Investing choices are aplenty these days. But, so are the risksv

IN the modern world of investing, super computers and super secretive algorithms are employed to determine investment choices. Hedge funds have employed such machines and maths, along with eminently qualified staff a lot of universities would yearn for, to get an edge in today's world.

For some, that might be just too much science for the art of buying low and selling high. Technical chartists would say history is a yardstick for the future; fundamental investors will say, just look at how companies are performing to see if there is any real and tangible opportunity to make a buck.

The reality is that investing in today's world is far more diverse than say, a generation ago when most investors saw stocks and properties as the two major asset classes for investing.

These days, the choices are aplenty. And so are the risks. The world has become “smaller” through better information and trading platforms.

Simply put, this means Malaysians are no longer confined to buying stocks on Bursa Malaysia and speculating on properties in the KLCC area but they can also dip their savings into stocks on the New York Stock Exchange or into real estate investments from Shanghai to New York.

The avenue for Malaysian investors to have a bigger exposure overseas has also come from the big trend of Malaysian investment banks acquiring brokers in South-East Asia, which have offices in the major financial centres of the world and from the lowering of restrictions that had prevented Malaysians from investing overseas.

But the solid gains seen in 2010 will make investing in 2011 more tricky. Rallying stock markets have lifted valuation of stocks to the upper level of the historical band for many markets and commodity prices too have risen dramatically across the board and now threaten the incomes of people and stability of some countries.

Volatility has become a commonplace in investing and risks, from the political turmoil in the Middle East and North Africa to potential inflation curbing measures by economies in emerging markets, which threatens to throw a wrench in many sound investment plans.

As for local equities, analysts still appear to be upbeat. For one, TA Securities research head Kaladher Govindan, who is overweight on financials, oil and gas, construction, property, plantations, auto and the aviation sectors, says there is still a 10% to 15% upside in the stock market in 2011.

Still, he cautions: “There are risks, probably from inflation and the problems in Europe spreading to other countries.”

Metal is hot, water is bubbly...

For others, not many though, no one really believes in rune reading or letting a parrot decide how you should invest your money.

Investing through horoscope, though, has its following and one well-followed report on that method of investing has been the CLSA Feng Shui Index. Published since 1992, the report is an alternate way of looking at investing.

Don't scoff. CLSA's prediction for the Hang Seng Index (HSI) in 2010 eerily mirrors the actual performance of the index during the year.

“The 2010 Year of the Golden Tiger CLSA FSI (Feng Shui Index) predicted the performance of the HSI so precisely that even we were a little surprised,” it said in a statement accompanying its latest forecast for the year of the Rabbit.

And for 2011, the year of the metal rabbit, CLSA is expecting the HSI to see a slow February “with the Rabbit reluctant to emerge from its hole for fear the tiger still lingers.”

“March calls for patience as opposing forces test investors' metal. As the Rabbit finds his feet, wealth will come from the West in April and prove a great month for those with stamina.

“May begins with one of the year's four most auspicious dates (May 14), but we expect a tumble in June, providing a great buying opportunity for the savvy. Investors may want to rethink their summer-vacation plans; we see markets rising sharply over July and August. Money will flow,” it says.

CLSA says that with Fall comes a fall. The CLSA FSI predicts a sharp decline in September but not for long.

“October marks a sustained market rally with money flowing abundantly through to the end of November. However, investors should remain focused as markets decline during December. Come January 2012, the Bunny bounces back to close the year on a high,” it adds.

Sector-wise, CLSA says investors should pay attention to the five elements. “Metal is hot, water is bubbly, fire is on fire, wood would if it could and earth is soiled.”

It thinks financial stocks would enjoy a great year, along with gaming, gold, resources and transport.

“It will be a good year for oil and gas, technology, telecoms, Internet and utilities, but an unexciting time for the earth-related property sector.”

CLSA thinks that in terms of the Zodiac, 2011 most favours those born in the years of the Cow, the Sheep, the Dog and the Pig, while Tigers and Roosters will experience a bumpy year.

“This year's most auspicious dates are May 14, Aug 4, Nov 15 and Jan 16, while the least auspicious are June 16, June 22, Sept 23 and Dec 15,” it adds.

Set priorities

Many, however, would not use Feng Shui as the definitive guide to investing their money in 2011 and for Whitman Independent Advisers Sdn Bhd managing director Yap Ming Hui, he says deciding where to put one's money in 2011 has to be balanced by the debt a person is carrying, in particular credit card debt.

He says, there are three broad groups of people out there first group being those with a large amount of credit card debt. Their priority, naturally, is to cut down that debt as much as possible before thinking of investing their cash on assets for capital return.

“There is no point investing as it will be very hard to get a return of 18% a year,” he says, referring to the high annual interest rates being charged by credit card companies on debt rolled over by card users.

His next piece of advice is for those who don't have credit card debt but have no spare or emergency cash at their disposal. He is echoing a mantra among personal finance gurus whereby individuals should at all times have savings that are equivalent to 6 months of expenses.

Those savings generally are used to tide a person through bad times and if a person has no high interest debt and has excess cash apart from his or her emergency fund, then it's best to look at how to make that money grow.

Given how fast household debt as a percentage of GDP has risen, now at about 75% of GDP, Yap feels that people should learn to keep debt within a manageable level.

As a rule of thumb, total monthly loans repayments should be no more than 30% of a person's gross monthly income and should debt rise to say 50% or 60% of gross income, they open themselves up to more risk, should the economy slide or interest rates climb up.

Even though the official inflation rate is still relatively benign in Malaysia, Yap feels keeping all savings in the bank over time would not be the best strategy.

“Cash will shrink if left in the bank as inflation is higher than the savings rate of 2% to 3%,” he says.

“Invest in something that can hedge against inflation.”

What that is depends on one's risk appetite. Meanwhile, the adage not to plough all of your money into a single basket should ring loud and clear. For the risk averse investor, Yap says blue-chip stocks that offer a good dividend yield would be a sound path. Currencies where interest rates are higher, such as the Australian dollar, might not be ideal because of the exchange rate risk unless a person has use for the foreign currency at a later date.

The real estate

If there was one class of investment that really dominated headlines in 2010, it has to be property.

Prices of homes in the country rocketed in 2010, up 30% to 40% in the hot areas of Malaysia, and gave huge returns to property speculators that took advantage of the super low interest rates and generous loans given out by financial institutions in the country.

But for many in the business, such a rise is not sustainable. Prices are still expected to appreciate this year but should be at a lower gradient and the bubble-like nature of the housing sector has some worried over the sustainability of this asset class as an investment.

Khong & Jaafar managing director Elvin Fernandez says that even if house prices rise rapidly in the immediate future and there is currently some strong undercurrents pushing prices upwards, whether on good fundamental reasons or not, it is not likely that rents will follow suit.

