your reference purpose. I’m not an expert in investment. My asset allocation approach may not yield me the best returns, but I’m comfortable with it. It works for me but it may not work for you.
Hence, you should have your own unique asset allocation mix solely unique to yourself based on your own personality, preference, risk appetite and age. If you need professional financial advice, do reach out to certified financial experts whom you know.
Each investment type and vehicle explained
Now that you have seen a snapshot of my asset allocation, I would like to share with you in more details on the reasons and logic behind my financial decisions along with investment vehicles that I use. I hope you will find them useful to help you decide on your own investment types and vehicles.
1. Employees’ Provident Fund (EPF): My #1 choice for retirement planning with around 6% annual return
Established in 1951, The Employees’ Provident Fund (EPF) is one of the world's oldest provident funds. Since then, EPF has helped Malaysian workforce to save for their retirement in accordance to the Employee Provident Fund Act 1991.
EPF has two major responsibilities: 1) to safeguard our savings for retirement; and 2) to grow our savings for retirement.
In order to fulfil its responsibilities, EPF invests in a number of approved financial instruments which include Malaysia government securities and equivalent; equities; loans and bonds; money market instruments; real estate and infrastructure.
For as long as I can remember since I started my first job in Penang way back in 1991, I have been continuously contributing to EPF. I believe you and I are the same - continuously contributing to EPF as wage earners in workforce.
When I was in my 20s and even early 30s, I used to mumble and complain about my employers for deducting my hard-earned salary and contributing to EPF on my behalf. It was sort of a forced savings that I didn't quite like. And mind you - it was done every month!
I had many months in my 20s and early 30s when I was tight in cash. How I wish my employers didn't have to deduct my monthly pay for the EPF contribution so that I could use the extra money to shop for more clothes, shoes, IT gadgets, etc. I could also use the extra money to go for more fine dining and drinking sessions during weekends. Of course, I probably could go for more holidays staying at better hotels and for longer nights.
Then I heard of some people saying how unsafe it's to put our money with EPF. That what if EPF closes down one day? What if we lose all our hard-earned money one day?
I also heard of people saying that EPF doesn't know how to invest properly to maximise the returns for our hard-earned money. The same money parked elsewhere could have made much higher returns. Some even advocate others to withdraw the EPF money to invest in higher growth financial instruments like stock market, etc.
Oh well - I've heard it all - the good, the bad and the ugly of EPF throughout my 27 years of working life as an employee.
You know what? I'm very grateful that EPF has forced me to save regularly all these years for my retirement. Besides forced savings, EPF also helps me to grow my money for retirement. Because of the monthly deduction, somehow EPF has also helped me to learn about delayed gratification!
I think all of us should be grateful that Malaysia has such a wonderful provident fund to help us prepare for our retirement. The EPF savings alone may not be necessarily enough for our retirement but definitely it's a tremendous help!
EPF dividend rates
Let's take a look at the EPF dividend rates for the last 12 years from 2008 to 2019:
Year | EPF dividend rate |
2019 | 5.45% |
2018 | 6.15% |
2017 | 6.90% (highest) |
2016 | 5.70% |
2015 | 6.40% |
2014 | 6.75% |
2013 | 6.35% |
2012 | 6.15% |
2011 | 6.00% |
2010 | 5.80% |
2009 | 5.65% |
2008 | 4.50% (lowest) |
12-year average | 5.98% |
As you can see, the lowest EPF dividend pay-out was 4.50% in 2008. The highest EPF dividend pay-out was 6.90% in 2017. In short, over the past twelve years (2008-2019), EPF has consistently helped us to generate more than 6.0% annual returns 58% of the time, and more than 5.0% annual returns 92% of the time. On average, the annual rate of return from EPF is 5.98% based on the last 12-year historical data.
5.98% annual return is not too bad after all. It’s definitely higher than fixed deposit rates. But of course, the same money could have generated much better annual returns, probably 8-15% annually or even higher, instead of just only 5.98% on average through EPF.
It’s true. Many other financial instruments can help me generate higher returns. But any potential higher returns also comes with potential higher risks. Since I’m a risk averse person, what’s wrong with me treating EPF contribution as part of my "safe financial instrument”, as my "safety nest" for retirement?
If I want higher returns, I can motivate myself to save even more money. I can then use the extra money I saved to invest in other risker financial instruments to generate higher returns. Why should I use my “safety nest” money in EPF?
Members Investment Scheme
In recent years, EPF has introduced Members Investment Scheme (MIS). Under this scheme, EPF members who have sufficient savings can transfer part of the funds in your Account 1 for investments via the appointed Fund Management Institutions (FMIs), including Unit Trust Management Companies and Asset Management Companies. They can perform purchase, switching, redemption via i-Invest, an online, self-service platform that facilitates investments through EPF Member Investment Scheme in approved unit trust funds.
This is definitely an excellent investment scheme for those who want to diversify their retirement savings and earn more from their savings.
Even though I’m treating my EPF as a “safety nest” for my retirement, I have transferred about 15% of my EPF total retirement savings to private unit trust funds over the years under this scheme. This has given me an opportunity to make up for any lower return that EPF might generate over the long run. I guess 15% is considered a relatively low percentage to expose myself to higher risk investment with potential higher return. Nonetheless, I still continue to have 85% of EPF retirement savings as a safety nest, generating around 6% annual dividend.
Why I don’t want to withdraw all of my EPF Account 1 and 2 retirement savings after reaching 50 and 55
According to EPF, when you reach 50, you can make a one-time partial withdrawal of all or part of your savings in Account 2 to help you take the necessary steps in planning for retirement.
I reached 50 in September 2017. That means I can withdraw all of my EPF Account 2 retirement savings, which is 30% of total EPF retirement savings, anytime I want.
However, I still don’t’ need to depend on this 30% of my EPF retirement savings for my living expenses right now. And if I were to withdraw all of my savings in Account 2 now, where shall I invest my withdrawn EPF money into – private unit trust funds, bonds, direct share trading, fixed deposits?
I'm no longer in my 20s or 30s with lots of working years and plenty of time ahead of me. I have retired early with no more stable, consistent active income. In case I make some losses in my investments for higher returns at my age, do I still have the luxury of time to earn back my losses? At my present state, I can't afford to take the risk now. I want to continue treating EPF retirement savings as my safety nest. Hence, I have decided to keep all of my Account 2 savings with EPF as long as I can.
