retirement fund planning.
After going through this thread, I'd like to share about what I am doing about my retirement savings.
1. EPF - This will make up the large chunk (80-90%) of the retirement savings in the future.
Comment: Keep it untouched for as long as you can, the dividend rate has been quite satisfactory and no similar products in the market is likely to beat EPF's return over the long run if we take historical figures as basis (reason being over the past 20 years, there has only been 4 years that the return dipped below 5% but still range between 4.5-4.9%, which is still considered very good for a product that I classify it as the same as FD). Maybe ASB but since I'm non bumi and it also have the same characteristics as EPF so I do not bother to look into it. Read on you will understand.
However I am extremely curious as to the investment strategy of EPF as they are able to declare healthy dividends even though during economic crisis. We look at 2008 sub prime crisis where global stock market dropped at least 40-50% (sry i cannot remember the exact figure but I think some markets even dropped 70%, but you get my point, it is a critical market crash), yet EPF is able to declare dividend of 4.50%. 2013, during the european debt crisis, EPF declared 6.35% dividend. 1998 the South East Asia financial crisis, which caused RM to be pegged to USD at 3.80, and EPF declared a dividend of 6.70%.
I mean while these returns aren't anything exceptional during normal times but during economic and financial crisis? I can get it if EPF fully invest in bonds and fixed money instruments, I mean with their huge fund size, they are well positioned to negotiate way higher rates but we do know that EPF invest in the stock and property market as well, so how big a portion is their fixed income investments to be able to cover the stock market losses during these times, and still able to declare 4.5 to over 6% dividend, and what happened during good economic times when they also declare roughly the same % of dividend?
I touch a bit on ASB as well since it is similar in characteristics with EPF in terms of the return. So ASB has not delivered returns lower than 8.5% p.a., even during 1998, 2008, and 2013 those crisis years. The fund manager in charge should be one of the most sought after fund manager in the world if this is true. I mean it is true, they did declare it, but think about it realistically is it possible for them to achive this sort of returns during the bad times.
Come back to EPF. Definitely something fishy going on with EPF and these does not allay concerns of EPF investors like us who are relying it for our retirement yet there are some unexplainable issues that lies within EPF itself.
2. Unit Trust:
For the purpose of accumulating for your retirement, I'd choose one to two well diversified fund, that invest in stock market as well as fixed income instruments, and geographically onshore and offshore. And I'd advice to go for DCA (Dollar Cost Averaging) that is you just put a fixed amount into the fund every week/month depending on your affordability and preference. Reason being: 1. You don't need time the market. 2. Avoid emotional stress everytime you invest whether you are investing at market high or low 3. Doing this over long term (i'd say a minimum of 5 years, but best is 10 years or more. If you can wait 30 years for EPF, no reason not to give unit trust 10 years+ to deliver the results) most likely delivers returns better than EPF.
Fund selection:
1. Don't go for new funds. Regardless of how good and attractive a new fund sounds (fund houses always use very good terms to name their new funds, make it sounds really promising), don't go for it. Fund starts from zero in terms of performance and fund size. They need to deliver result straightaway or investors start pumping funds into it, and without constant source of funds, manager cant do shit even if they spot a gem in the market.
2. Go for fund with long history say 15 years and above, and have healthy fund size min. RM70-80mil and have good track record, espcially after the fund performed poorly during the financial crisis, their ability to rebound is the most important factor as we are holding it for the long run.
3. Growth or Balanced - this depends on individual preference. I preferred balanced fund as I feel more comfortable seeing lower volatility in my fund value that is used for retirement. Of course a friend of mine who is going for growth fund has his way of thinking as well, since we are holding it for long term, there are no problems riding out those volatile waves, but instead it provides an opportunity for you to boost your returns by topping up during market downturns where growth funds are likely to outperform balanced funds during recovery
Method:
1. Just invest a fixed amount every month into the fund you selected, and ignore it.
2. Optional - Keep some money in hand to invest further during economic downturns. The gauge I like to use is as long as a fund dropped by 10% from their previous high, I'll top up 1 unit into the fund (i.e. if you invest RM500 every month into it, then my top up value is RM500, but this is flexible). Doing this way will lower your average entry price and makes sweeter returns during the rebound.
3. PRS - I only invest in this during the two years that the government give RM1000 incentive per year, to take advantage of the tax deduction, as well as the instant 100% return, even though it can only be withdrawn at later years.
These are the two/three instrument that I used to for my retirement savings.
Aug 20 2019, 10:33 AM
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