Have You Invested In The Right Unit Trust (and Advisor)?

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Have You Invested In The Have You Invested In The Have You Invested In The Have You Invested In The Right Unit Trust Right Unit Trust Right Unit Trust Right Unit Trust (and Advisor)?(and Advisor)?(and Advisor)?(and Advisor)?

By Mike Lee CFP, RFP, FCIS, MCIM

(Licensed Financial Planner)

No. CMSRL/A3201/2007


The Life CycleThe Life CycleThe Life CycleThe Life Cycle

Accumulation

Consolidation

Spending

Gifting

RetirementRetirementRetirementRetirementWorking hard for money

Buying a carMarriageBuying a houseTravel

Child EducationRetirement Planning

TravelMedicalHobbies

AGE

Income

22 55 8035

Estate Planning


Child Education(Unit Trust is a suitable investment)

181 1396AGE

Take more risk here

Take less risk here

Risk

High risk high return

Low risk low return

Shifting risk lower as time isnearer to college/university

Rebalance portfolioas market conditionschange over time

High

Low


Child Education PlanningCommon Mistakes Made By Parents

� Invest only in fixed deposits – which is renting, not investing for more!

� Invest only in unit trusts for long periods without re-balancing when market conditions change.

� Invest only in an expensive child education insurance policy .

� Did not write a will to protect the child till maturity.

Taken separately, none of the above will

fulfill the success of a child education plan.


What should Parents Do?

Strategy

� Keep minimum money in fixed deposits.

� Invest some money in an insurance policy

� Invest a bit more money in unit trusts.

� Write a Will to protect the child’s interests.

Purpose

� For emergency and other urgent uses.

� For savings and protection.

� For higher returns with higher risks.

� Appoint a Guardian, Trustee to look after the child.


Choosing The Right Mix / Package

� Ladder Your Fixed Deposits.

� Select a combination of life and term insurance for savings and protection.

� Select some good unit trust funds to balance risks and returns.

Collectively, the above should provide

a sound base to accumulate

the required education fund.


Chapter 8 -Planning For RetirementCommon Mistakes Made By Retirees

� Leave Money in EPF� Place Money in Fixed Deposits� Invest in Bond Funds� Invest in Capital Guaranteed Funds� Invest in Money Market Funds

As these are low-risk low-income investments, separately or collectively, none of the above

will meet retirement objectives.


Retirement – Golden Years(Unit Trust is a good component of AA)

8555 787063AGE

Risk

Rebalance portfolioas market conditionschange over time

Low

High

Too low risk, you may runout of money too soon

Learn to accept a bitmore risk to ensurethat your money last till 85

Taking too much risk:1. You may lose some or all your capital2. You need a lot of luck to make good

money to last the full retirement.

1

2


What is Risk ?

Risk is a gamble in anything that one

takes – the outcome of which can be

favorable or unfavorable.

Profit is the reward for taking risk.


People take RISK all the time

� Keep money in the house

� Refuse to buy a parking ticket

� Cross the road instead of using overhead bridge

� Gamble at casino or buy lottery each week

� Reluctant to write a Will

� Delay in taking an insurance policy

� Delay in paying income tax


Why Do People Behave this way?

”People are not risk-averse; they are perfectly willing to choose a gamble when they consider

it appropriate.” - (Kahneman & Tversky)

“The major driving force is loss-aversion. Its not so much that people hate uncertainty – but rather,

they hate losing.” – (Peter Bernstein)


What is Risk Tolerance

“It is actually a feeling, and has been

described as the point in a decline when

Investors feel so much emotional pressurethat they are compelled to liquidate their positions in order to relieve their anxiety”

Michael Lane

“Secrets of the Wealth Makers”


What is Risk Capacity

…can be described as

the ability to continue taking risk

even though the expected outcome

has yet to be realised.

…example – using DCA to invest further

Mike Lee


Different Funds – Different Risk

Capital Guaranteed Funds

Bond Funds

Money Market Funds

Income Funds

Balance Funds

Index Funds

Growth Funds

Small Cap Funds

Time Horizon

Risk

Returns

Fixed IncomeFunds

Equity GrowthFunds


Different Investments – Different Risk

Savings

EPF Dividends

Fixed Deposits

Unit Trusts

Direct Equities

Commodities

Time Horizon

Risk

Returns

Derivatives

Options & FuturesSpeculating

Or Hedging

Investing

Renting


Category & Type

Category

� Equity Growth

� Fixed Income

� Money Market

� Capital Guaranteed

Type (include syariah)

� Growth, Balanced, Income & Growth, Big & Small Caps, Indexed or Tracker

� Fixed Deposit, Income & Bond Funds

� Money Market Funds

� Capital Guaranteed Funds


Two Types of Funds

Growth Fund

The Primary Objective

is to achieve capitalcapitalcapitalcapitalgrowthgrowthgrowthgrowth in the longer term while paying a

distribution is secondary.

Income Fund

The Primary Objective is to provide investors with a consistentconsistentconsistentconsistent

distribution over the mid- to long-term while preserving

capital.


Types of Return

� Income Return (Distributions)

� Capital Return (Unit Splits)

� Total Return (both Income and Capital)


Investors’ Preference

� Capital Preservation

- preserving capital is more important

� Capital Growth

- growing capital is more important


Do Not Invest If

� You do not have a regular income.