“We may just see the net yields falling instead,” he says.

Fernandez says that in the past, house prices in Malaysia have generally kept pace with income growth, both growing at about 5% per annum.

“There is reasonably good statistical evidence for this. Prices rose much more sharply prior to the Asian Financial Crisis, but came down in its aftermath. Is there something similar in the works?” he asks.

“I would think that we ought to be very concerned when prices rise not in broad tandem with increases in household income.”

As prices of houses rise, and the affordability and rental yields drop, renting rather than owning houses might become the new norm in Malaysia.

Analysts have also cautioned that with a great amount of supply of higher price homes and a higher inflationary environment where central banks in the region have shown a greater propensity to raise interest rates, the dynamics of the real estate market might not be as certain in 2011, as it was last year.

thestar

Tips from a financial planner

Rajen Devadason, a Securities Commission-licensed financial planner with MAAKL Mutual Bhd provides some insight to three key questions on financial management. He is also CEO of corporate mentoring consultancy RD WealthCreation Sdn Bhd.

Given the growing uncertainty globally and rising inflation, what would you recommend investors to do with their money?

Three things manage your money better, delay your retirement and work your money harder.

Rajen Devadason

When it comes to managing money better, mature adults might consider going down the do-it-yourself (D-I-Y) route through extensive personal reading and studying, or choose to hire a financial planner.

A good place to begin the vetting process would be the CFP (Certified Financial Planners directory of the Financial Planning Association of Malaysia //www.fpam.org.my/fpam/cfp-directory/list-of-featured-cfps/)

Those who opt for the D-I-Y route should begin by getting a handle on their personal net worth statement and personal cashflow statement.

For younger Malaysians who wish to learn how to manage their money better, there is a brand new, free educational initiative launched by Bank Negara and run by its agency, Agensi Kaunseling dan Pengurusan Kredit called POWER! managing your debts effectively.

When it comes to delaying personal retirement, the reason is easy to comprehend. Our lifespan can be represented by a long ruler. Those who are middle aged, are at about the mid-point of that ruler, let's call it point A. The point at which we retire is some distance to the right of where we are now, we'll call that point R. Our life in full retirement is represented by the remaining distance between R and the end of our time on earth, which I'll call point D.

If we delay retirement, we increase the distance between A and R, thus raising our lifetime's total active earnings. This will translate into more money to last through a reduced time period, represented by the new point R and the unchanged point D.

Finally, in terms of working our money harder, we need to figure out a way to grow more aggressively our initially unspent ringgit to stay ahead of inflation's erosion of our future purchasing power.

Given the surge in prices of several asset classes last year such as property, emerging market currencies and equities, should people continue to put their money in these portfolios or should they look elsewhere?

Blind diversification can lead to unwise over-diversification. This can result in what legendary fund manager Peter Lynch referred to as “diworseification” in his excellent 1989 investment classic One Up on Wall Street.

Intelligent diversification on the part of smart retail investors should mirror the route taken by the most economically successful individuals. We should aim to follow the leaders in this game of wealth accumulation.

In the annual World Wealth Report published each June by Capgemini and Merrill Lynch Wealth Management, there is an analysis of where the world's richest individuals invest.

The five asset classes listed are cash, fixed income, investment real estate, equities and alternative investments.

According to the latest (June 2010) report, the projected breakdown of high net worth individuals' financial assets for 2011 is 13% cash, 31% fixed income, 35% equities, 14% investment real estate, and 8% alternative investments (a catch-all category that includes structured products, hedge funds, foreign currency, commodities, private equity and venture capital).

Two reasons for food and fuel inflation are supply constraints and debased currency. In my opinion, the bigger reason of the two is the ongoing, seemingly unstoppable, gradual erosion of the true purchasing power of fiat currency, which is the type of paper money the entire world is awash with.

Whether we're talking about the greenback, euro, yen, sterling or even our very own ringgit, what we call “money” nowadays is fiat currency, which is money that is backed by nothing other than general confidence in whichever government issues the currency.

In the evolution of money, mankind has moved through the barter system to commodity money (where coins made from precious metals like silver and gold were used) to representative money (where a certain amount of a precious metal backed each currency note) to today's fiat money.

As such, wise investors should brace themselves for extreme volatility in different investment markets this year. Those who arrange their affairs to always have some cash at hand will be able to react best of all meaning most profitably when short-term price collapses take place.

The key to success is dynamic asset reallocation that permits us to effectively buy low and sell high among the various asset classes we choose to populate our personal portfolios.

Furthermore, over the very long term, the single best major asset class of all has been equities. Since equities represent business ownership and since the capitalist free-market system is the best man-made economic system humanity has ever come up with to create wealth, it seems to me that even in the future, equities will reign supreme but only over the very long term.

My advice, therefore, is always have some equity exposure, either directly in stocks or indirectly through well-chosen, well-managed unit trust funds, in any serious wealth accumulation programme.

I also like commodities, both hard and soft, because of the ongoing debasement of fiat currency and the inexorable growth of our planet's human population. There are now 6.9 billion people alive. Later this year, that should cross seven billion.

Within that context, commodities represent the very “stuff of life” that we need to feed, clothe, warm and move ourselves.

Finally, as Malaysia continues to prosper, the opportunities available in judiciously selected investment properties should be excellent. However, for those who either don't have enough money or interest in real estate or to buy directly owned rental property, purchasing well selected listed REITs or REIT funds is a safer option.

Although I continue to have bond fund exposure in my own portfolio, the expected exported inflation from the West to the emerging markets through repeated rounds of quantitative easing (printing yet more fiat money) will mean interest rates in Asia will continue to rise throughout 2011 to counteract those inflationary moves.

Since bond prices move inversely to interest rate movements, my view on fixed income products this year is somewhat muted.

Also, 2011 will be volatile, possibly further exacerbated by waves of dissent throughout the Middle East.

As such, those smart investors who retain sufficient levels of cash to take advantage of short-term dips in the equity, commodity and property markets, in particular, possibly caused by hot money suddenly leaving a sector or entire region, will do especially well.

If someone has extra cash, should he or she balance the ledgers by cutting down household debt or should they stomach the debt given the low interest rates?

As someone who has had to battle with excessive credit card debt twice in my life, I'm strongly inclined to advise my clients and your readers to focus on paying down as much bad debt as possible.

Bad debt is spent on direct consumption (such as charging new clothes and fancy meals on credit cards that are NOT paid off in full each month) or incurred purchasing bad assets that go down in value over time.

There is no reason for the financially savvy to worry too much about paying off good debt, which by definition is debt taken on to purchase good assets that appreciate in value over time or that cause more cash to flow in to us than flows out from us for repayments on the good debt.

