KCLau's Money Tips Forum

[suriar]

Hi, I am something of a novice at investing and am trying to plan for my 2 kids' education. I have been reading this and other online investment linked resources for the last one week and still need some advice.

In order to provide tertiary education for my kids, I have worked out a plan of regular monthly investments in UT that requires an annualized return of 15% p.a. for approx 15 yrs. My questions are:
1) Is it possible that equity funds eg PB growth fund can give this rate of return?
2) If so, how do I ensure that I lock in the value of my investment when I achieve 15% returns? For example, the moment the equity fund allows me to achieve such a ROI, should I switch everything I have in that fund to a safe bond/money market fund, but continue to invest the same regular monthly amount in the subsequent months until I reach the same 15% ROI again? Is this the correct way?

3) What is an acceptable service charge for an index-linked fund? I found that one by Maybank charges 4% but this seems a little high for a passive fund. Does anyone know of a KLCI index-linked fund that charges lower?

Thanks v much

[KCLau]

1) Is it possible that equity funds eg PB growth fund can give this rate of return?

Referring to the past performance of all the equity funds in Malaysia (91 funds), average fund is making 100% return for the past 5 years (28/2/2003 - 29/2/2008).
This gives a compound return of 14.87%. In fact it is very close to the target return you need - 15%. If you have bought an equity fund that had performed above average - such as PB Growth Fund, the return is 25.87% per annum. This is a very good return. FYI, the best investor Warren Buffett makes a return of about 25% consistently over many many years.

2) If so, how do I ensure that I lock in the value of my investment when I achieve 15% returns? For example, the moment the equity fund allows me to achieve such a ROI, should I switch everything I have in that fund to a safe bond/money market fund, but continue to invest the same regular monthly amount in the subsequent months until I reach the same 15% ROI again? Is this the correct way?

Now this is the tricky part. Let's assume the economy doing well and equity indeed give you 15% return just like the past five years performance. But you never know that at the end of 15 years, when you need the money for the education funding, your investment might not be at the top of the economy cycle. What if it is at the bottom? You might not have enough money to fund your child's education.

To overcome this, you can actually switch a portion when it is near the time you need the money. For example,
year 11 - switch 20% from equity to fixed income (FI)
year 12 - switch another 20% to FI (total 40%)
year 13 - 60% in FI
year 14 - 80% in FI
year 15 - 100% in FI - you need the money and can't afford any risk when the time has come.

For now, it seems that only a very large portion of investment in equity fund (> 80%) will likely give you 15% per annum yield.

3) What is an acceptable service charge for an index-linked fund? I found that one by Maybank charges 4% but this seems a little high for a passive fund. Does anyone know of a KLCI index-linked fund that charges lower?

Some lower charges index funds are:
1. AMB index-linked Trust - 4%
2. CIMB-Principal KLCI-Linked Fund 2 - 2.0%
3. OSK-UOB Index Covered Fund - Zero charges
4. Public Index Fund - 5.5%
5. RHB Index - 0.7%

This info was found here: http://www.invest.com.my/game/funds/screener
I am not sure if the charges still up to date. I think some fund houses has reduce the service charges of index linked funds.

[suriar]

Hi KC, thanks for the extremely useful advice. i do have other questions, if you don't mind :

1) is it advisable to invest regular amounts into a FI account or to keep such an account only for switching purposes close to a particular financial target and do the bulk of regular investing into a growth/equity fund?

2)How many funds is considered adequate and what would count as too many? I mean, if I am investing 80%% of my savings into equity funds how many different equity funds should I buy into for adequate spread in risk, so that I don't put all my eggs in one basket? Should I split that amount 2 ways, 4 ways etc? What about FI funds, since the risk is lower, I suppose the need to spread the money out would be lower?

3) If I asked you to recommend the top 3 equity funds that one should consider to long term investment (regardless of fund houses), which would they be?

[KCLau]

1) is it advisable to invest regular amounts into a FI account or to keep such an account only for switching purposes close to a particular financial target and do the bulk of regular investing into a growth/equity fund?

Why not? It is also a form of regular saving. You should keep to your portfolio. Says you are investing 500/month. 40% is going into fixed income. Then you shall invest RM200/month regularly in FI funds.

2)How many funds is considered adequate and what would count as too many? I mean, if I am investing 80%% of my savings into equity funds how many different equity funds should I buy into for adequate spread in risk, so that I don't put all my eggs in one basket? Should I split that amount 2 ways, 4 ways etc? What about FI funds, since the risk is lower, I suppose the need to spread the money out would be lower?

There is no golden rule in this matter. You can invest in 2-4 funds. Too many funds would probably take up too much of your time when it comes to rebalancing and monitoring.

3) If I asked you to recommend the top 3 equity funds that one should consider to long term investment (regardless of fund houses), which would they be?

This is the hardest part. The best fund last year might be the worst fund this year.
I suggest that you take a copy of Personal Finance Magazine. Refer to the page where they list all the unit trust funds. Shortlist the funds that has a "leader" rating. And further shortlist them according to your portfolio. I would refer to 5 years performance if available. Frankly, most of the funds in Malaysia are doing above average. Just make sure you buy the above-average-funds. You shall be doing fine.

[Loong SH]

Hi KCLau,

I 'm newbie here, i just invested in Public Mutual Fund. Some people said invest in this kind of unit trust is short term investment not suitable for long term say 3~5 yrs. is that true?

My personal opinion is 1~2 yrs very hard to gain any profit in this kind of unit trust, have to be at least 5 yrs, is that right?

Thanks

Regards,
Loong SH

[KCLau]

HI Long SH,

Unit trust is definitely a long term investment - more than 3 years if we are talking about equity fund.