� You do not have surplus funds.

� You do not have the time horizon.

� You do not believe the investment can benefit you.

� You have low tolerance and is loss-averse.

� You cannot work with your advisor.


You have invested in the wrong fund if You complain

� - about not receiving any distributions;

� - about the fund price not appreciating;

� - about the fund price dropping sharply;

� - about the fund price rising slowly even when the market rises sharply;


If You Are Wrong

Switch

to another fund (preferably NAV to NAV) that matches

your risk profile and expectations

Redeem

and Re-invest if you cannot find another

fund within the same fund house that meets your requirements.


You and Your Advisor

YOU Have

� - the money

� - the objective

� - the time horizon

� - the right tolerance

� - the risk capacity

� - the confidence to achieve your objective

� Your ADVISOR has

� - the Knowledge

� - the Skills

� - the Experience

� - the Tools

� - the Current Affairs

� - and He/She CARES about your interests.


The Yield

8.35%90.0%9.86%60.0%15.0%15.0%12.0%Fund C

6.86%70.0%8.45%50.0%8.0%8.0%10.0%Fund B

5.20%50.0%6.34%36.0%10.0%10.0%8.0%Fund A

5.15%49.4%5.15%28.5%5.15%5.15%5.15%EPF

3.8%34.8%3.8%20.5%3.8%3.8%3.8%Fixed

Deposit

YieldEight

Years

YieldFive

Years

YieldOne

Year

Expected

Return

Investment


INVEST IN THE PLAN

First the plan,

then the products


WhatWhatWhatWhat’’’’s A Plan?s A Plan?s A Plan?s A Plan?

�Road Map

�Budget

�Program

�Schedule

�Time Table


WhatWhatWhatWhat’’’’s In The Plan?s In The Plan?s In The Plan?s In The Plan?

�EventsEventsEventsEvents

�ObjectivesObjectivesObjectivesObjectives

�PurposesPurposesPurposesPurposes

�StrategiesStrategiesStrategiesStrategies


Why is there A Need for a Plan?

� Structure

� Purposes or Objectives

� Direction

� Time Frame

� Leverage on Opportunities

� Minimize Threats and Risks


What’s In An Investment Plan?

� Objectives

� Expectation of Return

� Risk Profile

� Time Horizon

� Strategies


Put The Plan TogetherPut The Plan TogetherPut The Plan TogetherPut The Plan Together

� Objectives

� Expectation of Return

� Risk Profile

� Affordability

� Time Horizon

Select the funds that

match the needs of

the PLAN

Investment Strategies


The PlanThe PlanThe PlanThe Plan

� Child Education

� Average 8% pa

� Moderate

� RM500 per month

� Long Term >10 yrs

Asset Allocation

Recovery Market

Equity 70-20-10

Declining Market

10-20-70 Income

Investment StrategiesUse Dollar Cost Average or VCA


Investment Strategies

� Invest Regularly

�Dollar Cost or Value Cost

�Asset Allocations

�Switching

�Redemption

�Re-balancing


The Meaning of Trust(adapted from Dr. Steve Minett’s article on B2B branding)

�Competence

�Probity

�Caring

�Continuity

�Value Resonance


The Death of Trust(by Sin-Ming Shaw, The Edge 20 Feb 2009)

� Investment banks – Bear Sterns, Lehman, Merrill, Citigroup, Bank of America etc.

� Insurance company- AIG (CDS)

�Rating Agencies –Moody’s, Fitch, S&P

�Auditor -Enron -2001 (Arthur Andersen)

�Auditor -Satyam - 2009(PricewaterhouseCoopers)

�Hedge Fund and Money Managers


Fraud Cases - Individuals

�Bernard Madoff (US$50 billion? – closer to

US15 – 20 billion according to Harry Markopoulos)

�Allen Stanford (US$8 billion)

� Paul Greenwood and Stephen Walsh of WG Trading Co (US$550 million)

� James Nicholson of Westgate Capital Management LLC (US$100 million)


The Formula That Kills Wall Street

Andrew Sheng:

1. Securitization of Mortgage Loans

2. Accounting & Regulatory Standards

3. The Buy-back Guarantee (CDS)

4. The Triple A Ratings

Felix Salmon:

5. The David X. Lee’s mathematical formula (the Gaussian Copula Function)


Balance Sheet made worse

Accounting & Financial Reporting System:

�Mark-to-Market rule

� Impairment losses

�Goodwill written off (banks has about 20-40% of goodwill/capital - Bloomberg 27 Feb 09)(as at 31 Dec 2008 - BOA-82b, Citi-27b, AIG-10b, WFargo-22b, JPMorganChase-48b…)


Off-Balance Sheet Transactions

� Corporate Guarantees, Capital Commitments, Lease Payments, Contingent Liabilities, Provision of Financial Assistance etc.

� Currency and Commodity Hedging (forex, fuel, etc)

� Interest Rate Swaps

� Buy-back Guarantees (Credit Default Swaps)

� Collateral Debt Obligations (CDOs)


QQQQ & ASession

Have You Invested In The Right Unit Trust (and Advisor)?

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