It is also good discipline to use at least a small portion of extra cash and a predetermined slice of regular income to flow into a long-term savings and investment portfolio.

That portfolio, to begin with, should focus on bank savings and bank fixed deposits.

After that, additional savings can be allocated into money market funds. As the level of sophistication of a new saver-investor grows, a dollar-cost averaging programme into a well selected portfolio of equity funds ranging from domestic funds to international funds, right now focusing on China, Indonesia and the entire Pacific region, should result in excellent long-term returns, over periods of a decade or more, that stay ahead of inflation.

Thestar

Where to put your money

REAL ESTATE

REAL estate investment is popular because it is often thought of as an effective hedge against inflation. The perception is that property values are almost guaranteed to appreciate as inflation rises.

When it comes to real estate investment, it is always about location, location and location. And of course, timing and quality or type of asset also play an important role in determining the rate of return on this investment.

In Malaysia, investors have several options. One is through direct investment in physical assets, such as land or residential and commercial units. But this option will most likely require investors to come up with a huge capital expenditure.

Nevertheless, to CTLA Financial Planners Sdn Bhd managing director Mike Lee, it is just a leverage game.

“You pay only 10%, and borrow the rest,” he explains, adding that as long as interest rates remain low, the incentive to borrow and buy will be there.

Return on direct investment in physical assets can be in the form of a steady stream of net rental income, or substantial capital gains upon disposal.

But as property prices have risen tremendously over the last one year, especially in certain parts of the Klang Valley, licensed financial adviser Jeremy Tan of Standard Financial Planner Sdn Bhd (FP) says, “a detailed study is recommended before investing in one.”

Another more affordable option is real estate investment trust (REIT).

“The initial capital outlay of investing in REITs is low, with minimum required investment of around RM1,000, compared with buying a piece of property, which can cost up to 10% to 30% of the value of the asset.

“And there's no need of mortgage financing,” explains Tan. REITs are traded like an equity in the local stock market, and allow investors to participate in investment in high-profile, high-value properties for better returns.

Investors will gain through attractive dividend yields, currently averaging at around 7.5%, which seem more attractive compared with fixed deposits. By CECILIA KOK

FIXED DEPOSITS

IN an environment of low interest rates and rising inflation, is it still wise to keep money in fixed deposits (FDs)? Certainly, according to financial experts.

“As part of portfolio diversification, placement of funds in FDs is still mandatory. This asset class should comprise of contingency funds that can be easily accessible in financial emergencies,” SFP's Tan explains.

“As a rule of thumb, one should keep aside at least three to six months of one's income in this asset class. Apart from that, it is not advisable to place any excess funds in FDs, as the yield is lower than the inflation rate; investors should rather look at other vehicles that pay better returns than the FD and inflation rates,” Tan adds.

In Malaysia, risk-averse devotees of FDs have always regarded the instrument as “safe,” in the sense that they will not lose their capital (in nominal terms), while at the same time enjoy some interest payments from the bank. But this is a false perception, as CTLA's Lee highlights.

“Inflation can erode the value of money. And the impact can be quite bad, especially for those who keep most of their money in FDs for a prolonged period, considering the fact that they only earn an interest income of less than 3% a year, while losing, say, 10% in purchasing power at the end of each year. Compounded forward, the value of FDs will be depleted in ringgit terms,” Lee explains.

“The prudent approach is to retain in FD what one needs for emergency and the rest should be invested wisely,” Lee explains. By CECILIA KOK

UNIT TRUST/ MUTUAL FUNDS

FINANCIAL planners are quick to point out that there is no one-strategy that fits all investors when it comes to investing in mutual funds. A mutual fund is designed to invest a pool of investors' monies in a basket of securities be it stocks, bonds or money market instruments, depending on the fund's strategy.

An investor should be mindful of his/her risk appetite and desired returns when considering the types of funds equities, fixed income or balanced to invest in, says Great Vision Advisory Group executive director Andy Tang.

Tang's recommendation for this year would be balanced funds (which comprise equities and bonds) to provide both income and modest appreciation, with an expected return of between 6% to 8%.

Meanwhile, the iFast Capital Sdn Bhd research team expects equities to outperform bonds this year and maintains its overweight recommendation for equities. iFast, which is a registered institutional unit trust adviser and distributes funds through its website Fundsupermart.com.my, says that emerging market equities funds are expected to perform well as fund inflows into these markets continue, their economic growth remains robust and valuations in these market remain attractive.

It adds that funds with exposure to North Asian markets may do better than South-East Asian markets as the latter markets saw strong performances last year and North Asian markets such as South Korea, China and Taiwan are likely to play catch up this year.

For bond fund investors, iFast suggest funds that look at the high yield and emerging market debt space which is likely to fare better than safer low-yielding global bonds. It added that investors should remain cautious on long-duration developed sovereign debt as interest rates see further increases. By JEEVA ARULAMPALAM

EQUITIES THE two driving forces behind investing in equities would be to see capital appreciation and earn income through dividend. The old adage commonly passed on to novice investors is to invest in growth stocks for capital appreciation and blue-chip companies for stable dividend income.

However, Great Vision's Tang says that since equity investments are a riskier option, investors need a strong stomach to withstand market volatility.

“An investor's risk appetite needs to be based on his/her age.

The older you are, the less risks you will want to take as your investment time frame may be shorter and you do not want to lose money.

The recommended stocks for this year would be the ones that will benefit from projects earmarked under the Economic Transformation Programme (ETP) such as infrastructure and oil and gas (O&G) stocks,” says Tang.

Some of the key infrastructure projects include the mass rapid transit, highway developments and low-cost carrier terminal projects while O&G stocks are favoured as the local service providers benefit from various incentives given and contracts to be awarded under the ETP.

CIMB Research analyst Norziana Mohd Inon maintains an overweight call on the O&G sector, as it is a major beneficiary of the ETP.

“The share prices of O&G stocks in our coverage have gained 13.7% on average year-to-date compared with 0.1% for the FBM KLCI. Our portfolio has been lifted primarily by our top pick SapuraCrest (Petroleum Bhd),” she said in a report issued on Wednesday.

Aside from O&G stocks, Deutsche Bank's Asean/Malaysia equity research head Teoh Su-Yin said in a media briefing last week that plantation stocks, companies which had diversified into the region, and property stocks were the house picks this year.

The bank's overall outlook for the local market is positive, with a target of 1,790 for the benchmark FBM KLCI by year-end. The index ended higher this week by 9.93 points to 1531.82 from a week ago. By JEEVA ARULAMPALAM

BONDS

Direct investment in the bond market in Malaysia is currently not as accessible to retail investors as it is to institutional investors and high net worth individuals.

Most retail investors' exposure to the bond market is through their investments in unit trusts, where the minimum initial investment required for bond funds is usually RM1,000, compared with the minimum amount of RM250,000 required for direct bond investment.

