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Tuesday, June 20, 2017

What $1,000 Invested in Facebook, Apple, Amazon, Netflix and Google 10 Years Ago is Worth Today

Generally, the stock market cycle has an average period of 10 years, which consist of both bull and bear markets. So it would be interesting to find out how the company's stock is performing throughout the whole market cycle. Let's take a look at how the most popular technology stocks, namely, Facebook, Apple, Amazon, Netflix and Google, also known as FAANG, would perform!




For better illustration, #YourFinanceDoctor gathered Morningstar data to see what $1,000 invested in these FAANG companies back in 2007 would be worth 10 years later. If you would like to find out the 5 Best Performing Unit Trust Funds in Past 10 Years, click through to see which funds have produced spectacular annualized return in the past decade. 



1. Facebook (FB) : $3,940.29 (5 years)
Share Price May 18, 2012 : $38.23 
Share Price June 16, 2017 : $150.64
5-year Annualized Return : 38.08% 
10-year Annualized Return : N/A

Facebook held its Initial Public Offering (IPO) on Friday, May 18, 2012, which was the biggest in technology sector with a peak market capitalization of over $104 billion. Since it is less than 10 years, it would not be fair to compare along side with the rest. However, a whopping 38.08% of 5-year annualized return still very incredible! 



2. Apple (AAPL) : $7,961.29
Share Price June 18, 2007 : $17.87 
Share Price June 16, 2017 : $142.27
5-year Annualized Return : 13.13% 
10-year Annualized Return : 24.34%

Everyone knows about Apple as they build their branding well thanks to their premier consumer products that became a status symbol of luxury. Apple managed to refocus into consumer electronics successfully by keeping things simple and packing more features into their devices. Invested $1,000 10 years ago would brings you to a magnificent $7,961.29! 



3. Amazon (AMZN) : 13,749.91
Share Price June 18, 2007 : $71.83 
Share Price June 16, 2017 : $987.71
5-year Annualized Return : 35.24% 
10-year Annualized Return : 29.86%

Founded by Jeff Bezos where Amazon started as online bookstore back in 1994, and now became the largest internet-based in the world by total sales and market capitalization. If you noticed the logo of Amazon, you would realized that there's an arrow pointing from A to Z which represents their A-to-Z guarantee claim policy. Investing in Amazon would yields a 29.86% of 10-year Annualized Return! 



4. Netflix (NFLX) : $53,279.67
Share Price June 18, 2007 : $2.86
Share Price June 16, 2017 : $152.38
5-year Annualized Return : 74.57% 
10-year Annualized Return : 49.05%

In the initial years, Netflix focuses on DVD rental by mail business. As the technology changes, Netflix switch the focus to streaming media which expanded internationally, and even entered the content production industry in 2013. Among all the FAANG companies, Netflix generates the highest 10-year Annualized Return of 49.05%, which means the $1,000 invested 10 years ago has now became $53,279.67!




5. Alphabet (GOOGL) : $3,717.53
Share Price June 18, 2007 : $257.60
Share Price June 16, 2017 : $958.62
5-year Annualized Return : 21.94%
10-year Annualized Return : 11.65%

Alphabet, a.k.a Google is the most well known brand given the success of their internet related services and products, particularly the search engine. Now Google is just one of the subsidiaries under Alphabet as Alphabet is a conglomerate of various interests such as Youtube, Blogger and many more! But don't be surprised that the 10-year Annualized Return is actually the lowest with 11.65%, simply because 10 years ago their share price has already exceeded $100 since 2005.




This is the power of investing! But here's the question, how many of us can actually resist the temptation to sell when it is high or fight the emotion to keep when it is low? Most importantly, these are just the successful cases for technology companies, there are still plenty that ended up badly. So it is important to know what's your investment objective and what you are investing in!


All the result were prepared by #YourFinanceDoctor using Morningstar data.

Wednesday, June 14, 2017

5 Best Performing Unit Trust Funds in Past 10 Years

When it comes to Unit Trust Funds, what is your common perception towards the return? Well, most people would have different answer depending on their personal past experience. Given to the wrong hand of those bad apples will surely yields you a bad return with your hard earned money. So, are you getting the best funds from the market? 