When I reach 55 in 2 more years, I have the option to withdraw all of my Account 1 and 2 retirement savings. This is all my forced savings from EPF over the years since my first job in 1991. It’s so tempting to withdraw them all. But again, I would like stick to my fundamental investment principle of treating EPF retirement savings as my safety nest. I will keep my retirement savings with EPF as long as I don’t need the money to cover my living expenses.
Why I avoid to depend on EPF’s monthly payment withdrawal or automatic dividend payment to cover my living expenses after 55
Even though EPF allows monthly payment withdrawal and automatic dividend payment after 55, I will not opt for this option. I will continue to let annual dividend payment adding into the principal retirement savings yearly. This also means that my retirement savings in EPF retirement savings will still continue to grow at an average 6% annual return rate.
As long as I can cover my living expenses through other active / passive income and investment returns, I shall leave EPF retirement savings and annual dividend payment untouched.
EPF is my safety nest, my backup during retirement
Today, I finally see the true benefits of EPF retirement savings. It has become an integral part of my investment instruments to grow my money for retirement. An annual dividend payment of 6.0% may not be the highest, it’s still not too bad after all - at least for me!
My EPF retirement savings serve as a safety nest to cover any rainy days during my retirement. I won’t withdraw my EPF money unless I have not. I treat it as a backup. This gives me peace of mind.
However, I'm constantly reminding myself that inflation pushes up the cost of living and eats away the value of my EPF savings. Even EPF officials have consistently highlighted the need for contributors to supplement their retirement funds with other sources of income.
As such, there is a dire need to seek high-quality investments or at least to have other sources of income. I know I can't depend on EPF savings and dividends alone for my retirement.
That's the reason why despite the fact that EPF is my number one choice as my retirement fund, I have been working hard all these years to build up retirement funds through other means. I need to have more diversified investment portfolio besides EPF to retire comfortably without having to work a single day again.
2. Private unit trust funds: my long-term stock investment vehicle that keeps me sane but with a price to pay
As I mentioned before, I'm not a risk taker. I'm not greedy to have exceptionally high returns or some fast money. As long as I have consistent reasonable returns for my investments, I'm pretty much a content person.
Why I’ve chosen unit trust funds
Instead of picking and choosing individual stocks to invest, I still prefer to purchase a large number of stocks and bonds investments in a single transaction. With the money pooled from other investors just like me, I prefer to let professional fund manager to invest that money in specific pockets of stocks, bonds or other assets according to the investment strategy of the fund. Some of the investment strategies can include investments in international stocks, or regional stocks. or dividend stocks, or Syariah-compliant stocks.
The only complaint I have about unit trust investment is the initial high sales charge and the annual management fees. But I guess I could either use my own personal time to do my own investment or engage professionals to do it with a fee. I don't mind paying the sales charge. I just wish it can be lower so that more of the stock dividends and bond interests can be distributed back to investors like myself.
My history with private unit trust funds went way back to more than fifteen years ago. At that time, I thought I should allocate more of my investment from real estate to stocks so that I could have a more balanced portfolio. Besides, property investment requires large sum of down payments and twenty to thirty years of housing loan payments. I really don't like to be in debt. It makes me feel very stressed and pressured.
Unit trust investment allows me to allocate part of my hard-earned money into another investment vehicle without having to take a loan or owe bank any money. Besides, I could treat it like a regular savings account with regular monthly investments or yearly investments.
In a sense, I could treat unit trust fund investment as my second EPF account. A second EPF account on stocks and bonds investments for retirement planning.
Once I had my mind clear about my investment objective, I then contacted one of the most well-known private banks in Malaysia managing some of the largest funds in Malaysia with consistent, reputable returns.
Taking a little risks with high-growth funds
Being in my thirties, I felt that time was still at my side to dabble a bit on high-growth stocks, both local, regional and international stocks. I then decided to take some risks selecting unit trust funds with strategies to invest in China, ASEAN, Japan, etc.
As for funds investing in local stocks, I also selected some high-growth and small cap stocks. Deep inside my mind, I was thinking that I would not touch on this investment until I retired.
Back then, I thought I would retire at age 55. That would have given me 20-25 years of time for the investments to generate some decent returns. 20-25 years could probably weather through two cycles of economy recessions. I shouldn't look at that portion of money once I put it in the unit trust investment bucket. I would say it was my riskiest move with my risk-averse personality.
To most of you, my investment strategy through unit trust is still considered very conservative. But growing up in a middle-income family in Langkawi where every single cent counts, I wasn't at all in a position to risk losing a big portion of my hard-earned money.
Besides unit trust investments through cash, I have also withdrawn about 15% of my EPF retirement savings to invest in unit trust funds on a regularly basis. At present, 75% of my total unit trust investment is by cash and another 25% is through EPF.
Portfolio rebalancing to reduce risk factor
Instead of retiring at age 55, I retired about 5 years earlier than planned. I then realised that my focus is no longer in having high-growth stock investments though unit trust. My focus has switched to having a consistent, regular income for my living expenses - hopefully until the age of 100.
Therefore, I re-looked into my unit trust funds’ portfolio, streamlined from 10 unit trust funds (high growth, dividend and balanced funds) into 6 dividend and balanced funds.
Dividend reinvestment
I have reinvested all the dividend payments back into the funds since day one. I have no plan to touch on the principal amount and dividends unless I have to. As long as I don't need it, I won't withdraw. Should I need it to support my living expenses one day, I will then arrange for dividend to be paid into my bank account regularly instead of reinvesting back into the funds.
Investment returns
In terms of average annual rate of returns for unit trust funds, I believe it largely depends on what type of funds you invest in. Just like stock market, it's unpredictable. But the risk is lesser because the fund is professionally managed and quite diversified.
Since the fund selection is rather broad, it’s hard to give an estimation on the annual rate of returns. However, if EPF’s average annual dividend return of 5.86% can be used as a reference point, I guess it’s highly likely that unit trust funds can potentially generate higher than 5.86% annual returns in the long-term. Otherwise, why would EPF allow its members to transfer their retirement savings to invest in unit trust funds, right?
On my personal investment, I have made some good returns on some funds and made some negative returns on others in the past. After portfolio rebalancing a few years back, all of my unit trust fund investments currently stay in the positive zone with satisfied returns.
Moving forward, I will continue to monitor my private unit trust fund performances for further portfolio rebalancing if required to match my risk appetite as I grow older. The older I become, the more I should move away from high-risk fund investment. If at all, I can always adjust my living expenses for any shortcomings in unit trust returns. But since I live a simple life, I believe the impact on my life quality is minimal.
3. Government-linked unit trust (Amanah Saham Nasional) with annual rate of return of 2.75% to 7.50% in past years’ performances.