“While bonds are another asset class to have as part of a diversification strategy, the amount of funds to be put in this category depends on the risk appetite of investors,” SFP's Tan says.

“One has to periodically review and rebalance one's investment portfolio. In an environment of rising interest rate, it is good to par down on investment in bonds and vice-versa,” he opines.

Interest rates and bonds have an inverse relationship.

“When inflation and interest rates heat up, bond funds will lose value. Your best investment strategy here is to cut back on these funds if you have significant exposure. Favour short-term and intermediate bond funds and sell or avoid long-term funds. The latter can get hit hard when interest rates and inflation go up,” CTLA's Lee explains.

“As a fixed-income instrument, bonds are often misunderstood by the average investor who think that these instruments are safe. But returns aside, bonds do carry risks, including the risks of default, early redemption, rating downgrade and management, among others. Hence, selection of the right bond fund is important to avoid a loss. So, investors will have to be careful and seek advice from the right professionals,” he adds. By CECILIA KOK

COMMODITY

Legendary investor Jim Rogers is a big-time commodity bull. His reasoning is simple: as the global economy grows, so will demand for commodities.

Over the last one year, the world has witnessed a strong rebound in the prices of commodities, especially that of crude oil and crude palm oil. Most analysts believe the prices of these commodities would continue to rise as the global demand is expected to remain strong, while production of some of these commodities would remain tight.

This is partly due to poor weather conditions and natural disasters like flood that has affected coal production in Australia and crude palm oil in South-East Asia.

Also, the weakness of the US dollar will also contribute to the increase of commodity prices.

There are several ways that investors can ride on the commodity rally this year. These include directly buying into the shares of companies involved in businesses that handle these commodities, such as plantation companies; buying into commodity-themed mutual funds; or buying into future or options.

“Most Malaysians do not have much exposure to futures and options, but these are some good investment tools for investors looking to improve their overall rate of return from their investment portfolio,” says Oriental Pacific Futures Sdn Bhd marketing director Eunice Choo.

“The beauty of futures trading is that it is a two-way market, where one can buy (long) in a bull market or sell (short) in a bear market. This means that one can either buys first and sells later, or sells first and buys back later. You can always trade in futures products, regardless of whether it is a bull or bear market,” Choo explains.

“But futures trading is a high leverage investment, so one must always assess the risks properly before entering a trade,” she warns. By CECILIA KOK

CURRENCIES

It's widely expected that this year will see a further strengthening of Asian currencies, including that of the ringgit, against those of developed nations. The Chinese yuan, or renminbi, in particular, will remain very much in focus, as there have been hints of up to a 5% rise against the US dollar this year. In general, there are several ways that one can invest in foreign currencies, including opening a foreign currency account with financial institutions, buying assets denominated in foreign currencies, or simply trade live in the foreign exchange market.

“One's objectives of investing in foreign currencies have to be clearly defined. Some people invest in them as savings for children who will be pursuing studies overseas, while some others do it purely for investment gains,” SFP's Tan says.

“Investment in foreign currencies has its inherent risks; the appreciation and fall of a particular currency depends on the country's economic, social and political environment. It is recommended that one seek professional advice before buying into this instrument,” he adds. By CECILIA KOK

EXCHANGE-TRADED FUNDS

Exchange Traded Funds (ETFs) are open-end index tracking funds or trusts that are listed and traded on the stock exchange. An ETF tracks an index, commodity or a basket of assets like an open-end fund but trades on the exchange like a stock.

“The advantage for a retail investor buying into an ETF is that it offers diversification. The fund owns a basket of securities so if a fund tracks the FBM KLCI, you will have exposure to 30 stocks instead of just one stock,” said i-VCAP Management Sdn Bhd chief executive officer Mahdzir Othman. i-VCAP is the manager of the MyETF Dow Jones Islamic Market Malaysia Titans 25.

Mahdzir added that the performance of an ETF largely depends on its underlying benchmark. This means that ETFs, as in investing in equities, will experience market volatility and the ETF's performance will be affected by the performance of its component stocks or bonds.

Local financial companies have been slow to launch ETFs in Malaysia, with only five listed on the local stock exchange. However, there is a plethora of ETFs that retail investors can access in the global markets with ETFs making up 1.5% of total daily trading on the Singapore Exchange and some 40% of daily turnover in the United States.

Mahdzir says it is cheaper to buy into ETFs than as compared with normal mutual funds, as the former is passive fund while the latter is actively managed.

MRR Consulting investment adviser and managing partner Ooi Kok Hwa says that investors pay about a 5.5% sale charge (also known as front-end load) for normal mutual funds whereas they pay a normal brokerage fee of 0.7% for ETFs. By JEEVA ARULAMPALAM

GOLD

Investors largely regard gold as a safe-haven asset, be it in the form of purchasing gold bullion coins or gold bars. Gold is seen as an investment tool offering long-term protection against inflation and a hedge against the US currency. But as equity markets rally and investors' risk appetites grow, the appeal for precious metals such as gold, silver and platinum as an alternative investment has somewhat softened. Gold spot price was trading above US$1,300 this week. However, investment managers have taken a longer-term view that gold price is likely to remain up alongside other commodity prices and as investors look for a long-term hedge against weakness in the US dollar, euro and Japanese's yen. They have cautioned though that prices could correct if the United States starts moving in on monetary tightening measures this year.

Aside from buying physical gold in the form of coins or bars, local investors can open up investment accounts at local banks such as Public Bank, whereby investors can buy and sell gold at daily quoted prices in ringgit using a passbook. By JEEVA ARULAMPALAM

UNCONVENTIONAL

ART When it comes to investment in collectibles such as art, which include paintings, sculptures and handicrafts, luck and timing are the main determinants of the rate of return. There's no fixed rate of return, as it is a subjective matter, depending on how much the buyer is willing to pay for that particular piece of creativity.

While still at an infancy stage, art investment in Malaysia has been gaining popularity over the last 20 years. One has to note, though, that most art collectors here are in not purely for monetary gains.

But as RogueArt Sdn Bhd director Beverly Yong puts it, the “returns” on art investment are often intangible. One being the gain of aesthetic and emotional satisfaction, while knowing that one is also contributing to creativity and the cultural heritage of the country.

“If one is knowledgeable and has good access to the works of major or emerging artists, one could build a collection, which would probably increase in value over the long term.

“Buying and selling art regularly for profit certainly requires one to have knowledge, a strong network and real engagement with the scene,” Yong emphasises. By CECILIA KOK

FINE WINE

In October last year, three bottles of Chateau Lafite 1869 vintage went under the hammer for a record price of HK$1.8mil (RM705,000) in Hong Kong. That's reportedly the world's most expensive wine ever sold in an auction, and the sellers must have been laughing all the way to the bank.