Table from Morningstar


Let's take a look at the 5 Best Performing Unit Trust Funds over the past 10 years out of 540 funds available in Malaysia. You can invest into any of it with minimum of RM1,000, some can even start as low as RM100



Affin Hwang Select Asia (Ex-Japan) Quantum Fund (AHSAQF) seeks to achieve consistent capital appreciation over medium to long-term by investing mainly in growth companies in Asia with market capitalization of not more than USD 1.5 billion at the time of acquisition. The fund has a 10-Year annualized return of 15.32%. However it is currently soft-closing as it almost reaches the maximum fund size, so cash investment is no longer available, but you may still invest in it using EPF Withdrawal. 



Kenanga Growth Fund (KGF) aims to provide Unit Holders with long-term capital growth by invest principally in a diversified portfolio of equity and equity-related securities in Malaysia. Lee Sook Yee is the fund manager as well as the Chief Investment Officer (CIO) since 2013, bringing with her more than twelve (12) years of experience in local and regional equities investment. The fund has a 10-Year annualized return of 14.51%. You can start investing in it as low as RM100



Eastspring Investments Small-cap Fund (EISCF) targets to provide investors with maximum capital appreciation by investing principally in small market capitalization up to RM3 billion at the point of acquisition companies in Malaysia which will appreciate in value. The fund led by Chen Fan Fai, where the team continue to adopt a bottoms-up approach in selecting stocks where they prefer stocks with healthy earnings growth and strong balance sheet. The fund has a 10-Year annualized return of 14.02%. However, it is no longer available to invest as it reaches the maximum fund size limit. 



Manulife Investment Progress Fund (MIPF) strives to provide Unit Holders with steady long-term capital growth at a reasonable level of risk by investing in a diversified portfolio of small- to medium-sized public listed companies in Malaysia. Nicholas Tiong is the fund manager since 2002. The fund has a 10-Year annualized return of 12.26%.



Public Smallcap Fund (PSCF) works to achieve high capital growth through investments in companies with market capitalization of RM1.25 billion and below with special focus on growth stocks. To achieve increased diversification, the fund may invest in foreign markets. The fund may also invest in fixed income securities to generate additional returns. The fund has a 10-Year annualized return of 12.16%. However, it is no longer available to invest as it reaches the maximum fund size limit.



***Noteworthy - KAF Vision Fund (KVF)'s  investment objective is to provide Unit holders with medium to long-term capital growth with a mixture of maximum 65% of the Fund’s NAV will be invested in smaller capitalized companies not exceeding RM1 billion at the time of purchase and maximum 30% of the Fund’s NAV in larger capitalized companies exceeding RM1 billion at the time of purchase. The fund has a 10-Year annualized return of 10.46%.


Did you invest any of these?

Conclusion:
Take note that the only 4 funds, namely AHSAQF, KGF, EISC and KVF managed to get DOUBLE-FIGURE annualized return for all 10-year, 5-year, 3-year, 1-year and even Year-To-Date! Although past performance does not guarantee the future return, but judging from the past performance of the fund, one can tell how good is the fund manager in their investment approach, stock selection methodology and even how efficient is the fund manager utilizing the pool of funds from investors. (provided that there is no change in management) 


Anyway, this post is just to show that Unit Trust Fund can yields high return as well (does not indicate any buy recommendation), provided that you have done your research and analysis on which fund to invest in. If the fund recommended by your agent is still not performing after a long period, the reason can only be one - your agent is not managing for you! Time to hire #YourFinanceDoctor!

Thursday, June 1, 2017

Time Value of Money (TVM)

What is Time Value of Money?

Time Value of Money (TVM) is the concept that the value of the same amount of money available today is worth more than the value in future with the same amount of money receive. The main reason is because of INFLATION, where the value of the money is reduced in time. In other word, your purchasing power is reduced with the same amount of money comparing today and 10 years later. 