Amanah Saham Nasional Berhad (ASNB) was established in 1979. It's a wholly-owned subsidiary of government-linked investment company, Permodalan Nasional Berhad (PNB). Amanah Saham are trust funds, just like unit trust. The only key difference is that Amanah Saham is managed by government-linked investment company whereby conventional unit trust funds are managed by private banks or investment companies. But the nature of how both work is quite the same.
You and I once become investor in Amanah Saham, PNB will then combine all the money from all of us into a large sum of money. PNB will then make very shrewd investments through professionally-manged fund managers with our money in things like stocks and bonds. Since it is dividend-focused investments, there is a consistent expectation from investors that every year PNB will pay out good dividend to us.
There are two types of Amanah Saham funds, namely fixed price fund and variable price fund.
I managed to study and analyse ASNB fund performances from 2015 to 2019 from the official website for this purpose. Please take note that fund performances are only for reference and is not an indication of future performance for each fund.
Fixed price funds
Let's first take a look at fixed price fund performances (2015-2019):
Fixed Price Fund | 2015 | 2016 | 2017 | 2018 | 2019 |
Amanah Saham Bumiputera 1 | 7.25 | 6.75 | 7.00 | 6.50 | 5.50 |
Amanah Saham Bumiputera 2 | 7.50 | 7.05 | 6.50 | 6.75 | 6.00 |
Amanah Saham Bumiputera 3 | 6.60 | 6.30 | 6.00 | 6.25 | 5.25 |
Amanah Saham Malaysia 1 | 6.60 | 6.30 | 6.00 | 6.25 | 5.50 |
Amanah Saham Malaysia 2 | 6.40 | 6.30 | 6.00 | 6.00 | 5.00 |
Amanah Saham Malaysia 3 | 6.40 | 6.10 | 6.00 | 6.00 | 5.00 |
Kindly take note that ASB1, ASB2 and ASB3 are only open for Bumiputera investors whereby ASM1, ASM2 and ASM3 are open for all Malaysians.
In terms of dividend return, it ranges from the low of 5.00% to the high of 7.50%. I understand that before 2015, the dividend returns were even higher - as high as 8% to 10%. But to be on the conservative side, let's only look at the past 5-year performances.
As you can see, not all fixed-price funds generate same dividends though. Some funds pay you higher dividends while others pay you less. Nonetheless, I can safely say that based on past years' performances, expectation of roughly 5%-7% annual dividend return from any of the fixed price funds over a long period is a pretty conservative estimation.
Besides, unlike any other conventional unit trust investment with high sales charge, there is no sales charge at all for all the fixed-price funds. That means more returns to you and me as investors. Isn't it a fantastic, consistent and safe investment for your long-term retirement planning? In fact, this can be treated as second EPF account for retirement savings.
Variable price funds
How about variable price fund performances? Let's take a look below:
Variable Price Fund | 2015 | 2016 | 2017 | 2018 | 2019 |
ASN Equity 1 | 6010 | 5.00 | 3.65 | 3.25 | 2.75 |
ASN Equity 2 | 3.45 | 3.45 | 3.10 | 3.10 | 2.80 |
ASN Equity 3 | 7.20 | 7.00 | 4.25 | 5.20 | 4.10 |
ASN Equity 5 | - | - | - | - | 3.75 |
Mixed Asset Balanced 1 | 6.20 | 6.00 | 5.00 | 4.75 | 4.25 |
Mixed Asset Balanced 2 | 7.10 | 6.00 | 4.50 | 4.80 | 4.20 |
Mixed Asset Conservative 1 | 7.05 | 6.80 | 5.15 | 5.15 | 5.00 |
Mixed Asset Conservative 2 | - | - | - | - | 4.20 |
Variable price funds are basically grouped into two categories: 1. Riskier but higher reward equity funds which invest mainly in high-growth stocks; and 2) more conservative but lower reward mixed asset funds which invest in stocks and bonds.
These funds, just like private unit trust funds, come with sales charges if you want to invest. These sales charges are supposedly professional fund management fees.
For variable price funds, the dividend return ranges from as long as 2.80 (ASN Equity 2 in 2019) to as high as 7.10% (Mixed Asset Balanced 2 in 2015). However, you may notice that most funds' dividend returns are on a declining trends.
The dividend returns for variable-price funds have larger range compared to fixed price funds. This means that variable-price funds lack the consistency of fixed price funds. It also means that variable price funds are more volatile compared to fixed price funds.
If I really have to draw an estimation of average annual returns from these variable price funds based on recent performances, I would then say around 4% conservatively, except perhaps ASN Equity 1 and ASN Equity 2, which have performed far below average.
Is Amanah Saham a good long-term investment for retirement planning?
Based on the last 5 years’ fund performances, I would say that fixed price funds are almost a bullet-proof long-term investment that will guarantee you consistent good returns around 5% to 7% per year. However, I can't say the same for variable priced funds. Personally, I find that variable price funds don't have any added advantages over any other unit trust funds out there managed by private bank institutions.
My personal journey with Amanah Saham
My parents had been long-term Amanah Saham investors, as far back as mid 1990s. I used to accompany them to the banks, to queue up to apply for Amanah Saham. 4 years ago, I helped them sell off all of their Amanah Saham investments after my mother passed away suddenly.
They were not big investors but I know every year they so looked forward to receiving the dividend payments from PNB on their Amanah Saham investments. They would excitedly check the mail box during dividend payment period to ensure they received the statements.
My parents urged me to invest in Amanah Saham many times. But every time I wanted to invest, the quota was already full. The queue at the banks was always long. As I was busy working, I didn't have the time to take leave from work to queue up. Besides, I didn't know much about investment. I was still very young then, struggling in my jobs trying to save enough money to buy an apartment.
Even a few years later, I still didn't take the effort to better understand about Amanah Saham. What I know is that Amanah Saham funds are usually quickly oversubscribed by uncles and aunties queuing up at the banks. The online investment option of Amanah Saham was not available back then yet. Therefore, I have looked elsewhere into other investment tools (private unit trusts, direct stock investments through my own trading account, etc).
But at the back of my mind, I know my parents had been treating Amanah Saham as a safe haven for their hard-earned money. Amanah Saham had provided them with consistent, stable income for their retirement.
Recently after my early retirement, I have renewed interest in Amanah Saham. I have started to look seriously into Amanah Saham by PNB again. It was also coincidental that fixed deposit rate has been dropping and some banks have been offering joint investments with unit trusts and Amanah Saham.