Fine wine not just any wine can be a good investment, as there is a growing global demand from increasingly discerning consumers, especially from emerging economies, who are scrambling for the “limited” production to epitomise their growing affluence or improved social status.

Fine wine has a lifespan of 50 to 100 years, Vintage Assets Pte Ltd executive director Lionel Lau says to point out the fact that investors can therefore buy and keep those prized bottles for a prolonged period and wait for the right price to sell for a handsome profit.

“This investment is more suitable for those with a medium to long-term view,” Lau explains, adding that returns can range widely from 12% to 30%, with minimum initial investment starting from 5,000 (RM24,300).

“When investing in fine wine, it is best to buy in cases of six or 12 bottles, because bottles sold in their original box can actually fetch a much higher price in the secondary market, compared with individual bottles,” Lau says.

Prices of fine wine can be tracked via what is generally regarded as the world's “de facto” wine-trading platform at the London International Vintners Exchange, or Liv-ex.

“One can be sure that the prices of fine wine will continue to rise because the limited production by reputable merchants are insufficient to meet the fast-growing global demand,” he says.

Thestar

教你在未来十年如何投资

专

家们正在对未来十年做出预测；从现在的情况看，似乎抽彩票都要比投资股票和债券有更大的胜算。

GMO 公司的优秀投资人预测，未来七年，只有三种资产类别将获得超过4%的年回报率：其中，美国优质股票每年上涨4.9%；新兴市场股票上涨4.1%；管理林地 每年上涨6%。其他资产的回报率如果能够接近1%就算是很不错了。GMO是投资界传奇人物杰里米•格兰瑟姆(Jeremy Grantham)所在的公司。

GMO预测，美国小型股每年将下跌1.9%，全球小型股将下跌1.4%，而全球政府债券和短期美国国债的 跌幅将分别为0.9%和0.2%（以上预测均基于未来七年2.5%的年通胀率）。顺便说一句，寻求投资管理林地的普通投资者可以有一些选择，其中包括 Rayonier Inc.、Sino Forest Corp.、Deltic Timber Corp.、Plum Creek Timber Co. Inc.、Weyerhaeuser Co.、International Forest Products和West Fraser Timber Co.。

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杜邦(du Pont)家族于1901年创立的威明顿信托公司(Wilmington Trust)同样认为，未来七年美国股市的收益将远低于其10%的长期平均回报率。该公司预测，截至2017年底，美国股市每年的上涨幅度将仅为5.8%。

然 而，威明顿对全球股市回报率的预测要比GMO稍显乐观，该公司认为发达市场的全球性股票将上涨6.6%，而新兴市场股票将实现7.2%的强劲上涨。同 GMO一样，威明顿认为债券并不是投资者的理想目标。投资级债券--无论是否缴税--每年的涨幅将仅为2.1%（威明顿的预测是基于1.5%的通胀率）。

有鉴于此，威明顿信托公司建议减持投资级和垃圾债券，增持美国大型股、发达市场全球性股票和新兴市场股票。

该 公司表示，我们担心债券价格在相对较短时间内的巨大跌幅会让很多投资者感到震惊。对那些寻求替代债券收益的投资者，威明顿建议他们选择“优质股票收入”的 投资组合--即能够持续不断地带来收益的投资组合。而收益稳定、债务水平适中的公司是最佳选择（我不确定这些公司能否通过威明顿的筛选，但我找到了两家可 能适合的公司：哥伦比亚国家石油公司(Ecopetrol)和Validus Holdings）。

最后但也很重要的是，威明顿建议投资者在对冲投资战略上投入更多资金，包括绝对回报和方向性对冲基金，它们能够在一定程度上抵御利率上涨。

新兴市场：理想的投资去向

贝莱德集团(BlackRock, Inc.)副董事长兼首席股票策略师罗伯特•多尔(Robert C. Doll)是其中最果敢的一位。他于去年8月发布了对未来10年的预测。他当时表示，未来10年的投资环境将不能和上世纪八、九十年代的繁荣时期相提并论。

在 他题为《关于未来10年十大预测》(10 Predictions for the Next 10 Years)的报告中，多尔预测未来十年美国股市的折年回报率将接近8%。他提出，因为“持续的去杠杆化和突出的结构性问题”，股市不大可能在未来十年实 现两位数的增长。

同GMO和威明顿信托公司一样，多尔也认为新兴市场--中国、印度、巴西、俄罗斯、墨西哥、印度尼西亚和土耳其--是投 资的理想去向。按照普华永道(PricewaterhouseCoopers)的分析，这七个经济体的经济总量比当前的G7国家（美国、日本、德国、英 国、法国、意大利和加拿大）将会超出近50%。

基于这个见解，多尔建议投资者采取以下行动：相对国债和现金，增持股票和其他风险性资产；相对其他发达市场的股票，增持美国股票；关注新兴市场的投资机会；投资有潜力的行业，比如医疗保健、信息技术和清洁能源。

医疗保健、信息技术和清洁能源

多尔在报告中指出，随着婴儿潮一代日益衰老，医疗保健的支出水平几乎毫无疑问将会继续增长。生物技术的进步、以患者需求为导向的研究增多以及电子病历越来越普遍的应用都是该行业潜在的增长领域。

至于信息技术，他表示新型电脑和娱乐设备的增长势头、微处理器的速度和容量的不断进步、云计算等科技创新以及网络社交工具的出现都将作为经济增长的引擎，扩大信息技术的影响力。

按照多尔的说法，提高对碳排放的征税额度将有助于清洁能源的发展。他指出，能源创新将由供应状况（比如煤炭储量不断减少）以及地缘政治来驱动--世界上大部分石油都由对美国持不友好态度的政府所控制。

标 准普尔公司(Standard & Poor's)的首席投资策略师萨姆•斯托瓦尔(Sam Stovall)谈到了均值回归，即过去十年的赢家在下个十年将会成为输家，反之亦然。如果这一预言成真，他表示，那么或许应该对美国的中小型股、新兴市 场股票和黄金保持谨慎。从行业的角度来看，应对能源和材料行业保持谨慎，其次则是消费者导向行业。

斯托瓦尔表示，在2011年至2020 年，医疗保健行业和公共事业公司的股票可能会大行其道，而能源和材料行业的表现将落后。截至1月18日，在标准普尔公司的排行榜上位居前列的医疗保健行业 股票包括Celgene Corp.、Dr. Reddy's Labs Ltd.、Life Technologies Corp.、Vertex Pharmaceuticals Inc.、Thermo Fisher Scientific Inc.、Mylan Laboratories Inc.、Express Scripts Inc.、Medco Health Solutions Inc.和McKesson Corp.，而排名最靠前的公共事业公司股票则包括ITC Holdings Corp.和Oneok Inc.。

Robert Powell

华尔街日报

Don’t be fooled by illusory numbers

So often investors and entrepreneurs look at the wrong financial numbers and ratios when analysing companies. They focus obsessively on the latest year’s pre-tax profits, or perhaps post-tax earnings. But these can often be manipulated, or temporary. What matters much more are underlying sales, strong gross margins and free cash flow. Study these numbers over several years to see if a business really owns a solid franchise.

