Category Archives: Finance Tips

Calculate Annualised Return Using Compound Annual Growth Rate (CAGR)

Compound Annual Growth Rate measures the yearly compounded rate of investment growth over a period of time. It computes the smoothed rate of investment return for a specified number of years.

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Simply put, if an investment generated a 10% annual compounded return over a 5-year period, it means that the investment had grown 10% per year over each of the 5 years at an even pace to arrive at the final value although the actual growth rate may not equivalent to 10% each year over that 5-year period.

Let’s take an example:

– Revenue grow from RM1000 in one year to RM1500 in the next. How much growth is that?

– And what if sales grow from RM1000 to RM1500 over 3 years. How much growth is that?

Example of Simple Growth Calculation

To calculate simple growth, subtract the final value from the base value and divide the result by the base value. Then, multiply by 100 if you want to show it in %.

(1500-1000) / 1000 = 500 / 1000 = 0.5

((1500-1000) / 1000) * 100 = 50%

Example of Annual Compound Growth Rate (CAGR) Calculation

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How the Unit Trust Distributions Are Calculated?

A unit trust distribution represents a portion of the total income that it earns during the year. However, there are still many do not know how to calculate the unit trust distributions. Let me share by creating a simple scenario which will help you to understand better on the calculation.

Let’s take an example:

You own 4000 units of a unit trust. On May 31st, before a distribution, the unit trust is valued at RM0.27 per unit. So, the total value of your investment is RM1,080.

On May 31st, the fund managers review the income of unit trust. This total income is divided by the units. Let say it results in a distribution of RM0.01 per unit. Therefore, each unitholder will receive a portion of this income in proportion to the number of units he/she owns. So, you receive a distribution payment of RM40 (RM0.01 per unit multiplied by 4000 units owned).

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Stress of Owning A Car in Malaysia

Buying a car can be really costly to young adults of low to medium income group in our country these days. I worked out a basic calculation on the average income for a young executive to have a basic idea on an individual’s financial situation.

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Assuming that a young executive with 3-4 years of working experience, and is earning about RM3,500 a month. He has committed to his parents and monthly household bills to about RM900 per month (Note: This is just a rough estimate and it varies depends on the location of stay).

Other monthly expenses such as paying for personal insurance, food, utility and phone bills, entertainment expenses amounting to RM1,000. Of the remaining RM1,600, RM1,200 is channelled to his loan repayment for car, petrol, toll and parking fees.

If there’s no additional spending on other items, he will be able to save about RM400 a month only. In this case, I’m assuming that he is living with his parents so there’re no rental expenses incurred.

As you can see, the expenses on his car alone take up one-third of his monthly income, and this has not yet included the depreciation of the car which could easily range from 10- 20% per year.

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The Essential of Managing Risk: Asset Allocation

Asset allocation is essential for investors to achieve long term financial success. Any investor who seeks to increase his returns, protect his investment from specific risks, and maximize his wealth, must exercise prudent asset allocation strategies.

So, what exactly is asset allocation? It refers to the process of dividing one’s investments across various asset classes (eg. cash/FD, property, unit trusts, shares). Depending on factors such as age and level of risk tolerance, different people may have different asset allocation strategies.

For example, a person who is closer to retirement age would usually contribute less of his capital to high-risk assets. A young entrepreneur, on the other hand, could be the exact opposite. Because different classes of assets react differently to changing market conditions, thus proper asset allocation allows you to manage the ups and downs of the financial market over the long run.

How to Determine the Right Asset Allocation for Yourself?
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Financial Planning for A Young Adult

We are faced with various financial concerns on life. Some of the common concerns are:
i. Should we invest? Which investment vehicle? How much?
ii. Can we buy another property?
iii. What sort of protection should we look at?

How can we best optimize our current resources to meet all these concerns and at the same time, meet all our financial goals? Shall we address all concerns at the same time? What is the best strategy moving forward?
Are we overcommitted to a particular asset class? Do we just sell all our loss making investments and concentrate on the oldest investment vehicle such as property? Will this asset help if we need cash urgently?

One of my readers who realized that he needed to get a professional planner to help him out of his dilemma and came to ask me.

From the above, one can see that his major concerns are as follows:
i. Investment: Should he continue to invest, switch or sell the investments in view of current market uncertainty? Would reinvesting the dividends be a good idea?

ii. PTPTN loan (RM63k): Should he settle the amount, now that the government is giving a 20% discount? or should he buy another property instead?

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