For the sake of getting a return higher than fixed deposit interest rates, I have diversified and invested some in Amanah Saham to help generate consistent return for my annual living expenses in future. I reckon that I still can afford to park some money aside for it to grow over the next 5 to 10 years. Besides, it provides me with another platform to invest in unit trust besides through private bank institutions. It’s good to diversify anyway.
4. Individual stock pick: not for the faint hearted
According to The Global Economy website, Global Financial Development Database shows that the average annual rate of return for Malaysia's stock market from 1978 to 2017 was 10.13 percent, with a minimum of -46.96 percent in 1998 and a maximum of 61.95 percent in 1987.
Meanwhile, from 1990 to 2020, Malaysia's stock market KLCI has experienced four bear markets. First, there was a huge pull out of foreign funds resulting in -25.30% drop in KLCI during the period 1993-1995. Then in 1997-1999, 2nd bear market, Asia financial crisis, cost Malaysia's stock market losing as much as -69.83%. In 200-2001, third bear market, internet bubble, caused Malaysia's KLCI to drop -39.14%. And then the fourth bear market, global financial crisis in 2008-2009, hit Malaysia shore with a drop of -39.33% in Malaysia's stock market.
According to IMF (International Monetary Fund), there will be a global recession in 2020 due to covid-19 pandemic, trade war between the US and China, low oil prices, etc. Malaysia is now experiencing the fifth bear market since 1990. Many people are losing their jobs. The unemployment rate in Malaysia increased to 5.3 percent in May 2020 from 3.3 percent in the same month a year earlier. Government has been introducing various stimulus packages to boost the economy.
And as of the time I am writing this section, Malaysia's KLCI already dropped from the highest point of 1863.46 to the closing at 1303.28 on 20 March 2020, a drop of -30.06% largely due to covid-19 pandemic and movement control order, low oil price crisis, and political turmoil with sudden change of Malaysia government. But by 28 July 2020, the time I’m editing this section, KLCI closed at 1603.75, the highest since 7 January 2020.
Can you see how volatile the stock market can be? It’s really not for the faint-hearted.
My personal journey with share trading of individual stocks
Many years ago, a friend of mine, a shrew stock investor, invested in a stock analysis software. He invited a few of us to learn together about stock analysis. I brought my laptop, a note book, and a pen to his house and spent a few weekends picking up some stock trading skills.
Technical terms like moving average, margin, open, leverage, high, day trading, close, bid, broker, order, portfolio, short selling, spread, stock symbol, volume, and yield, etc were so alien to me then.
Then there were trading strategies like chart plotting method, candle stick trading, indicator based trading, price cycle theory, linear regression trading, momentum trading, etc. Those trading terms made me feel like an alien from out of space.
I also learned to read company's annual report, how to use financial report to calculate he price/earnings (P/E) ratio, how to figure out earnings per share, etc.
I must say those were some of the toughest learnings for me. As I mentioned countless times, I real suck in stock investments. There are so many factors affecting a stock movement. Even a news twitted at Twitter by the founder of Tesla and SpaceX, Elon Musk, could cause the stock to tumble or gain.
If U.S. President Donald Trump sneezes (or rather in his case he twits on Twitter), the whole world will catch a flu and affect the stock market. No one can predict when U.S. President Donald Trump is going to sneeze.
I find it very uncomfortable to deal with something too unpredictable, too volatile. It also means that all the technical trading analysis result can only be used as a reference. There is no guarantee. It made my learnings on financial technical analysis even more frustrating.
Having said that, I did invest in about 10 to 15 individual stocks. They are mainly big cap and dividend stocks. Initially I was still studying the stock movements and making some buy and sell decisions. However, it sort of distracted me from my daily work. The emotions, the monitoring, the worries kept me on my toes all the time. It was a rather stressful for me.
My workload in office was choking me, giving me enough work stress already. I didn't need to have added stress worrying if I would lose or make money in the share trading.
After about a year of active trading through my share trading account, I decided to call it quits so that I could focus on work. All of my stock investments are still there today. It's just that I don't buy or sell for profit (or loss as it can go either way) anymore. I treat them as long-term investment - keep it there for capital growth and dividend returns.
If you were to ask me whether I regret for not actively trading in stocks all these years, which have made me more money, the answer is yes. I regretted for not trading my shares when I saw stock market going up and I didn't manage to seize the opportunity to sell for profits. I also regretted for not buying some good stocks at a low. But then again, the flip side of the coin could have happened to me. I could have lost my hard-earned money in the stock market as well.
Now I have come to realise that individual stock investment may not be for everyone.
My parents never invested in any stocks in their whole life (besides through Amanah Saham). They believe in bricks and mortals - real estate. They always taught me not to be greedy and not to take any uncalculated risks. Personally, I also feel that having a risk-averse personality is not going to help me on my individual stock investments. With that, my mind has peace. This is in fact my last frontier that I would go to as an investment vehicle for stock investment.
Having said that, now that I have more time to study about stock market and public-listed companies, I am more active on share trading on stocks to my interest. It helps to keep my mind active as well. Nonetheless, I will keep my investment through individual stock pick to the minimal.
You and I are different. Share trading is probably your first choice of investment vehicles. You probably build your wealth through share trading and stock investment.
What works for you may not work for me. Similarly, what works for me may not work for you. For peace of mind and protection of my retirement money, I just need to stick to something I feel most suitable based on my risk appetite, age, preference and personality.
5. I’m bond, but not James Bond
According to Investopedia, “A bond is simply a loan taken out by a company. Instead of going to a bank, the company gets the money from investors who buy its bonds. In exchange for the capital, the company pays an interest coupon - the annual interest rate paid on a bond, expressed as a percentage of the face value. The company pays the interest at predetermined intervals - usually annually or semi-annually - and returns the principal on the maturity date, ending the loan.”
2 main bond characteristics for the dummies like me
Sounds complicated to you? As an ordinary person who is not a shrewd investor, it sounds complicated to me. Besides knowing that this bond is not 007 James Bond, I only know of two basic bond characteristics for dummies like me:
a) Bond yields lower return compared to stocks, but higher return compared to fixed deposits
b) Interest rates share an inverse relationship with bonds. When interest rates rise, bonds tend to fall. When interest rates fall, bonds tend to rise.
Honestly speaking, I haven’t been actively investing in bonds until 2019. When I started to see falling fixed deposit rates, trade wars between China and U.S., and the gloomy economy, even before covid-19 pandemic hit us globally, I started to explore for a better replacement for fixed deposits.