When an enterprise enjoys consistently solid sales as a percentage of capital employed, and high gross margins, then it should by rights make a decent bottom line and an attractive return on investment. And by high gross margins, I mean 60 per cent or more. Companies that enjoy this scale of margins – and keep their fixed costs within reasonable boundaries – should prosper.

Of course, companies with huge mark-ups over their raw costs are more vulnerable to being undercut by discounters. But it is always better to start with a lot of margin than a low gross margin. When I was involved with PizzaExpress and Strada, I learnt that the pizza business offers spectacular margins, better than anything else in the restaurant trade. Given the way menu prices have risen relentlessly, the major chains must enjoy gross margins of at least 80 per cent on their pizza, or a mark-up of 400 per cent over cost. Yet surprisingly, no one has come in to undercut them and offer a comparable product at half the price. 

One of the more astonishing retail phenomena in Britain in recent years has been the sudden explosion of specialist shirt retailers. A large operator explained to me why: shirts wear out rather faster than say, suits; and shirts can achieve an 80 per cent gross margin – even if they are sold at only £30 or so.

By the same token, part of the reason electronics retailers are disappearing is that their gross margins are 20 per cent or even less. Even with big ticket unit prices, rents, property taxes, wages and other costs are killing the model. Similarly, most greetings card retailers have survived, despite the steady decline in their market, because their gross margins can be as high as 90 per cent. And part of the reason software companies have grown so rich, and software start-ups receive so much venture capital is their almost 100 per cent gross margins, if research and development are discounted.

Decades ago, shares were valued on a multiple of post-tax earnings – a P/E ratio. More recently, acquirers have adopted the private equity model using the ratio of enterprise value to earnings before interest depreciation and amortisation (EV/ebitda). This suited the inflationary environment for asset prices. Even now the two yardsticks are often conflated – sometimes accidentally, sometimes not.

But the fundamental problem with using ebitda as a gauge of profitability is that deprecation is typically a real cost. A business might be able to take a brief holiday, but eventually there will be a lot of catch-up spending to do. A plant has to be replaced, equipment upgraded, worn out buildings renewed. A better method is to judge sustainable post-tax profits after maintenance, capital expenditure and working capital adjustments. This net figure might be called free cash flow. They are the liquid funds available for interest, dividends or acquisitions.

A surprising proportion of companies never really shows a genuine free cash return – they are essentially a charity for their staff and customers. I used to feel that about the nightclub business: even though you could make juicy profits for a few years, there needed to be a complete reinvention every three years or so – new lighting, sound and so on – just to compete with newcomers. That investment typically represented three years’ profits. Effectively the whole undertaking just stood still. I fear the industry has become even tougher in recent times.

So my advice is to search out industries where you can capture at least a 60 per cent gross margin. And when examining a company’s accounts, focus on actual cash flow after cash costs, rather than illusory numbers such as earnings or ebitda.

Financial Times

解讀本益比選股的奧妙

「本益比」三個字在股市幾乎天天可以聽到。根據投資學教科書說法，本益比的公式超簡單：

本益比（PE Ratio）＝股價（Price）／每股稅後盈餘（EPS）

按公式推演，當股價在低檔、但獲利維持在高檔時，本益比會偏低，暗示這檔個股有逢低買進的投資價值；相反的，當股價飆高、獲利卻未跟著成長時，本益比算出來就會偏高，表示股價脫離公司的獲利價值，應逢高獲利了結。

換個角度想，本益比可推算為「投資回收年數」，當本益比等於10，就表示維持此獲利水準則該投資需等10年才能回收；當本益比等於100，就告訴你這輩子大概沒希望等到投資回收了（除非你能活過100年）！

一般而言，本益比在10以下屬於「高價值投資標的」，買進持有這類股票理應得到超額報酬，而本益比在10至20之間屬合理範圍，高過20以上者則無長抱價值。

看到這裡，你可能會說：「太簡單了！我只要挑本益低的股票買進持有，等待時間複利報酬，就可以輕鬆躺著發大財囉！」如果投資真有那麼簡單，世界上就不會有人賠錢套牢了！

記得10多年前我剛接觸股市，第1個學會的投資觀念正是「低本益比價值投資」，在股市上萬點的瘋狂聲浪中，我打開報紙證券版，簡單挑出多檔本益比低於10的「價值個股」，當時我只是個沒閒錢的醫學院窮學生，所謂「投資」，只是拿著筆記本做「紙上虛擬買賣」，瞎搞了1年，沒多久遇上「達康泡沫危機」，我追蹤的股票個個兵敗如山倒，輕者本益比飆升到3位數，重者甚至本益比消失（個股出現虧損，本益比轉負，數值無意義），這時我才了解：「原來投資選股不能光看本益比！」

Smart智富月刊

只是反映落後資訊　並非不能參考

為什麼看本益比投資常會賠錢？回答這個問題之前，我們可以先來看一張圖表—近4年台股指數及台股本益比的對照圖：

在2008年金融風暴之前台股的本益比一直維持在15～20倍之間的合理範圍，甚至在2007年底出現指數愈高、本益比愈低的「背離現象」，隨後2008年台股崩盤，本益比隨之不斷下修，直到2009年多頭強彈時，又出現本益比高達3位數的反常現象，到了2010年初指數高點本益比又回到20倍以下的低檔……。

看著暴起暴落的台股本益比走勢，聰明的讀者應該馬上體悟到：「跟著本益比做股票，沒死也去掉半條命」的真理！

為什麼本益比如此不可靠？經過長年觀察思索，我總算歸納出下列幾點原因：

1.本益比的分母為「預估每股稅後盈餘」：既然為「預估值」，因此只能反映已知落後資訊而無法保證未來實際獲利成果。

2.本益比的估計乃根據過去幾季的財報計算推估易失準：某些行解讀本益比選股的奧妙業有明顯的「淡旺季」（如百貨業），容易推估失準。

3.若干景氣循環個股的盈虧起伏極不穩定：如營建、DRAM、金融、鋼鐵，於股價高檔通常出現低本益比，股價低檔反而出現高本益比或虧損。

4.股價巨幅波動時，獲利數據未能同步更新：故有「分子分母時常不同步」的問題，此乃本益比評價的先天缺陷。

學會6原則活用　照樣能選出投資好標的

從表中看到台股本益比前10低的個股被「紡織、鋼鐵、營建、金融」4類股包辦，你或許會問這結果合理嗎？你可能也會想，本益比既然有這麼多問題，我們是否應該直接丟掉這個工具？