Why Understand Time Value of Money is important?

Simply because time is money! You want to fully utilize your time and money to make more money. The value of your money is decreasing every single day when you waste/procrastinate by letting them do nothing in your pocket. So what you do with the money you have NOW is utterly important! Time Value of Money can be better understand with the basic formula of calculating future value.





How to Calculate Future Value of Money?

Future value of money can be calculated by using these variables, namely present value, interest rate and number of periods. Looking at the formula, by increasing any of these variables, the future value of money will be increased too and vice versa. Which is why you have to start invest early, so that your number of periods is bigger and future value will be greater too. Greater return (interest rate) will yield higher future value too, so keeping in your pocket, keeping in bank and keeping in investment make a big difference as well!  



Example?

If you won a lottery (forget about the tax or whatsoever) and you are given a choice to choose:
Option A : Receive RM1mil now
Option B : Receive RM1mil 5 years later
Which one would you choose?

Obviously, the answer would be A, you want it now since Option B doesn't give you any extra incentive. And the same RM1mil probably not enough to buy you the same house or same land or same car or anything 5 years later because of inflation. So this is easy to choose, what about....




Option A : Receive RM1mil now
Option B : Receive RM1.5mil 5 years later
Which one would you choose?

Now, this is tricky! But actually not if you understand Time Value of Money. 

Step 1 - Find out the interest rate (return, r)
By moving around the future value formula above, we will get the number of period formula as per below. Do you feel familiar with this formula? Yes, this is indeed the same as Annualized Return where I have posted about it in previous post (read here). Simply go to Online Finance Calculator (click here) and key in all the values, you will find the Interest Rate/Annualized Return is 8.447%

PV = RM1mil, FV = RM1.5mil, n = 5, find r?



Step 2 - What will you do with the money?
Now the question is simple, what will you do with the money if you receive it now. If you are going to take the RM1mil now and put in your home (with 0 interest) or put in fixed deposit (around 4%), then you might as well choose Option B. Let's not forget that you may want to include inflation into your calculation as well. So bottom line, 8.447% should be your benchmark, unless you can beat the benchmark of 8.447%, otherwise you should always choose Option B, you want it later



If you won a lottery, probably these are not in your mind...
I bet most of you will be thinking how to spend it all away. Which is why according to National Endowment for Financial Education, about 70% of lottery winners actually end up broke within a few years. (Read here)

Well, nothing wrong with that, it's natural to want to spend money on nice things once you receive a huge amount of money. But if you do not have a proper financial plan, even for millions of dollar, you can easily lose track of how much you have spent until it is too late to realize.  


So remember, if you happen to win a lottery or receive a big inheritance, regardless of Option A or Option B, remember to hire #YourFinanceDoctor to ensure that you can spend part of the money yet keeping the rest of them to generate more money for you!  😉😉😉

Friday, May 12, 2017

7 Important Financial Lessons to Master before You're 30

You may feel young, wild and free during your 20s, but in the blink of an eye, reality will hits you fast and hard with all the financial commitments which may include getting married, getting your own house and having children. Then suddenly in your 30s, you realized that you are halfway to retirement, yet there are far too many outflows with too little inflow of income to cope with.


Thankfully this scenario can be avoided, but every financial decisions you make now will be crucial. Here are 7 most important financial lessons that you should master early on, ideally before you turn 30.



1. Forget about Everyone can Fly


No doubt that the flight ticket is cheaper than ever, but just because it is affordable does not mean you should do it. I am not saying that you should not go for vacation at all, but rather make it a delayed gratification, where you resist the temptation for the immediate reward and wait for a better reward later. Travel is in everyone's bucket list nowadays, but instead of spending away all the money on vacation, plan and save for it according to your affordability with other financial goals taken into consideration, which leads us to the next financial lesson. 



2. List Down Your Financial Goals


One of the 7 Habits of Highly Effective People written by Stephen Covey is to begin with the end in mind. In order to prepare for your financial future, you should have a clear written list of all your financial goals. Most often than not, you probably have not figure that out in your 20s. But don't let it stop there, take time to sit down and think about them. Write them down and plan how to make them a reality so that you have a clear vision of actually achieving them. You are less likely to achieve any goal if you do not write it down and create a concrete plan.




