The 40s is usually a time when you would have settled down and made great strides in your career.  Money would be coming along nicely and your thoughts would turn to building a nest egg for the future. However, the 40s is also a time when you and your spouse would have to think about the children’s education fund and your own retirement plan.

How does one strike a balance? Financial experts can help you sort this out. Smart Investor had the opportunity to speak to four who shared their advice readily.

Chart Investment Strategies

Shin Yee Ling, Licensed Financial Planner from VKA Wealth Planners Sdn Bhd was asked what she thought would make viable investment options for the 40s age group. Yee Ling, who also holds Islamic Financial Planning (IFP) qualification to assist Muslim clients, replies:     

Before looking at investment options, it is important for a family to draw up a comprehensive financial plan to chart the necessary strategies.  This includes understanding one’s cashflows, net worth and risk profile.  The main point in doing this is to define goals and objectives that one wants to achieve.  Once these are identified, investment strategies can be developed to suit one’s needs.

We develop investment strategies to ensure our goals are met.  We need to combine time horizon, available resources and rate of return to find suitable investment options.  It is also advisable to have different portfolios for different objectives.

For example, I plan to send my son to study in Australia in 15 years which will cost me around RM500,000.  With my current cash flow, I can afford to put aside RM1000 monthly for this purpose.  With a rate of return of 12% p.a., it is possible to accumulate RM500,000 in 15 years.  However, this means I need to take a rather high risk to get the 12% return.  Can I stomach the risk?  If I am only comfortable taking an investment option that gives me an average of 8% return, then I need to put aside about RM1,400 monthly.  Can I afford this amount?

Combine the Strategies

Furthermore, each investment option has its own uniqueness, liquidity features, investment horizon, risk profile and average rate of return. It is important to understand each option.  Investment strategies can be a combination of a few options. For example, property investment can be done through direct physical property investment or via Real Estate Investments Trust (REITs). 

Most of us have only one income stream.  We have many things to look at, such as current family expenses, future retirement funds to accumulate, aging parents to care for and travelling/ hobbies to work on.   It is very important to find the optimum level of deploying our one income stream and make every sen work for us.

While we are building our assets, we need to channel some of our funds to cover any unforeseen circumstances such as medical issues, accidents, or premature death.  We may look to transfer some of this financial loss risk to insurance companies.  Hence, some insurance premium is needed.

To conclude, a family should have accumulations according to investment horizons such as the following:

  • Immediate funds (for goals such as emergency fund)

– Options: Saving Account, Fixed Deposit, Money Market Unit Trust Fund

  • Short term less than three years (for goals such as house deposits accumulation, haj expenses)

– Options: Fixed price Unit Trust such as ASB, SSPN, Tabung Haji, P2P Financing

  • Mid – long term more than three years (for goals such as holidays in the US for three months in five year’s time)

– Options: Fixed price Unit Trust such as ASB, Tabung Haji, Moderate Unit Trust Portfolio (various asset classes), Direct Shares Investment, P2P Financing

  • Long Term more than 10 years (such as children’s education fund, retirement)

– Options: Property Investment, EPF, PRS, Aggressive Unit Trust Portfolio (various asset classes), Direct Shares Investment, REITs, P2P Financing, Offshore Investment Platform.

Investments for Different Income Brackets

Bryan Zeng, CFA, General Manager of FA Advisory Sdn Bhd was asked the same question about what to invest in across the low, middle- and high-income bracket in the 40s age group, particularly EPF and Private Retirement Schemes (PRS). This is what he says:

Individuals in their 40’s are likely to have larger expenditures especially for those who are breadwinner to many dependents. It is therefore important to ensure they have sufficient emergency fund set aside before investing. 

Depending on the size of the asset base, the investor should have a fairly balanced allocation between liquid assets like Fixed Deposits (FD), Unit Trust (UT) funds, stocks and also less liquid assets like properties, endowment funds, EPF, and business. 

Generally speaking, the middle or lower income bracket should have more liquid assets than illiquid assets. Similarly, the complexity of investments should also be less for those in this bracket. They should stick to the usual UT, stocks, bonds, and Malaysian properties. Higher income/net worth investors can afford to have more complex investments like overseas properties, businesses, preference shares, precious metals and so on.

EPF: A Good Investment Vehicle

EPF is a very good vehicle for retirement planning. For most working Malaysians, EPF is a major component of their total assets if not the single largest. EPF contributions are tax deductible up to RM6,000 a year. Historically, EPF dividend rate was at an average of 6.02% for the past 10 years and 5.71% for the past 20 years. While this may not seem very high, you still get decent returns when the money is compounded. For example, if you have contributed RM1,000 into EPF at the beginning of 2008, your money would have grown to RM1,793.90 by the end of 2017. If the same RM1,000 was contributed at the beginning of 1998, then the money would have grown to RM3,034.04 by the end of 2017.

EPF has a very low expense ratio, meaning that the percentage cost of managing the EPF funds is very low. This ensures that a big bulk of the returns is given back to the EPF members.

EPF’s investment portfolio is very diversified. It holds stocks, bonds, properties and businesses not only in Malaysia but also overseas. There is a team of professionals who are committed to manage and safeguard your EPF contributions.

Contributing to EPF is very easy. You do not need to worry about “timing the market” or fret over what assets to buy. I highly encourage those with irregular income (eg Grab drivers, property agents) to make voluntary contribution to EPF (such as through i-Saraan).

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