I then shared my thoughts with a long-serving senior manager who has been working at a local bank for as long as I can remember. I think my parents and I have known her for more than 20 years and have built from a business relationship to friendship. Whenever I drop by the bank, I usually have casual chats with her.
When I popped my concern about declining fixed deposit rates, she recommended me to invest in bonds. True enough, a year later, this bond that I invested has managed to generate much higher yield than today’s below-3-percent fixed deposit rate.
This has given me a strong confidence and belief in bond investment. It has opened up my mind to this investment type. In fact, I intend to move part of my investment in real estate to bond investment so that in future, my general asset allocation will be more balanced for my age.
6. Cash is king
Fixed deposit rates in Malaysia are around 3-4%, affected by fixed deposit promotions by the individual banks. With covid-19 pandemic, global recession looming over the whole world now, and the drop of base lending rate, fixed deposit rates have also been decreasing to below 2% per annum thus far in 2020.
This is done intentionally so that people can have more cash in hand from lower loan interest rates, encouraging people to spend in order to spur the economy. Banks are also providing lower fixed deposit rates to discourage people from saving. The more cash runs around in the market through consumption and spending, the fast our economy will recover.
As I used to take care of both of my parents, and now my 96 year-old dad, I need to make sure I have enough emergency funds for us. I never know when I will need any unexpected expenditure on hospitalisation and medical expenses for them. I also never know if one day I would be out of job and couldn't find the next job for several months.
How much do I keep as emergency fund?
Fixed deposits give me a lot of fluidity in terms of addressing my six months to a year's needs.
I usually keep my savings enough to sustain minimum six months of mine and my parents' living expenses. I also keep some extra money as my parents' emergency medical needs.
When I was still under housing loan agreement serving monthly repayments, I made it an point to save up some extra cash from my monthly pay cheque in fixed deposits. Once I managed to have a relatively big sum, I then withdraw my fixed deposits and used it to offset some of the principal amount in my housing loan. By doing so, I helped me to settle my housing loan as soon as possible.
How do I choose fixed deposit rates?
I usually opt to place my fixed deposits with two of my most favourite banks near my home. Not all banks are the same in terms of services, product offerings as well as fixed deposit rates. Bank A will probably offer a higher fixed deposit compared to bank B in March. But perhaps in May, Bank B may have an FD promotion offering higher FD rates compared to bank A. That's why shopping around for the best FD rates in town (usually four big banks near my home) is a must-do list for me before placing any fresh fixed deposits.
I understand that fixed deposit is quite a defensive instrument and it shall not be used for capital growth. But as long as FD rates are above 3%, at least the inflation will not devalue it so much. It's safe and easy.
Monthly interest credit feature in fixed deposit
At some banks, they also offer 50Plus FD accounts for those over 50 with monthly interests credited into depositors' accounts. As you know, usually you will only get the FD interests paid out at the end of maturity period - be it six months or a year.
This monthly interest credit feature is super popular with many retirees. I can see many uncles and aunties in the banks during working hours with their fixed deposit statements.
My parents were the number one fans of these 50Plus FD accounts. They could use the monthly FD interest payments as their monthly living expenses. Now that I have retired from full-time job with minimal active income, I am also behaving like the rest of the uncles and aunties.
I excitedly look forward to having my fixed deposit interests credited into my bank account on monthly basis. I can then continue to use it as passive income to support my living expenses after retirement without touching on the principal amount.
7. Real Estate: The basis of all security and the most solid security
According to Malaysian Institute of Estate Agents (MIEA), “Buying property is the best way to accumulate wealth as it could offer returns from both rental and capital appreciation. A property in the Klang Valley could fetch an average of around 3% rental return yearly and a minimum 5% capital appreciation annually, which comes up to an investment return of about 8%. Compared with other low-risk wealth accumulation tools, such as fixed deposits which provide around 3% to 4% returns, a property would be a better choice to preserve one’s wealth.”
I also read it in an article saying that 90% of all millionaires in the world become so through owning real estate.
Fitting well into one’s life journey
If you mention about property investment, I believe most people will get excited as compared to stock investment or any other types of investment. It's also one of the easiest investment vehicles to understand. It's definitely not as complicated as stock investments. Besides, real estate can be seen, can be touched, can be felt. Seeing is believing.
It also fits very well into a person's life journey: after getting a job, and perhaps buying your first car, the next in mind will be to own an apartment, condo or a house that you can truly call your own. It's a place you can definitely be proud of after 20-30 years of living in your parents' house. It's a natural progression in life.
Later part of your life when you are in your thirties and forties, after your strong establishment in your career and perhaps after you have your own family, your mind might start to think of buying another property or two for investments.
You might think that perhaps one day when you grow old, you can then let each of your children inherit one property each. This is quite a typical mindset of Asian parents.
My parents’ bricks and mortals
Similarly, my parents also taught me to believe in bricks and mortals. They never really invested in anything except property. I would say 90% of their assets was allocated to real estate.
o Bought first 2 units of run-down old shop houses in Langkawi
In retrospect, I don't think my parents had a property investment strategy.
My dad wanted to start his own business after working in government rest houses, coffee shops and bars in Penang and Kedah for many years. Naturally, back to hometown Langkawi to start his own business was a logical choice for him.
He couldn't afford to buy new shop houses. He could only look at sub sales. My parents borrowed money from the bank to buy up 2 connecting units of run-down old shop houses in Langkawi to run a small little motel business back in 1968. He paid RM12,000 for the first unit and RM8,500 for the second unit, totalling RM20,500. The property purchases were purely for business purpose. At that time, my dad didn’t even have his own house yet.
The 2 units were not at the best location. They were one kilometre away from Kuah main town. But it was good enough because all passengers alighting at Langkawi jetty would pass through before they could read Kuah main town. It was the best location my dad could afford to buy.
There were 12 rooms for the small motel after renovation. 10 rooms were for daily rent to motel guests. The remaining 2 rooms were for us to stay. And I was raised and brought up in the run-down shop houses.
There was also a little restaurant inside the premise. My mom was the cook. Since it was a small little family business, my parents only hired 2 staffs to help out. Everything about the business operations was practically done by my parents.
o Bought third unit of run-down old shop house in Langkawi
As faith would have planned it, the next connecting unit was up for sale about 20 years later. My dad decided to buy it for business expansion. But the price of shophouses around that area had shot up tremendously. My dad ended up taking a housing loan to purchase the third unit for RM115,000.