3. Stick to a Budget


Everyone knows the importance of having a budget, but how many of you, especially in your 20s, actually stick to a budget with discipline? So, with all your goals written down, the next thing to do is to understand your current financial situation and the best way to find out is to have a budget to know where all your money goes and start to allocate where each dollar you earn goes. Knowing where you spend can limit yourself from over-budgeting too, such as impulse buying especially when there is promotion going on.  Allocating at the right place is essential as well because you want to fully utilize your money, making sure your money works harder than you.



4. Build a Strong Emergency Fund


One of the first thing to allocate in your budget is to build a strong emergency fund. As a rule of thumb, you should have an emergency fund of at least 3 to 6 months of expenses. The number of months of expenses will be depending on your comfort-ability as well as how fast you are able to get a new job in your particular field. In other words, if you happen to lose your job, at least you are able to sustain for few months. Generally, you do not want to be over saving, as letting your hard earned money to rest in bank while you are working hard may not sound like a good idea. 




5. Be Prepared for Unforeseen Circumstances


Besides of having a strong emergency fund for unforeseen circumstances (which may not be enough), another smart way to be prepared is to have risk transfer strategy. Transfer the risk of loss to the insurer through insurance, be it for yourself, your family and even your assets. Imagine if you had an car accident without insurance, medical expenses (maybe repairing cost too) are going to burn a hole in your pocket. In your 20s, probably you are feeling strong and invincible, where illnesses are unlikely to come to you. But the real "sweet spot" for buying coverage is actually in your 20s when you are still qualified with good health condition at a cheaper rates.  

6. Best Time to Begin Investing is NOW


For Malaysian, I am sure you are familiar with this peribahasa (proverb) - "Sedikit-sedikit, lama-lama jadi bukit" which literally means bit by bit, long enough it will pile up like a mountain. So the keyword here is "lama-lama (long enough)", period of time is vital especially with the compounding interest effect. So the best time to start is as soon as of now! Many misperception on investing is that you can only start to invest when you are rich, but the fact is, it is the opposite way round! Think of any self made billionaire or millionaire, how many of them are not investing to get them richer? Best of all, you can actually start to invest as low as RM100!  




7. Don't Forget Retirement!


Now you just started to work where retirement seems like a long way to go. You might even be thinking that it is more than enough as a small part of your income has already been deducted for EPF retirement fund. But here are the cold hard facts, your salary probably just about the same compare to those who started to work 10-20 years ago; your annual increment does not catch up with inflation where cost of living is ever rising, yet our lifespan is getting longer with medical advancement! Many simply cannot afford to retire especially in the developed country, where the retirement age increase gradually once every 5 years according to the increase in average lifespan. So to ensure your wealth span outliving your lifespan, you just gotta START NOW! 




All in all, 20s are the most significant years in everyone's life. So be sure that you master all the lessons above to make more right financial decisions so that you do not have to regret later in life. Plan and implement as early as possible will only bear sweet fruits. After all, failing to plan is planning to fail!  

Monday, April 24, 2017

Annualized Return

What is Annualized Return?


Annualized Return is the geometric mean return of an investment provides over a period of time and expressed in a time-weighted annual percentage. It shows what an investor would earn over a period of time if the annual return was compounded. The Annualized Return is measured against the initial amount of the investment and represents a geometric mean rather than a simple arithmetic mean. 

Why used Annualized Return?

Annualized Return, also known as Compound Annual Growth Rate (CAGR), is more accurate than a simple return, as it includes the compounding interest, while simple return just simply add up all the returns without the time-weighted factor. Hence, this makes it one of the best measures when various type of investments are being compared.  


How to Calculate Annualized Return?


Example?

