QUOTE(satsugai @ Sep 12 2011, 10:57 AM)
Thanks a lot for your detailed reply man, really gave me a lot to think about. First, just wanna confirm if my calculatyion for unti trust vs epf returns is correct:
assume age 20 basic savings amount required = 2000
assuming investing minimum rm1000 in Kenanga Growth therefore needs RM7000 total in epf account 1
Price as at Sept 9 2011 = rm2.0034
1 yr return = 24.52%
service charge 3% therefore cost = 0.06010 per unit
Amount of units purchased = 499.1514425
service cost = 29.949
total invested = 1029.95
total after 1 yr =1000x1.2452 1245.2
epf return on remainder = (7000-1029.95)x1.058
6316.3129
total return after 1 yr = 7561.51
if all 7000 in epf alone, total after 1 year = 7000x(1.058) = 7406
I know that its a bit basic, and that the actually calculation may vary, but is this good enough or close enough to the actual calculation to illustrate the point that Investing in unit trust, even the most basic amount can give higher returns than EPF?
aight now for your suggestions:
2. I've thought about the time horizon, im approaching it keeping in mind that the whole point of investing in EPF is for your retirement fund(yuo dont get any money before 55), therefore, to make as much as possible by 55 years old. Therefore, im looking at a time horizon of about 30-20 years. Where younger EPF account holders dont mind taking risks, and old accuont holders would be risk averse.
3. I'm thinking that younger investors would'nt mind investing heavily into equities, whereas older investors should choose less equity funds, maybe instead go for mixed assets, income or bond funds? I've also read a journal article that said that islamic funds tend to be less risky and perform slightly better in bearish market conditions(as it is now?) so would it be wise to include islamic funds in a fund portfolio? Money market funds in general seems to perform lower than EPF, hence why im rejecting them.
but end of the day, diversifying a fund portfolio using EPF fund seems to be a bit difficult as an investor is limited by the 20% rule and the every 3 months withdrawal. That would be one of my suggestions, to allow for more frequent withdrawals and increase the limit for older investors. ALso that EPF itself should try and improve its investment strategies to garner higher returns, maybe by segregating members according to age and investing differently according to their age groups.
4. Thats another problem there, cos atm, i doubt the average EPF investor actually plans his investments in funds properly. Am i right to assume that many invest relying on unit trust consultant? And apparently in Malaysia, less than 1% are professional qualified consultants.
So for investment strategy, im kinda lost at the moment, the average joe would just use the lump sump approach and choose a fund or two as a start, and maybe another down the road(Hence why I would need to suggest a fund for them). For the more prudent, but less active investor, DCA(topping up every quarter in this case) seems the easiest as it is a safe investment strategy although one might be sacrificing maximizing profit.
5. If possible can you explain a lil bit more about cost control strategy? Not sure what you mean
Thank in advance man, really appreciate you taking the time to answer
You're welcome - we're all here to learn from others & share / bounce ideas off to crystalize them properly.
Ok down to it:
1. Your calculations:
a. Returns of 1yr's return of 24.52%pa is a bit too optimistic
I think U need to find what's the CAGR (Compounded Annual Growth Rates) for 5 or 10 years if possible.
Take the longest one as it should be better averaged by market's cycles of tops & bottoms
b. Service cost of 3%, Value received based on EPF $1,000 put in, etc.
NAV $2.0034
Front load Service charge: 3% on top of NAV (not on the $X,XXX put in) $0.060102
NAV + Service Charge $2.063502
Assuming taking out EPF $1,000 to buy $1,000.00
Number of units received ($1,000 / (NAV + Service Charge)) 484.6131
NAV Value received (NAV * Number of Units Received) $970.87
Service Charges ($1,000 - NAV Value Received) $29.13
Looks different from yours perhaps:
+The amount of units received differs from my calc, perhaps due to some fundamental differences.
Mine's based on $1,000 / (NAV +3%)
Yours seem to be based on $1,000 +service charges.
BTW, no one can calculate in advance the service charges (theoretically or practically) as EPF/Fund house's execution date Vs End Of Day NAV price used for all transactions.
The service charges are taken out of the $1,000 invested and one can't precalculate the amount of service charges to pay AND add it into the $1,000.
c. The EPF amount left in A/C1 (note - U can only use A/C1 in EPF for mutual funds) - U assume 5.8%pa returns?
er.. is that prudent? What's the average %pa for the past 10 years?
Due to 1(a) to ©, your extrapolation into 20 to 30 years will get U a heckuva big difference
U may "steal" some ideas from the Excel worksheets i've posted before - there are 2 worksheets, inter-linked to each other EPF related
http://forum.lowyat.net/topic/1577849/+673Please dont bulat bulat use it ar - if I am your lecturer, i will be asking how each variable and function/formula is used and why. U sure koyak if U bulat bulat use
That's how i tested my project students before - on their project/papers' concept, reasoning and calculations.
2. Ok.. 20 to 30 years, extrapolation. No probs if U utilize the concept in the above spreadsheet
3. Diversifying or doing Asset Allocation is possible using EPF to Mutual Funds
This is one of the reasons why i stated (other than costs) that U may want to pick a Fund House based on the top 25% (better than average, need not be the "best-est)of funds which fits your Asset Allocation.
Eg. One can fill in "withdrawal" of $10K for mutual funds in EPF's form.
Then in the Fund House's form - U fill in $6K for Fund A + $4K for Fund B
4. You're spot on for:
a. Most "investors" just buta go in with no plans other than "buy Fund A" (perhaps like U, they did morningstar & lippers and other historical returns checking)
b. Some are even worst - tolly relying on Sales Agents (oops i mean Unit Trust Consultants)
c. Most of these UTCs are "untrained" in the sense of step by step investment approaches AND/OR the customers/prospects themselves are crazy - want the most returns in the shortest time possible ('ala lottery mentality)
Mind U, the UTCs themselves are "qualified" in the sense of knowing and supposed to be adhering to the rules & regulations.
d. Yes, DCA for risk management may be better than lump sum, in return less returns probability
However, other lump sum methodologies like Trend and Value timing can have a majorly disproportionate returns while maintaining lower risks than DCA
5. Cost control and Asset Allocation as a big picture in choosing Fund Houses & their funds
Ok - most people dont think about this, we just pick funds based on performance + asset allocation + perhaps cost of purchase
Just play along with me yar
Person A:
Buys into Fund A Equity Fund with Fund House A that has that 1 changgih Fund A, with a 2% (lower than 3%) frontload service cost, no redemption cost
When NAV is high or when profits are abnormally high (eg. 25%pa++), how are they going to lock-in their profits?
Redeem? If redeem back to EPF and later reinvest again, have to pay the 2% service charges again
VS
Person B:
Buys selects a Fund House B with above average targetted Equity Funds and Bond Funds,
and invest into Fund B Equity Fund with a normal 3% frontload service cost, no redemption cost
When NAV is high or when profits are abnormally high (eg. 25%pa++), they SWITCH into a bond fund for RM25 or RM0
Later, the SWITCH back into Fund B after a market crash, thus costing them RM25 or RM0, not another 3%
Imagine these happening throughout 30 years (IMHO definitely hit 3 or more boom/bust cycles), think about the costs differences VS the risks involved.
Again, not 100% true for everyone's reality, and mileages may vary.
My apologies for the long winded kaka above - heheh, old people long winded, especially those that have lectured before
This post has been edited by wongmunkeong: Sep 12 2011, 01:06 PM 
Aug 25 2011, 08:56 PM
Quote
0.0645sec
0.57
7 queries
GZIP Disabled