Is it SAFE to Invest in Private Retirement Scheme (PRS) ?

This is one of the common question asked by potential PRS contributors. First, I want to emphasis that PRS is a long-term investment for the purpose of retirement planning. In investment case, long-term means you already using the most powerful method to reap a good return. Anyway, many contributors still want to treat PRS as some kind of short-term investment. I got the answer for you.

Basically, PRS is very similar to unit trust investment. The underlying structure and investment philosophy were the same actually. No wonder many people perceived PRS is another unit trust scheme. Yes, you're correct to a certain extent.

Under the guidelines, each PRS providers must at least launched their core funds for investors to select, namely Growth, Moderate and Conservative. To make things simple, we only discussed these core funds because I believe most of us only invest in core funds. From these core funds, growth fund is the most aggressive one. In other words, the most risky one, with the aim of getting better return than the other two.

Asset Allocation of Core Funds under the guideline by Securities Commission of Malaysia

Is it really so risky?

Let's us examine even deeper now. Again, under the guideline for PRS growth fund, only maximum of 70% of NAV can be allocated to equities, while the balance was in fixed income/money market instruments. If you're an unit trust investor, you will know that this is almost like a balance fund type of asset allocation. For your information, for normal unit trust equity fund, equities exposure was between 70% - 98%. Meaning, the maximum equities exposure for PRS Growth fund equals to the minimum of an equity fund. Not so risky, right?

Of course, if you want higher equity exposure for your PRS portfolio, you can opt for those non-core funds, which can go as high as 98% in equity exposure. Then, the next question was "Is it risky to invest now?"...

It all depends on your perception. If you think that Malaysia market is too expensive now, you may opt for those funds with foreign exposure. Currently, from the 4 PRS providers whom already launched their schemes, some can invest into foreign countries. Some are fund-of-funds, some are foreign funds. Coming soon, more variety of PRS funds will be offered, such as property fund, commodities fund...

This is a guest post by Alex Yeoh in the series of Private Retirement Scheme. For more PRS info, you may contact Alex Yeoh (email: alexyeoh@vka.com.my), a licensed financial planner, whom representing multiple PRS providers. Thank you.

When is the BEST time to buy House? (25 Apr 2011)

Last year 2010, Malaysia property market recorded the BEST year ever. Will it be another record breaking year in 2011? Many economist and property analysts opine that this year, the property market will appreciates by another 10-15%. So, should we wait some more?

Recently, many of my friends keeps on asking the same bold questions.

• Should I buy house now?
• Or, should I wait some more?
• But, when is the property downturn?

Modern Design: Swimming pool in the house.

Good questions though, but if you ask me when is the property downturn, I really do not know. As a rule of thumb, I will rely on the stock market to give me the indication. Commonly, property market will take a blow one year after the crashing of stock market. Example, the 2008 financial crisis gave us a good timing to invest in property market. For those who buy house during that time, you should know what I am talking about and smile.

So what? How about now?

Before answering your question, I would like to throw you back a question "Are you looking for your first house?". If YES, anytime is the best time to own a house, forget about the timing factor. Your objective to own it, not invest for return. Why bother waiting for the best time? Otherwise, you are renting while waiting, and money still running out of your pocket every month.

But if your answer is NO, and you treat it as an investment, I do not think this is a good time. Why? As you already know, the valuations is rich enough to swallow your future potential return. Given the risk reward profile, it is not worth to invest at current high level to exchange for a reasonable return. If you're renting it out, sure this is not wise move. Please bare in mind that the rental is very hard to go hand-in-hand. Prices are going way too fast for rental to catch up now.

EPF declares 5.8% dividend rate for 2010

For the financial year ended 31 December 2010, Employees Provident Fund (EPF) announced a 5.8% dividend rate. This translates into RM21.61 billion, which is the highest dividend payout amount ever to members, an increase of 11.55% over the 2009 dividend payout of RM19.37 billion.

For the year 2009, the dividend rate is 5.65%. "The remarkable investment income achieved in 2010 was especially driven by the performance of equity investments. The improved financial and economic conditions provided the market with sufficient liquidity, allowing profit taking activities throughout the year", said EPF chairman in statement issued.

Who is the main contributor?

Buoyed by a good year for the equities market, equities were the largest contributor to the EPF's gross investment income in 2010, representing 45.45% of EPF's total gross investment income. (See Table 1)

Source: EPF website

During the year under review, EPF total investment assets also continued to register healthy growth by crossing the RM400 billion mark to stand at RM440.52 billion as at 31 December 2010.

EPF's investment strategies are broadly guided by its Strategic Asset Allocation model which was designed to fit EPF's risk and return profile and to maintain consistent returns in the long run. The year 2010 saw about 2/3 of EPF's total investment assets remaining in low risks fixed income instruments with stable streams of income.

Accordingly, members may check their EPF Account Statement for the crediting of the 2010 dividend, either via EPF kiosks, counters or i-Akaun, from 21 February 2011 onwards.

Source: EPF website

Related Posts:

Revised EPF approved funds effective 1 September 2010

EPF: i-Akaun

When would asset bubbles in Emerging Market "Burst"?

Do you discounted the possibilities of asset bubbles in Emerging Market?

Even though our governments, including China, saying that asset bubbles is under-controlled for almost one year now, yet, investors are not comfortable with the record breaking prices.

Investors are encountering high prices in properties, commodities, resources, and of course, shares market in emerging markets. People are investing, buying, spending, and borrowing to an extent that would caused asset bubbles in various sectors.

Return, the only thing in mind...

 

Meanwhile, investors are chasing for returns to beat the market at large, and to avoid being left behind. This "Kiasu" behavior are only pouring oils on fire. Yet, returns is the only thing in mind, and those "kiasu" investors are winning the game to date. For those who does not participate in the game were blaming them for causing the high property prices, undermining their affordability to own a house.

 

When did the bubbles started?

 

In fact, the asset bubbles was started end of last year. And, the bad news is, the bubbles are growing non-stop until today. People are blindly pouring oils (until crude oil reaches USD87 per barrel lately), although the fire is big enough to swallow a bungalow.

 

When would it stops?

Oh... To answer it, we have a two-sided views...

One, the asset bubble will anyway stop one day

Two, it will stop when it "burst"

 

All will come to an end by following the sequence below:
- when US and Europe recover from their painful crisis,
- when investors found that US and Europe can give them better return,
- when "kiasu" attitude infecting US and Europe,
- when oil prices is too pricey to ignite the fires (commodities will come down),
- when speculative capital flow out of emerging markets,
- THE END