Client A invested RM100,000 on Unit Trust Fund A with #YourFinanceDoctor on Jan 1, 2007. Assume that Client A would like to sell on Jan 1, 2017 for RM200,000. Client A also receives a total of RM50,000 in dividends over the ten-year holding period. So ending value of investment will be RM250,000 while beginning value of investment will be RM100,000 over 10 years.

Annualized Return = ((250,000/100,000)^(1/10)) - 1 =  9.60%

Simple Return = ((150,000/100,000) x 100%) / 10 = 15%


A Simple Return of 15% a year would seems like a very good investment but in fact the Annualized Return is only 9.60%! (Which is still a good return tho!) Simple Return is commonly used in promotional materials for investments, so beware not to be mislead-ed and always ask for the Annualized Return!


Saturday, February 11, 2017

The Most Important Lesson From Becoming Warren Buffett

"Becoming Warren Buffett", the HBO documentary that aired in 30 January 2017 tells the story as well as dives deep into the daily life of Warren Buffett, the legendary successful investor and also one of the world richest person! #YourFinanceDoctor has always been a big fan of his, so surely, I would watch it right away. 

The Most Important Lesson From "Becoming Warren Buffett"




Surround Yourself with the Right People

Parents (Okay, maybe you didn't get to choose this one)
Growing up as a child, Warren Buffett was being influenced by his father, Howard Buffett, the most. He was a stock salesman and then went on to start his own business, then finally a congressman. He taught Warren Buffett that money isn't important, he believes very much in having an "Inner Scorecard" and never worry about what other people are thinking about you. You know what you are doing and why you are doing and that's good enough. When Warren Buffett ran away from home, his father not only did not scold him but rather just said "You can do better than this." His father never taught him by telling him but taught him by example even when he screwed up. 


Mentor
Then he met the Father of Value Investing, Benjamin Graham, who shaped his professional life. Which is why Warren Buffett came out with 2 Rules for Investing, Rule 1 - Never lose your money and Rule 2 - Never forget Rule 1. Value Investing is all about careful scrutiny of a company's financial report, and if you bought value, it will eventually prove out. So basically the investing philosophy of Warren Buffett centred around Benjamin Graham's Value Investing. 


Friend/Partner
Later on, Warren Buffett met Charlie Munger, who formed partnership with and became the Vice Chairman of Berkshire Hathaway. Charlie Munger is an important partner to Warren Buffett, who Warren Buffett relied heavily on. Charlie Munger also ended Warren Buffett's "Cigar Butt" era where he bought a lot of cheap stock regardless of the company with lousy management. Then, he taught Warren Buffett to look for "Wonderful Company with Fair Price" rather than "Fair Company with Wonderful Price".  From there on, Berkshire Hathaway skyrocketed. 


Teacher
The chains of habit are too light to be felt until they are too hard to be broken.” Warren Buffet used to be terrified of public speaking, he could not do it with his stage fright but he knew that if he didn't cure it then, he will never be able to do it. So he attended Dale Carnegie course, which works on developing the ability to speak in public. Warren Buffett knew that if he didn't attend the course, his whole life would be different. Which is why you will not see his degree certificate nor his master certificate on the wall of his office, but just the course certificate he gotten from Dale Carnegie. 


Spouse
Warren Buffett's late first wife, Susie, played the most important role in his life and how invaluable she was to him. Warren Buffett was raised a Republican mainly because of his father, Howard Buffett. But because of Susie's actively involvement in the civil rights movement, and often brought him along to speeches and meetings, Warren Buffett became an active Democrat. Warren Buffett and Susie love each other very much, they admire each other and were totally in sync of what each other is doing. He also said that "Susie really put me together and she believes in me. Not only I turned out to be the person I turned out to be but I actually would not have a successful business without her, she made me more of a whole person. "





In conclusion...
"It's kind of crazy to spend your life painting if you're painting a subject you don't want to look at." Warren Buffett chose to work with a group of people that would make his life easy and take good care of him. So the people you surround yourself with, those you interact with regularly, will have a huge impact on you. They provide the opinions, ideas and even points of views that your mind is continuously subject to, both consciously and subconsciously. The good news is... the people who can help you succeed may already be around you, you just have to identify them! 