我的答案是：「不！本益比是好工具，只需要學會正確使用的方法。」在此提出個人使用本益比評價法的6個原則：

原則1》財務體質較弱、信用評等較差的個股不適用本益比評價，習慣唬爛畫大餅的劣質公司所說的一切「攏係假A！」，虛偽資訊當然要剔除於本益比評價名單之外。

原則2》景氣循環股要反向操作，類似鋼鐵、DRAM等景氣循環明顯的原物料股，要「買在高本益比時、賣在低本益比時」，較接近真實股價走勢。

原則3》適用本益比評價法則的公司乃本業收益穩定、財務狀況健全透明公開、股價波動較小的優質企業，當好公司的股東，晚上才睡得香甜！

原則4》不執著追求「超低本益比」的甜蜜買點，而要深入研究財報內容與產業訊息，才不容易被落後資訊蒙蔽。

原則5》不同產業之間的本益比標準不一，個股本益比首先應與同產業公司評比較為公允。

原則6》成長型個股本益比可適當上調，才能反映其獲利成長趨勢；反之，缺乏成長力道的類股則應下調合理本益比。

使用本益比投資股票，除了要熟悉這些原則，還得要有實戰經驗。否則，就像我拿到A-Rod（編按：美國大聯盟球員）的球棒，也無法再打出全壘打；而A-Rod即便拿著我的手術刀，也無法幫病人的眼睛開刀一樣。工具無絕對優劣，端看使用者能否充分發揮功力而已。

新興市場債券成退休族新寵

金融海嘯之前，股票與歐美政府公債是全球退休基金的最愛，但是在金融海嘯之後，新興市場債券躍登退休人士新寵！

過去，新興市場債券被視為波動大、風險高，不適合納入退休金的投資組合，但金融海嘯改變了此一成見，歐美成熟國家債台高築，償債能力大受質疑，反觀新興市場國家經濟復甦強勁，信用評等持續改善，促使全球退休基金已將投資焦點移往新興市場債券。

擁有3特性　可納入退休投資組合

根據新興研究組合（EPFR）統計，從2010年初至第3季，包括日本退休基金、多國共同基金等大型法人投資機構，流入新興市場債市資金逾500億美元，已超越2009年全年的462億美元。

為什麼？復華投信總經理楊智淵指出，退休規畫屬於長期作戰，而且無法容許需要用錢時，退休金竟然發生虧損。金融海嘯之前，全球股市一片榮景，因此多數人將退休金放在股票上，結果海嘯發生後退休金泡湯，迫使大家對於哪些商品適合做退休規畫重新思考，並獲致3大結論：

1.長期投資勝率要高，不能過於震盪，最後白忙一場。
2.發生下跌時要能迅速反彈、把賠的都賺回來，以確保長期投資能獲得正報酬。
3.能提供穩健固定收益。

不過，市面上真的會有這種商品嗎？

根據復華投信的研究，在各類別的投資商品中，新興市場債券符合下列特性：

特性1》勝率高，幾乎穩賺
根據復華投信內部研究2000～2010年股債商品每個交易日的漲跌統計，新興市場債券表現頗為突出，上漲、下跌天數比例為58%：42%。

而且因為上漲機率高的關係，投資時間愈久，愈能降低虧損機率，例如若只投資1個月，虧損機率為17.05%，拉長至1年虧損機率則降為0.52%，2年更降到0.02%，幾乎穩賺。到了第3年時，虧損機率為0%。

特性2》下跌後總能迅速反彈
從JP Morgan新興美元債券指數的歷史表現觀察，該指數在近16年來雖然曾經遭遇到1994年墨西哥金融危機、1998年俄羅斯倒帳、2001年阿根廷倒帳及2008年雷曼風暴等利空衝擊，但事件過後就會再回到穩健向上的趨勢。

▲不受金融危機影響，新興債穩健向上！

過去16年中，只有1994年、1998年及2008年這3年呈現負報酬，而且表現最差的1994年報酬率為-18.35%，號稱百年金融海嘯的2008年雷曼危機，全年則僅虧損5%，而且在跌幅有限的情況下，隔年都能順勢轉虧為盈。

新興債券之所以能下跌後迅速反彈，楊智淵解釋，主要與新興市場國家政府公債能提供高利率有關（詳見特性3），若加上資本利得，報酬率往往很不錯，因此每當受金融事件影響而下跌時，反而成為進場的最佳時機，讓指數很快反彈，而且持續往上。

特性3》提供高收益率
以JP Morgan新興美元債券指數指標券收益率為例，大約為7%～15%，JP Morgan新興市場當地貨幣債券指數指標券收益率則為8%～14%。比起歐美政府公債收益率（以美國10年期公債收益率為例，目前為3.5%）高出很多，對於追求穩健收益的退休族群更具吸引力。

▲多數新興國家政府公債具高收益率

若從基本面觀察，2010年Smart智富台灣基金獎「台灣債券基金獎」得主、亦是保德信投信固定收益主管李秀賢進一步指出，新興市場景氣復甦力道強，且經濟穩定度高，現已有不少國家領先歐美地區進入升息循環進而帶動幣值走升，這將使得新興市場更具吸金魅力，同時政府債信高風險國家仍集中在歐元區，新興國家相對安全穩定，預期當地貨幣計價的新興市場債將可望進一步走揚。

進場不必挑時機　下跌更是加碼好機會

將新興市場債納入退休金的投資組合，該如何操作？摩根富林明全球平衡基金經理人陳敏智認為，由於新興市場長期趨勢向上，進場不必特別挑選時機，遇到下跌時則是加碼好時機。

陳敏智並建議，新興市場債不同於一般股票，債券具有到期還本付息的特性，因此，不宜短進短出，應以長期持有為宜。若遇到系統性風險，投資人也不必緊張，除非有立即性的資金需求，不然建議繼續持有、不必跟著恐慌殺出。

至於在風險的分散上，陳敏智認為，新興市場債券雖然長期看好，是大家在從事退休規畫時不可或缺的商品，可是，任何退休規畫都不應該將資金單壓或重壓在單一商品上，所以他建議新興市場債券投資比重，可以占退休規畫部位的15%左右。萬一發生單一年度虧損情況時，退休資產所承受的風險也不至於太大。

