The choice is yours

It is all about knowledge, patience and money management

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IF YOU dread going to work every day and constantly thinking of quitting, perhaps you may want to read up a book authored by Danielle Town.

The 36-year-old former corporate lawyer found herself burnt out and determined to regain her freedom without being dependent on her salary in order to enjoy the life she desired.

Danielle began planning to retire early despite having spent most of her adult life avoiding investing, according to her New York Times Bestseller, “Invested: How Warren Buffett and Charlie Munger Taught Me to Master My Mind, My Emotions, & My Money (with a Little Help from My Dad)”.

The daughter of best-selling financial author, Phil Town, had no choice but to turn to her father for advice. Prior to that, she was reluctant to look at the stock market to fast-track her retirement.

It was a conversation with her father that she realised the need to take charge of her life and future through Warren Buffett-style “value investing” strategy — an iconic approach that the legendary investor has benefitted throughout his life.

“My dad’s point is deeper than it sounds: Buy a wonderful company when it is a bargain and only when you are certain that it will be worth more 10 years from now than it is today,” Danielle wrote in her book.

For a year or so, she went from avoiding everything to do with the financial market to knowing exactly how and when to invest in wonderful companies.

At first, it wasn’t that easy for her. She spent months to look for companies she can invest for long term before giving her money.

Eventually, she decided to buy shares in Whole Foods Market Inc and cash out when the company was bought by Inc, earning her a 41% return on investment (RoI).

“It was a great start. Time to get back to researching companies and looking for my next favourite company. I had fallen in love with this practice, really,” she wrote.

It shows that a rookie investor like Danielle can make money, provided that you really do your homework. It is all about knowledge, patience and money management.

When the Employees Provident Fund (EPF) introduced direct online subscription of unit trust (UT) funds offered by EPF-approved fund management institutions last week, many investors saw this as an opportunity to personally handle their investment portfolio.

The self-service i-Invest online platform allows members to transfer up to 30% of the amount in excess of basic savings to be invested in the selected funds from their EPF Account 1.

In fact, the platform also enables the members to monitor their investment funds, find out on cost of investment, historical performance, as well as required statutory information.

What many quarters are excited about is the sales charge for purchases via i-Invest, ranging from zero to 0.5% of the transaction amount for members below 55 years old.

This is cheaper than offline and traditional transactions through UT consultants or agents appointed by UT management companies, which currently carry sales charges of 3%.

As for members aged 55 years and above, they can use the i-Invest via Akaun 55 or Akaun Emas as a mode of withdrawal, subject to maintaining a minimum of RM1,000 in their accounts.

Although the facility allows EPF members to make the call on investment by themselves, lack of knowledge, especially among the novices, the decisions could spell financial disaster.

According to the pension fund, there are 389 approved funds under the EPF’s Members Investment Scheme (EPF-MIS) that its members can choose from.

These funds are diversified — with categories including equity, mixed assets and money market — and each has different characteristics.

Just like what Danielle had gone through in choosing the right companies in her share market trading, potential or existing UT investors must also equip themselves with the right knowledge to decide where to channel their fund.

They need to be educated on the type of funds available as each category has its own objectives.

For instance, equity funds — which are mainly invested in the equity market and pretty common among the EPF-MIS list — have high investment risks, but the RoI can be rewarding.

Another type is the balanced fund.

Some investors may wish to have an investment in all the major asset classes to reduce the risk of investing in a single asset class.

A balanced UT fund generally has a portfolio comprising equities, fixed income securities and cash. As the name suggests, the risks involved are medium in nature and the RoI may not be as high as the equity funds.

EPF members should also be aware that UT is a mid- to long-term investment. There are a number of factors that drive the performance of the funds, including the performance of companies in which the fund managers had selected to invest in and the economic outlook.

It is also equally important to understand what kind of investor you are and your financial objectives.

In short, UT investment is not for those who want to see huge returns over a short period of time. Investing in UT is like casting your ballot in a general election, hoping to see changes to your beloved country, but that could take some time to eventually take place.

At the end of the day, the choice is yours. If you want to make quick money, there is always the share market or that four-digit shop or the casino…

Rahman Daros is the supplement editor of The Malaysian Reserve.