Till then. ;)
Enjoy watching the show. 

Thursday, January 5, 2017

How to Cope with Weakening of Currency

In the previous post of "How to React in an Uncertain Economy", expose to foreign currency is one of the way. This is especially true when most of your assets are denominated in a weakening currency, for example, the Malaysian Ringgit (MYR) which breeds anxiety among Malaysian.

Taken from xe.com

Ringgit has breached the psychological mark of 4.50 against the US dollar, as foreign investors continued to pare down their holdings of Malaysian government bonds. Not just against the greenback, it slipped against the Singapore dollar to 3.1096; against the British pound sterling to 5.5163; against the Euro to 4.6837 from 4.6892; and against the Australian dollar to 3.2680.

Historically, the Ringgit reached a record low of 2.10 in October of 1978 and an all time high of 4.71 in January of 1998. So where are we now? Is Ringgit weakening to the all time high? How high can it goes? Will the government peg the ringgit to stop any further decline? These are all the uncertainties that made us fear.


Are you feeling the same too?

Parents with kids studying abroad would feel the pinch the most with the ringgit continue to slide. Some are also planning to shorten the study period of their children to cope with the extra costs incurred, while there are also those children that might need to take up part time jobs to help finance their education. Meanwhile, many are looking at other destinations for their children’s higher studies.



From consumer point of view, one may argue that the impact would be minimum so long as all spending are done in Malaysia and avoid imported product, right? No! Even domestically produced items may use parts and components or even expertise from foreign countries. Weaker currency can drive inflation up as well! Travelling overseas may required to cough out more money too!


So what can you do with your money?

To safeguard your finances, the only way is to diversify your asset into different foreign currencies. Whether you are an average investor who just wants to mitigate currency risk or a more experienced one who wants to take advantage of currency fluctuations, here's how you can do:


1. Stocking Up Foreign Currency in Foreign Currency Account (FCA)
This is the easiest and straightforward way to mitigate the currency risk. Whether it is a Foreign Currency Savings Account (normal account) or Foreign Currency Time Deposit Account (like FD), you can maintain a foreign currency in a local bank account as well. While mitigating the currency risk, you can also enjoy potentially higher interest rate. FCA is eligible for PIDM protection up to RM250,000 too!


2. Buy Overseas Properties
One way to hedge against a weaker ringgit before it falls is to buy property in countries where the currency is more stable, which would be an indirect way of hedging. However, this method is only suitable for investors who qualify as high net-worth individuals. This method would be very helpful if the property is invested in the country where the children will be going for education.



3. Invest in Foreign Stock Market
Investing in foreign stock market can be fruitful especially in stocks such as Google, Apple, Microsoft, Amazon and so on! If you have purchased any of these stocks 10 years ago, you would be seeing a double figure annualized return! (Google-15%, Apple-28%, Microsoft-10%, Amazon-37%) However, investing in these foreign stocks is only suitable for those who have the skills and time to manage and to choose the right stock.


4. Expose to Currency-Hedged or Foreign Currency Denominated Unit Trust Fund
Besides mitigating currency risk, you may want to invest into currency-hedged unit trust fund whereby the fund would remove the currency risk for you thru hedging. Subsequently, you can also opt for unit trust fund denominated in different currency such as USD, AUD and so on. However, the downside is that when you sell, it will be converting back to ringgit. So it may not be ideal for those who actually needed to use the foreign currency like travel or children study abroad.





5. Invest in Capital Protected Foreign Index Investment  
Capital Protected Foreign Index Investment can be suitable for those who doesn't have the appetite to take the risk and the time to do research like those in Method 2, 3 and 4. It gives the opportunity to hold stronger currencies while making potential gain in foreign index such as S&P 500, MSCI Emerging Market, MSCI World and so on. Most importantly, it is principal protected without having to fear of losing your capital.


Now you have known all the possible way to cope with weakening of currency. The question is...

Are you going to do it now or wait to drop further?


The best time is always now as nobody can really time the market. If you have any other methods, feel free to share in the comment section below too!


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