My dad then renovated to accommodate for 8 more guest rooms. In total, there were 20 guest rooms available for tourists and business travellers to stay whenever they visited my beautiful hometown, Langkawi. And we stayed to stay inside the premise.
o Bought a residential house in Langkawi
After my parents leased the motel business out to someone else, we moved out from the premise. We moved into a semi-d residential house which my parents bought for RM220,000. It was nestled in the quiet kampung area with a piece of land for my mom to do her gardening.
o Moved to Alor Setar and invested in a terrace house
After completing my primary school at Sekolah Rendah Chung Hwa in Langkawi, I attended Sekolah Menengah Keat Hwa, a prestigious high school in Alor Setar, Kedah.
Initially, I rented a room staying on my own during my high school years. I then moved to stay at my uncle’s house. My sister was also studying in another high school in Alor Setar back then.
Eventually, my parents moved to Alor Setar and invested in a terrace house same row as my uncle’s. My parents didn’t really scout for the best location whatsoever for capital appreciation purpose. It was for own stay anyway.
They bought the unit because it was close to my uncle’s family and my grandpa who lived with my uncle. It was convenient for us to visit them. It was only then I could stay together with my parents again enjoying my mom’s home-cooked meal daily.
o Sold terrace house in Alor Setar and moved back to Langkawi
It was very nice to stay at own home, eating my mom’s home-cooked meals daily. But once I went to America to further my studies in 1984 and my sister moved to Kuala Lumpur, my parents sold off the terrace house in Alor Setar and moved back to Langkawi.
o Sold all properties in Langkawi and moved to Kuala Lumpur
In early 1991, I came back from the United States and worked in Penang as an engineer for close to four years. For a period of three months after Seagate, I went back to Langkawi to help my ageing parents on the motel business. After realising that my passion wasn’t in hotel industry, my parents gave me the much needed blessings for me to move to Kuala Lumpur taking up a new challenge in sales career.
In 1995, my parents decided to retire fully. They sold off everything they had owned and built over the years in Langkawi. They sold the motel business along with 3 connecting shop houses and our residential home in Langkawi. It must be a tough decision for them to sell off everything and upfront from Langkawi to move to Kuala Lumpur after all these years.
I strongly believe the main reason for them to move to Kuala Lumpur was out of love for their children. They wanted to be closer to my sister and me. Both of us have made Kuala Lumpur our homes and we have been making a living working at 9-to-5 jobs in Kuala Lumpur.
o Bought a condo unit in Kuala Lumpur
We visited my uncle’s family and stayed with them a few times before in Sri Petaling. Being new to Kuala Lumpur area, they could only scout around near my uncle's place for a property to buy. Sri Petaling was the most familiar place for them. That's how we ended up staying in Sri Petaling instead of Cheras or Petaling Jaya or Bangsar.
Initially my parents wanted to buy a new landed property, but they couldn’t find a suitable one. Hence, they bought a new condo unit instead. That was the only high-rise condominium building in Sri Petaling and Bukit Jalil during those days. Unlike now, the area is mushrooming with over supply of condominiums.
Initially, I stayed at my sister’s apartment when I first moved to Kuala Lumpur. Then I rented a room at Section 17 in Petaling Jaya, Selangor. When my parents moved to KL and bought a condo unit, I then moved in to stay with them. That was the end of my years of renting a place to stay in my working life.
We stayed at the condo unit for slightly over 2 years from 1995 to 1997.
o Sold the condo unit and bought a terrace house
Being used to staying in spacious Langkawi and landed properties, condo living was not too much for my parents’ liking. Besides, my mom loved gardening. There was no land for her to grow her flowers and plants.
During their daily walks around the neighbourhood, my parents stumbled upon “house for sale” signs in a newly completed housing project in Sri Petaling. Without much hesitation, my parents bought the terrace unit. It has some land space in the front and back, giving the much needed space for my mom to do her gardening. That made my mom very happy.
My dad then sold the condo unit and used the money and top up the balance from his savings to pay for the sub-sale new terrace house.
In 1997, my parents and I moved into the new home. We have been staying at this house ever since.
o Bought 2 other properties, rented out for rental income to cover retirement’s living expenses
After retirement, my parents don’t intend to financially depend on us as their children. Besides the one for own stay, my parents used the balance of their money from the business selloff in Langkawi to purchase 2 other properties in Kuala Lumpur for rental income.
My parents have been drawing some passive income from property rental, fixed deposit interest and Amanah Saham dividends during their retirement years. But since I am staying with them. I’ve been covering all of their living expenses as well. I asked them to keep whatever rental income and fixed deposit interest they receive from their own money for rainy days. They agreed to it but they still insist to pay for their own medical expenses from their own savings. I guess they want to feel useful and want to contribute as well. Hence, I agreed to such arrangement which makes them happy.
o Loving sacrifice of my parents
My mom left us in 2015. And my dad is 96 years-old now.
This is not purely a story of my parents’ bricks and mortals, it’s more of a story of their love for us as their children. They have sacrificed so much for us.
They moved from Langkawi to Alor Setar, then back to Langkawi, then to Kuala Lumpur permanently out of love for us. They relocated so that they could be with us. Instead of forcing us to stay in Langkawi, they wanted so my sister and me to pursue our own dreams and live our own lives. They simply want us to be happy. I could see their unconditional love and loving sacrifice for us. I couldn’t have had better parents! I’m fully indebted to them for their love!
o Property ownership - the most logical, sensible investment to many
The reason why I shared my parents' life journey with you through the story of property ownership is to demonstrate to you that property investments alone can help you to retire comfortably.
Of course, buying and selling of properties, renting them for rental income, are nothing short of frustration, hassle and headache. From choosing the right location to dealing with demanding tenants, nothing is easy, especially if you need to borrow money from the bank. That monthly housing loan payment commitment will be an additional invisible mental pressure that can give you nightmares for the next 20 to 30 years for every single property that you invest.
Despite all the shortcomings of property investments, many traditional folks truly believe that real estate investment is the most logical and most sensible investment of all. It could as well be the only investment they know of besides putting money in the bank.
Property ownership doesn’t have to be so complicated. My parents didn't really scout for locations. They didn’t choose the prime land or location to invest. They weren’t even thinking about making money out of the properties they bought. They chose locations based on where our relatives stayed. They just went along with life. Somehow, my parents have turned out well at the end. They can be together with their children. I’m so grateful to be able to stay with them during their winter years.
My personal property investment journey
How about my own personal property investment journey?
Being very close to my parents in relationships, I’m pretty much influenced by their upbringing. I can see almost a similar trend between my parents’ and my own property investment journey.