你正在煩惱退休規畫不知該投資何種商品嗎？不妨考慮把新興市場債券納入核心部位，可參與新興市場成長動能，亦有相對穩健的收益報酬、提高資產穩定度，幫你完成退休目標。

Smart智富月刊

Eight ways to protect your income

If you were to be incapacitated tomorrow, would your family be cared for? Would you be able to cover your medical bills? Life is full of uncertainties. Worried about being unable to generate an income if something were to happen to you? The concern is that the bills don’t stop arriving even then. “With income protection, there is income for you and your family to pay ongoing expenses, in the event of your premature death, illness, disablement or lay-off,” says Lawrence Seow, head of financial planning for VKA Wealth Planners Sdn Bhd. “You will also feel more secure and don’t have to worry about funds.” Sean Lee, CEO of Oscar Wealth Advisory Sdn Bhd, agrees that pre-planning to protect your income is vital. “In case of serious illnesses, your income-earning ability will be affected for a long time, perhaps even a lifetime. Besides the basic necessities of living, there may be medical expenses that you need to fund.” Good financial planning includes preparing for the unexpected. The best part about protecting your income against the risk of unemployment, accidents or sickness is that you get to enjoy the amount accumulated in the event you don’t face those situations at the end of the day. Here are eights ways to protect your income: 1) Emergency savings An emergency fund helps to protect you against unforeseen expenses and loss of income. “Start building your emergency fund, which should generally about six months of living expenses or income,” says Seow. “These savings allow you to survive financial hardship and pay your bills in the short term. If there is talk of lay-offs at work, increase the amount that you put into this fund.” A key feature of an emergency fund is that it must be accessible. “Put your emergency monies into highly liquid accounts like savings accounts or short-term fixed deposits,” says Lee. “The danger here is that you can be ‘susceptible’ to tapping into the funds for impulse spending if you are not disciplined.” 2) Diversify your income Remember that your current income supports your daily expenditure and wealth accumulation. “Everyone, whether an employee or self employed, should proactively look for ways to reduce his dependence on his day job. Start building passive income streams. Reorganise your financial life so that you do not solely rely on your monthly salary or pension,” says Lee. Building sources of passive income also reduces your financial burden if you lose your job. To generate passive income, start by building your financial knowledge and invest in financial vehicles. “Boost your income by investing in high-yield stocks, unit trust funds or real estate, or a combination of these assets,” says Lee. “Patience and consistency is required to execute an investing strategy. If you do not have the time and aptitude to do so, hire a financial planner to help you.” 3) Disability income insurance “When you are unable to work because of sickness or injury, disability-income insurance provides you with a partial replacement of your pre-disability earnings,” says Seow. “This is offered as an additional rider that you can attach to your existing life insurance policy. For example, you can insure RM36,000 per annum in the event that you cannot work due to a disability. If this does occur, you will receive RM36,000 every year until the rider expires.” 4) Critical illnesses insurance It is not uncommon to see headlines on increasing illnesses around the world. “Critical illnesses insurance is important as a severe medical condition can cost a bomb and wipe out your savings and assets,” says Lee. Says Seow, critical illness cover pays the insured a lump sum when he is diagnosed with any of the stated diseases. “This cover can support additional medical costs that the insured will need, for example, when afflicted with stroke, cancer or kidney failure. This insurance provides for loss of income when you are ill.” 5) Total permanent disability cover A sudden illness or accident can render one permanently disabled. “Total and permanent disability usually means the insured suffers from continuous disability and is unable to work for at least six months,” says Seow. Except for the circumstances explained in the total and permanent disability exclusions, the insured is eligible to receive a lump sum amount if he is totally and permanently disabled, he adds. “Do note that most insurance companies in Malaysia do not pay benefits on partial disability.” The coverage helps offset part of your medical bills while you face the challenge of being permanently disabled and may need long-term support and care for the rest of your life. “The insured can use the lump sum benefit to settle debts so that family members do not have to deal with this obligation and to make life as comfortable as possible for everyone,” says Lee. 6) Personal accident policy Personal accident plan is an affordable supplement to life insurance. “Personal accident insurance is essential because the policy gives the insured cover for a variety of accidental injuries. Some policies can give you cash benefits if you are hospitalised or unable to work for a period of time, or both,” says Lee. The compensation from a personal accident policy helps to cover living expenses due to your accidental injury. It is important to ensure that your personal accident plan comes with weekly indemnity benefits (income replacement as a result of short-term absence from work), accidental death and dismemberment benefit and medical reimbursement. “If you sustain temporary total disability due to an accident and are unable to perform your normal work duties, you will receive an amount every week for the period of time as stated in your policy. This is the weekly indemnity benefit and your condition must be substantiated by a medical specialist,” says Seow. For instance, if the insured breaks his leg in an accident and has to stay at home for two months; he will receive his weekly indemnity cover for two months. Accidental death and dismemberment benefit provides a lump sum if the insured survives an accident but suffers a total and permanent disability, says Lee. If the insured passes away due to the accident, the amount received is net of the amount that has already been paid for the accidental dismemberment. Personal accident insurance can be extended to cover medical expenses incurred for the treatment of an accident that is covered by the policy. “With medical reimbursement, the insured is able to claim the medical and surgical expenses, whether it is outpatient or inpatient treatment, for any injuries caused by an accident,” says Lee. “This certainly reduces your out-of-pocket expenses and the need to dig into your emergency funds.” 7) Life insurance Life cover or death benefit can provide immediate cash fund for your loved ones in the event of your death. “Factor in your personal situation, present debts and future liabilities and you will be able to gauge how much life coverage your family would need,” says Seow. “For example, provide RM50,000 every year for your family, RM25,000 for final expenses and RM15,000 to pay for probate and administration. Assuming an inflation-adjusted return of 3.85% a year and 45 years of need [years that your family is to be provided for]. This means that you need about RM1.3 million in life insurance coverage now.” You can also look at term insurance, whole life insurance or an investment-linked policy. 8) Medical cards Seeking treatment and care at private hospitals can exhaust savings. “Medical costs are increasing at an alarming rate of about 6% a year,” says Seow. “Medical costs will double in 12 years or less. The question is, can your investments and incomes grow that quickly and consistently? The answer is no.” A medical card gives you additional cover over and above your income protection plan. The card generally covers room and board, ICU stay, surgical fees, aesthetic fees, medical treatments, and post- and pre-hospitalisation treatments. Some cards also cover claims for medical treatment received outside the country but only for the cost that you would incur to seek the same treatment locally. “Upon hospital admission, the medical card will pay based on the benefits provided [usually hospital admissions and bills]. You do not need to use your cash, thus your monthly cash flow will not be interrupted,” says Seow. “If your hospital stay is longer than a week, the cost starts to escalate to thousands of ringgit. With a medical card, you can reduce this financial burden.” Some may consider the premiums paid for these medical cards as being “burnt” if the card is not used. However, it only takes one or two hospital admissions to use all the premiums that you have paid over the years. “Most medical cards impose a yearly limit on the number of days for room and board, as well as annual limits [on cost incurred], adds Seow. theedgemalaysia.com