Hello fellow Money-Makers!
In the next couple of posts, we will share our current portfolio allocation in different assets, and the vision for our financial future. The aim of these posts is to set the stage for where we are right now, our thinking that led us here, and where we are hoping to be in a few years which is, hopefully, financially independent!
What is financial independence? Generating enough passive income through assets owned, that can at least cover ones expenses.
Mrs Money’s Long-Term Goal: earning a passive income equivalent of RM10,000 monthly in today’s value. Based on my assets today, a simplistic assumption of 5% yield per annum would bring me to ⅓ of my current expenses. So needless to say, I have quite some way to go!
So let’s start!
Part 1: How I got here
I started my financial journey just as I begun working in a law firm in my early twenties. (I will disregard part-time jobs I did as a student. Like most teenagers, any income earned was just as quickly spent. Youth is truly wasted on the young). I earned RM1,800 a month ($425) as a chambering student in 2008, with a starting salary of RM3,000 a month ($715) the following year. At the time, I thought that was a pretty sad salary because I was left with nothing at the end of the month. However, as I explained in my earlier post on How to Save Money When Travelling, I used to spend most of my money travelling, eating out and drinking wine with my colleagues after work, so it was really no surprise I had nothing to show at the end of the month. It puts things in perspective to know that the median salary for employees in Malaysia in 2017 was RM2,160 a month ($515). However, with bonuses of between 3 – 5 months over a few years, I managed to save a decent amount of money.
However when I quit my job to do a Masters degree in New York, I used all my savings to pay for the ridiculous living expenses. Despite receiving a partial scholarship, 4 years of savings were still swept away with the cold winds of a New York winter.
When I returned from the US and before I got a job, I was living off my credit card. I didn’t think much of it and assumed I would easily be able to pay my bills back when I got a job. Man, was I wrong! Paying off my credit card debt after 4 months of unemployment took much longer than I expected, and I vowed then to never, ever go into credit card debt again. Thankfully, I had parents who invested in my education so that I didn’t have to worry about student debts. But long story short, I started saving in earnest after I paid off my credit card bills at the ripe old age of 28.
A few skips and hops later into different, better paying jobs, coupled with a strong desire to save and live within my means after that credit card fiasco, allowed me to (i) buy my first car (ii) accumulate some savings and (iii) begin investing – in that order. In retrospect, I would have made a different decision with regards to purchasing Sophie, (my car). But that’s a different story for a different day.
Part 2: Where I am
Ok, let’s open the books!
Below is a pie chart of my asset distributions, with some explanations and analysis on my part:
- Employer’s Provident Fund (EPF): My biggest “investment”. As I had Malaysian employers for most of my career, I accumulated a decent amount of money in my EPF, which as you can see above, is the largest class of assets I own.
- My analysis:: EPF is really one of the most stable investments Malaysians, especially at a young age, can have. Although I initially felt a pinch seeing 11% of my income monthly get taken out and put directly into a fund I can never touch till I am 55, it also is incredible in that your employer is statutorily obligated to contribute at least 12-13% in addition to your contribution! It’s free money! On top of that, EPF has been giving historically high returns, with 6.9% returns in 2017. Definitely a keeper. As I have moved into doing consultancies this year away from a fixed job, employer EPF contributions is the one thing I really miss.
- Private Retirement Scheme (PRS): Around 4 years ago, I started investing a small amount in CIMB Islamic PRS Plus Growth. That investment is just under 10% of my total retirement savings. It has pretty choppy returns – at 3.27% in 2016 and 11.45% in 2017 and 2.39% this year. Management fees are at 1.4%, although they were waived for 2018. Sales charges are at roughly 3%.
- My analysis: It’s not looking good, and I’m paying high fees. Since I’m doing a financial “cleanse” over the next few months, I need to do more research on whether it makes sense to continue with this. Will keep you updated.
- Unit trust: At the same time, I started investing in unit trust through CIMB, specifically in the Asia Dynamic Income Fund. This is a fairly high risk and volatile fund, with a 3 year annualized return of 5.67% (2018: -8.86%). Additionally, there is a really high sales charge for this fund at 6.5% and management fee of 1.8%.
- My analysis: In short, I’m paying high fees to lose money at this rate. I’m aware that this is not the best investment. However, given that the market is so weak part of me wonders if it just makes sense to continue purchasing them so that in the long-term in averages out. Mr. Money advised me “not to catch a falling knife”, which Google tells me is a popular phrase in the trading world. I’ll also be looking into this investment during my “cleanse”.
- Fixed deposits: I started putting some money in fixed deposits this year. You can get somewhere between 3 – 4% fairly easily but I would suggest that you shop around as banks always have different promotions. Anything above 4% is pretty good, but you would usually have to commit the money for quite a few months.
- My analysis: This is really something temporary for me. I managed to accumulated quite a bit of savings this year due to a consultancy I got on the side. Since I am now able to have enough cash for a downpayment, I am looking into purchasing my first landed property within Klang Valley (hoorah!). With liquidity being a priority, I decided to place the money in several FDs of different durations so I can easily withdraw them.
- Most recently, I invested in Amanah Saham Nasional. See the drama that went with investing in our post on the Trust Deficit in the Financial Sector. But I’m excited about this one! The returns have been consistently high (6 – 7% per annum). I’m looking at this as fairly long-term savings, and plan to put in additional savings after I purchase my property.
Here are some further details of returns risk and liquidity for all my investments:
|EPF||Low||Low||Low (only Account 2, under limited circumstances)|
|Amanah Saham (fixed account)||Low||Low||High (1-3 days)|
|Unit Trust||Low||Medium||High (1-3 days)|
In short, I have a risk appetite of a grandma – afraid that my world will come crashing down at any moment and I would need to be able to access tons of emergency cash to pay for my dentures. It’s pretty ridiculous and I need to diversify and expand my investments pronto.
Part 3: Where I aim to go – An overview of “The FI Plan”
My short-term (1-2 years) plan to achieve my long-term goal is rooted in the 3 pillars of financial independence. Each pillar will be fleshed out in greater detail in later posts:
- Earn: Since I’ve recently started moving into the “gig-economy” like all good millennials, I am looking to build on my skill sets, network and experience to secure more projects and consultancies. This is less predictable, but potentially will earn me a higher income and greater flexibility in the long run. I am also blessed to have a fixed part-time job that I love that also pays well, so now its all about the hustle!
- Save: Although Mr. Money earns more than I do, I have higher fixed monthly expenses that he does – which really annoys me! My plan is to review all my recurring expenses (I’m looking at you, Sophie) and see where I can cut them down.
- Invest: Apart from reviewing existing investments during my financial “cleanse”, I’m excited to purchase my first property! I have conducted extensive research into the latter, which will be the subject of a future posts. I just hope to avoid analysis paralysis, but I think Mr. Money will be good at making sure I get moving!
More to come as I aim to diversify the asset classes of my portfolio. This is very much a learning process for me, so any tips, advice or thoughts on my portfolio, or how you have distributed yours, would be very welcome!