· Bought and sold first property in Penang and moved to Kuala Lumpur
I was young, just out into workforce from university with limited fund to invest in anything. I didn't know much about investment. I wasn't interested in anything risky even if it could potentially give me high returns. Anything to do with stocks, I would just brush it aside. I also never like anything that I can't feel or touch. I am a visual person. I like to touch and experience things myself.
As a young graduate, I worked as an engineer in Penang. I didn't buy my first new car. Instead I used public transport and factory bus for a while. I was renting a room in a flat. That "wanting to have a place of my own" feeling prompted me to save money to buy my first property.
I bought a new condo unit next to University of Science Malaysia in Gelugor area in Penang. It was only about 15 minutes from my workplace at Seagate in Bayan Lepas. I could still take the factory bus as the bus would stop right outside. It was one of the boldest commitments I had ever made at that time.
I was too naive, thinking my pay cheque would grow year by year and it would be a happy life thereafter. I saved as much as I could, cutting down on my other expenses (entertainment, food, travel etc) so that I could serve my monthly housing loan for the next 30 years.
Unfortunately, I also started to develop a mental stress worrying about the housing loan repayment every month. With my average monthly salary, I worried about it all the time. That was my first job. And I thought I would work at Seagate and stay in Penang for the rest of my life. Little did I know that four years into the job, I decided to pursue a different career path in Kuala Lumpur.
With that, I decided to sell it off. Phew! What a relief!
· Rented a room to stay and bought a terrace house in Rawang
When I first moved down to Kuala Lumpur, there was no place to call my own as well. I stayed at my sister's rented place initially while looking for a place to rent. Then I rented a small room in Section 17, Petaling Jaya because it was closer to office. I remember I paid RM270 a month for my own room.
The thought of having to be a slave to the bank paying the monthly housing loan for the next twenty to thirty years really put me off from buying another property again.
I felt so suffocated knowing I owed bank so much money and it would take years to settle outstanding housing loan. But I still wanted to have something to call my own. I knew I had to learn to overcome the fear of owing bank money through loans. I should feel grateful if bank wanted to approve housing loan at first place.
I couldn't afford to buy any landed property in Petaling Jaya or any area close to my office in Kelana Jaya. They were expensive and I didn't make much yet then. Eventually I bought a two-storey terrace house in Bandar Baru Rawang
Why Rawang? Well, two of my colleagues at that time stayed in Rawang. They commuted every day to office via north-south highway. They told me it was a good neighbourhood. Rawang are was also promoted by property developers as the Petaling Jaya North in the making. There were also rumours that new airport for budget airlines would be built there.
Due to all the excitement about the location, and the perfect idea of being neighbours to my ex-colleagues, and carpooling with them to office every day, I finally was convinced that it was a good property investment and I could live happily there.
The vision of a perfect world really got me dreamy and losing touch with reality. As you all know by now, Kuala Lumpur International Airport 2 which houses AirAsia budget airline and others were eventually built in Sepang, Selangor - south of Kuala Lumpur. The so-called Petaling Jaya North didn't turn out to be what developers claimed it to be.
Economy was booming during that time. The housing loan interest kept going up. I remember when I had my housing loan approved, I needed to pay around RM1,400 to RM1,600 per month. Then the base lending rates were adjusted several times – every time higher than before. At the highest point, I was painfully saving my butt off, cutting my daily expenses to pay my monthly loan which shot up to RM1,900 to RM2,100 a month. That was one of the most painful, stressful period in my life.
Can you imagine? I was doing sales with fluctuating take home pay with high living expenses. I was paying RM270 a month for a rented room. I was contributing RM500 monthly to my parents. I was eating outside every day. On top of that, I had to serve RM2,100 a month on my housing loan.
It was so stressful that I had nightmares thinking of outstanding loans. I would wake up at some nights sweating. I felt depressed and pressurized too. And all these mental stress on financial commitment ended up affecting my work performance. I wasn't happy! I was living in stress. How could I continue to live like this? Wasn't buying a house a happy thing?
Then one day my parents visited me from Langkawi. My mom looked at my living condition in the rented room and she cried.
It was a semi-detached corner unit converted into about twelve rooms, renting out to students and young career workers from outstation like myself. There was no shared living room or shared kitchen. All available spaces were converted into rooms for rent. The landlord occupied 2 extended rooms in the garden.
I rented one of the smallest rooms with shared toilets outside. There was a small little study table inside the room. That was it! There was a window with curtain. But I couldn't open it because all the students who stayed there parked their bicycles and motorbikes right outside near windows. I didn't want to be seen in public. Curtain was the answer.
Most of the evenings, I put my packed dinner on my chair, sat down on the side of my single bed, and watched small tv while having my dinner.
Now thinking back - I understand why my mom cried then.
But to me personally, I was pretty okay with such living condition. I was making my own living with my hard-earned money. I didn't take a single cent from my parents after my graduation.
I got to live within my means while saving up to pay for housing loan, room ren, telephone bills, daily meals, contribution to my parents, etc. I knew I could make it on my own without their financial help! They already invested so much in my education by sending me to United States to further my studies. I promised myself not to take a single cent from them ever since I started my first job.
A few months after my parents witnessed my living condition in Kuala Lumpur, they decided to move to Kuala Lumpur too.
I couldn't figure out initially the reason why they wanted to leave our hometown Langkawi to move to a bustling city Kuala Lumpur. According to my parents, since my sister and I have been making Klang valley our home, naturally they wanted to be with us.
But I know that witnessing my living condition in the rented room somehow played a factor in their moving decision.
· Good-bye to room-renting!
They bought the condo unit in Sri Petaling, which I mentioned earlier. Initially, I didn't want to move in with them. I thought of having my own space. But I’m the only son. I knew I couldn’t let them stay alone with no friends in Kuala Lumpur. They moved to Kuala Lumpur because of us too.
Therefore, I decided to forgo my own independence and privacy by staying on my own, and move in to stay with them.
Officially, I said good-bye to room-renting. I said sayonara to staying in other people's place under other people’s roof.
Despite the fact that I had a place to stay with my parents, I could only save myself RM270 and my daily dinners. Financially, I wasn't getting any better.
· Sold terrace unit in Rawang
The nightmares of being drowned by debts still haunted me. By then, I was also looking out for another job for higher pay. My subsequent job after that was another sales job based in Bukit Bintang area.
My Rawang house was also completed by and keys were handed to me by then. I was supposed to be happy about it, but I wasn't. I felt stuck with my decision to buy a unit there.
