Puah Soon Lim, CFA
May 2015
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Personal Financial Planning for Retail Investors
DISCLAIMER
The information presented in the following slides
are solely meant for training purposes by AB Maximus
While care has been taken to ensure the accuracy of the information in this document, AB
Maximus and its affiliates make no warranty as to the accuracy, completeness,
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specific investment objectives, financial situation or particular needs of any person in
receipt of the recommendation.
Profile
Mr. Puah Soon Lim, CFA, has a Bachelor degree in Business Administration majoring in Finance from the National University of Singapore. Mr. Puah has more than 23 years of experience in the investment and financial industry. For the past 7 years, he has participated actively in investment education and delivered on a series of popular workshops, particularly on value investing and ETFs. He is a regular speakers at the SGX Academy and Bursa Malaysia.
Currently, he is an Associate Director of an independent financial advisory firm. He works with both individual and institutional investors to provide customised advice on optimal asset allocation. His extensive experience and thorough knowledge in wealth management enables him to break apart complex concepts into easy-to-understand components for the individual investors.
In his spare time, Mr. Puah is a keen endurance athlete and has completed several marathons and international triathlons. He is married with two school going children.
Runner
Public Speaker
Portfolio Adviser
Investor
What do you think is the biggest threat to your financial well beings?
Its Not What You Think it is
Know What Matters in Your Life
You May Already Have it
How much is enough?
FINANCIAL PLANNING
is the allocation of limited resources against unlimited wants.
Step1 Summarise Present Position
Step 2 Establish Financial Goals
Step 3 Identify & Evaluate Option
Step 4 Implement, Review & Revise
How can a financial plan help
you?
Minimize your taxes.
Cover insurance needs.
Buy a home and pay off the mortgage quickly.
Fund your childrens education.
Optimize employee benefits and pensions.
Save and plan for retirement.
Fund long-term health issues.
Care for elderly parents.
Manage estate planning and how to transfer
wealth in families.
Protect you from Yourself
FINANCIAL PLANNING
Step 1: Summarise Present Position
Preparing your Personal balance sheet & Income statement
How much is enough?
How much is enough?
Your Personal Income Statement
How much is enough?
Your Personal Income Statement
How much is enough?
Your Personal Income Statement
How much is enough?
Your Personal Income Statement
How much is enough?
What are your option if your Cash Flow Margin is Zero or a Negative number?
Understanding the Magic of Compounding
Time, Interest rate and Amount of Money the three variables needed for compounding to work
Let introduce you to 3 friends
21
The Magic Power of Compounding
The Magic Power of Compounding
The Magic Power of Compounding
The Magic Power of Compounding
P RN
x (1+ ) =
The time value of money
% 1 2 5 10 15 20 30 40
2% 1,020 1,040 1,104 1,219 1,346 1,486 1,811 2,208
4% 1,040 1,082 1,217 1,480 1,801 2,191 3,243 4,801
6% 1,060 1,124 1,338 1,791 2,397 3,207 5,743 10,286
8% 1,080 1,166 1,469 2,159 3,172 4,661 10,063 21,725
10% 1,100 1,210 1,611 2,594 4,177 6,727 17,149 45,259
12% 1,120 1,254 1,742 3,106 5,474 9,646 29,960 93,051
14% 1,140 1,300 1,925 3,707 7,138 13,743 50,950 188,884
16% 1,160 1,346 2,100 4,411 9,266 19,461 85,850 378,721
18% 1,180 1,392 2,288 5,234 11,974 27,393 143,371 750,378
20% 1,200 1,440 2,488 6,192 15,407 38,338 237,376 1,469,722
22% 1,220 1,488 2,703 7,305 19,742 53,358 389,758 2,847,038
24% 1,240 1,538 2,932 8,594 25,196 73,864 634,820 5,455,913
25% 1,250 1,563 3,052 9,313 28,422 86,736 807,794 7,523,164
Compounded Return on $1,000 Invested
$1,000 Deposited Each Year End of Year Values
% 5 10 15 20 25 30 35 40
2% 5,204 10,950 17,293 24,297 32,030 40,568 49,994 60,402
4% 5,416 12,006 20,024 29,778 41,646 56,085 73,652 95,026
6% 5,637 13,181 23,276 36,786 54,865 79,058 111,435 154,762
8% 5,864 14,487 27,152 45,762 73,106 113,283 172,317 259,057
10% 6,105 15,937 31,772 57,275 98,347 164,494 271,024 442,593
12% 6,353 17,549 37,280 72,052 133,344 241,333 431,663 767,091
14% 6,610 19,337 43,842 91,025 181,871 356,787 693,573 1,342,025
16% 6,877 21,321 51,660 115,380 249,214 530,312 1,120,713 2,360,757
18% 7,154 23,521 60,965 146,628 342,603 790,948 1,816,652 4,163,213
20% 7,442 25,959 72,035 186,688 471,981 1,181,882 2,948,341 7,343,858
22% 7,740 28,657 85,192 237,989 650,955 1,767,081 4,783,645 12,936,535
24% 8,048 31,643 100,815 303,601 898,092 2,640,916 7,750,225 22,728,803
25% 8,204 33,253 109,687 342,945 1,054,791 3,227,174 9,856,761 30,088,655
3 Friends You Need
Money To Invest
Patience
Knowledge on Investments
Equities is The Best Wealth Creation Tool
Suppose you invested in 3nd Quarter 2007 and lost 40% of your principal, how much does the stock market need to appreciate in order for you to breakeven?
Answer: 66.67%
The mathematics of a loss
Loss % 10% 20% 30% 40% 50% 60%
Breakeven 11.11% 25% 42.86% 66.67% 100% 150%
3 THINGS TO WATCH OUT FOR
Do Not lose Money
Refer to point #1 above
Refer to point #1 Again
The Rule of 72
36
Rule of 72
Rule of 72
If your friend told you that she brought a house for $150,000 and that it is now worth $600,000 and she has held it for 10 years. What is the rate of return?
Illustration
Exercise
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Step 2: Establish Financial Goals
Provide direction and purpose, help to crystallise your thinking and provide personal motivation
Four Reasons We Dont Set Goals
Fear of Failure
Not Enough Time
Dont know what goals
to set
Dont know how
Categorise the Goals
Expenditure
Pay cash for car in 3 years time RM 35,000
Visit Europe with wife RM15,000
Protection
Top up life Insurance RM250 a month
Top up disability insurance RM 100 a month
Savings/Investment
Pay for my childrens university education in 15 years time : US$200,000
Retire at age 65 with an income of US$40,000 a year
Timeline of Goals
Short Term
Visit Europe end of this year
Pay Cash for Car in 3 years time
Top up life and disability insurance
Medium Term
Pay for childrens education in 15
years time
Long Term
Retire at age 65 with an annual
income of US$40,000 a year
Ah Lim
25 years old
Wants to pay cash for a Car in 3 years time
$35,000
Ah Lims Personal Balance Sheet
Ah Lims Income Statement
Ah Lims Income Statement
Ah Lims Income Statement
Ah Lims Income Statement
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Ah Lims Goal
How much is enough?
If your Cash Flow Margin is Zero or a Negative number, you have three options:
a Work on the time factor
b Work on the $ Factor
c Work on the R Factor
The Magic Power of Compounding
STEP 3: IDENTIFY & EVALUATE YOUR OPTION
Your options can be found in the three elements of the compounding formula:Time, Money and Return
The Magic Power of Compounding
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'()
OPTION 1: INCREASE YOUR CASH FLOW MARGIN
Finding money you never knew you had
Long Range Objectives
Financial Independence
Start a Business
Pay off debtLifestyle Desire
Retirement Education
Cash Flow Margin +
Appreciation in Assets Growth in Net Worth
INCOME
Living Expenses Debt Repayment Taxes Giving
3 THINGS YOU NEEDFOR STABLE PRESENT FINANCES
A consistent budget plan
Absence of bad debts
An emergency fund
Five kinds of Debt to Avoid
1. Credit Cards
2. Consumer Debt
3. Mortgage Debt
4. Business Debt
5. Investment Debt
The case of magic of compounding working against you
*$+,-
Financial Implications of Debt
1. Compounding is working against you.
2. Getting in debt is a lot easier than getting out.
3. Debt always mortgages the future.
4. Debt always robs you of the freedom of choice.
Increasing Your Cash Margin
Ah Lims Cash Flow Margin
OPTION 2: WORK ON THE TIME ELEMENT
Postpone your goals later
Work on the Time Element
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OPTION 3: WORK ON THE RELEMENTIncreasing the R element require skills. The more skills you have in investment, the higher the R
Work on the R Element
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Expenses
An average household with yearly expenses of
$60,000 will see their expenses grow to $108,366 per
annum in 20 years at an inflation rate of 3%
$5,000 $9,030 (per month)
The Reality for Some
Expenses vs. Provident Fund
With an initial amount of $100,000 in your provident
Fund and a monthly contribution of $1,250 with a
Return of 5% over 20 years will leave you with $761,319
The Reality for Some
Hard Facts You Need To Know
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Building Financial Wealth
WEALTHDestroyers
Natural Disasters Wars & Social Unrests Illnesses/Accidents Bad Spending Habits Divorce Careless Investments
Be Aware Avoid Minimise Protect
AB"'C"B/-'
/9'C/
-'"B/D
Benjamin Franklin
STEP 4: IMPLEMENT, REVIEW & REVISE
The 6 Steps Strategy to Successful Investing
Eliminate all high interest debt
Keep one months living expenses in savings account
Keep 3 6 months living expenses in a money market account
Put saving for major purchases in money market account
Protect yourself with adequate Insurance
Invest to meet long term goals in: Stocks, ETF, Unit Trust
Eliminate all high interest debt
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Keep one months living expenses in savings account
Keep 3 6 months living expenses in a money market account
Put saving for major purchases in money market account
Protect yourself with adequate Insurance
Invest to meet long term goals in: Stocks, ETF, Unit Trust
The 6 Steps Strategy to Successful Investing
Eliminate all high interest debt
Keep one months living expenses in savings account
Keep 3 6 months living expenses in a money market account
Put saving for major purchases in money market account
Protect yourself with adequate Insurance
Invest to meet long term goals in: Stocks, ETF, Unit Trust
Asset Allocation
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The Asset Allocation Pyramid
Cash in Local currency 30%
Real Estate 60%
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Cash in Local currency 75%
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Individual
%
3
The Asset Allocation Pyramid
The Asset Allocation Pyramid
5%
10%
20%
30%
35%
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