Now that I no longer worked in Kelana Jaya, that means I wouldn't be able to car pool to work with my ex-colleagues as planned. Now that my parents moved to Kuala Lumpur, it was no longer logical for me to move away from them to stay in Rawang. Personally, I also preferred to stay in Sri Petaling, closer with my sister's family.
All these factors couldn't justify the reason for me to move to Rawang after the house was ready for occupation. Since the location ended up not suitable for me and I couldn't bear the stress on paying the housing loan anymore, I decided to sell it off. I was sad, It was a beautiful 2-storey house with an open air well. I could probably make a beautiful home out of it.
· Back to square one again with no property under my name
I was back to square one. I was already in my early thirties, but I still didn't have a property of my own.
I started to blame myself for poor decisions and over-confidence in my financial capability in buying properties.
First was my first ever condo unit in Penang, and next was the house in Rawang. For both properties, I didn't even get a chance to stay in. I was so disappointed. I bought both units (one after another after selling off the first one) because they were close to my workplace. I thought I would work at those two workplaces until I retired. I also over committed myself going for maximum housing loan while my career was still very shaky, putting unnecessary mental stress and burden on me.
After these two painful experiences, I shied away from property investment for a while.
Learning from my previous lessons, I started to be more cautious before I jumped into another long-term financial commitment. I told myself that if I ever bought another property, I would want to make sure I had enough cash in hands first. I shouldn't buy a property that I couldn't afford, like the previous two incidents.
During those years, my career started to stabilise with higher income. Even with my more stable career and income, my saving habit living a frugal life hasn't changed.
In terms of location, I also stayed in Sri Petaling for a few years by then. I was very comfortable around Sri Petaling vicinity with my parents there. I knew that I wanted a place that is close to my parents and my sister's family. That means my choice got to be around Sri Petaling area.
During that time, property developers started to build mixed development projects with high end condominiums. Many people fixed their eyes on high-end condominiums with attractive housing loan package. I have learned my lesson. I didn't want to fall into the trap again buying dreams, envisioning myself living a rich lifestyle, swimming at the Olympic size pool every day, using the 5-star tennis courts or gym facilities. A close friend used to stay at such condo with 5-star facilities in Pantai Hill Park. He stayed there for five years but swam in the Olympic-size swimming pool only twice a year and hardly used any other sports facilities. Nonetheless, he still had to pay the high monthly maintenance fees.
· Bought a basic apartment with no facilities
I wanted to be more practical based on my basic needs and lifestyle. I also knew what I wanted in life. I wanted something practical, functional and logical. I wanted something I could afford. I wasn't into buying a property to flip to make money anyway. I wanted to buy based on my own personal needs.
Since I have been practicing frugal living and I didn't want to make the same mistakes again, I stayed myself away from all the attractive loan packages and nice show units.
I fixed my eyes on apartment without much facilities. After much scouting around, I finally became a home owner again (third purchase though but sold off previous two units).
I bought an apartment without swimming pool, gym or any tennis court in Bukit Jalil. It was a basic apartment not far from my parents' place. It was close to a public park. I figured if I wanted to exercise, I could just fully utilise the free public park which was just 200 meters away. If I wanted fresh air, I could just smell fresh air from the public park at the balcony instead of smelling fresh air from the plants planted by developer at the condo compound.
This apartment is very sentimental to me. It’s my turning point in real estate. I still keep this apartment with me until present.
For housing loan, I made sure I went for the longest period but with flexibility to do repayment earlier knocking off from the principal amount. I wanted to be allowed to pay as low as possible monthly. I didn't want to feel suffocated again from high monthly payment due to unforeseen circumstances (loss of job, poor investment elsewhere losing my cash flow, unexpected rising base lending rate, etc). Meanwhile, I wanted the flexibility to allow me to pay more, as and when I could afford, so that I could shorten the repayment years and get myself out of debt.
I know my thinking is weird - against conventional way of thinking. Most people would have wanted to pay back to the bank as little as they can monthly, and take their time as long as they can to pay back.
But my thinking is way different from others.
I don't like debts - any debts. I don't like owing people money or owe people any good needs rendered upon me.
My parents taught me to earn an honest living, live within our means, not to be greedy, and not to go into debts if possible.
I set my target to settle my apartment loan within 10 years even though the loan period was twenty years. Whenever I had extra cash from my sales commissions, I dumped it into the loan repayment. Whenever I received bonus pay out, I dumped it into the loan repayment. Any cent I could save, every six months or so I dumped it into the loan repayment.
Some would argue that I shouldn't do that. Instead, I should use the cash in hand to invest in stock market for higher return. As long as the return is higher than the interest rate, I should not opt for settling the housing loan earlier.
But for me - owing bank a large sump of amount has already given me a huge headache. If I were to use my extra cash in hand to invest in a volatile stock market which I'm not familiar with might send me to a mental hospital.
That's why probably I have accumulated my wealth rather slow due to my poor appetite in high risk investment. But I made up for it with more savings in my daily living. It's just my personal choice which I find to be more suitable to my personality.
· Followed my parents’ footstep thereafter
After full settlement of my apartment’s housing loan, I started to build some self-confidence in property investment. I slowly ventured out into property investment thereafter using the same strategies: buying within my financial means, choosing locations I’m familiar with, and settling off loan payments soonest possible. This is what my parents taught me long ago.
Over the years, real estate has taken up 64% in my investment portfolio in terms of asset allocation.
My parents also taught me that property investment is an anti-inflation investment tool.
It’s also forced savings.
Real estate can also prevent me from using up my retirement fund easily for its low liquidity.
Unlike stock investment or unit trust investment, I can't just sell it and have my money deposited into my bank account within five working days. This facility could easily allow me to use the money and splash on something emotionally or illogically.
In real estate, I need to go through the long selling process - cleaning up / renovating the premise, finding a reliable real estate agent, finding the right buyer with the right price, waiting for buyer's housing loan to be approved, getting all purchase agreement sorted out, etc. Only then I will be able to turn the physical asset into cash in hand.
I guess I’ve followed my parents’ footstep closely in real estate investment.
Of course there are shortcomings in real estate: maintenance fees, wear and tear repairs finding right tenants, challenges in selling, hard to liquidate, etc.
But to my parents and me, real estate has turned out to be the basis of all security and the most solid security for our retirement planning. It was my parents’ turn when they retired in 1996. It has become my turn now.
SECTION 4
Make Your Money Work for You
“Either make your money work for you or you will always have to work for your money.” -- Marshall Sylver
F I L L
Financial Independence, Live Life
achieving financial independence from 9-to-5 job before 50
