DCA & EPF Roleplay

Dollar Cost Average   a METHOD (way) only   suitable if prices fluctuate over a period of time   UT investment rides on DCA where prices go through several periods of bull and bear; at least in medium-term   Consultants able to sell DCA as “a PLAN” or a product ! – thus, the Ringgit Cost Averaging (RCA)

Dollar Cost Average   Selling RCA : 1. Sell the plan (first) 2. Determine investment horizon 3. Identify risk profile 4. Identify UT fund suitable  Discuss benefits (value) of RCA

Typical Investor Behavior The Lemming Approach to Investment Time Investment Performance Wow! The best investment. Let’s BUY. I’m not worried. I’m a long term investor. Not so good. I’ll wait another 2 months and see. Better cut losses. SELL! No need to rush. I’m waiting for the right time to invest. WOW! The best investment. Let’s BUY (AGAIN)! Oh no! Here we go again. Is this familiar ? Can you REALLY time the market?

Dollar Cost Average   DCA (via RCA) tackles “procrastination”   Procrastination = money (time) lost 1. Abu – invest RM1,000 early (same period) gains = value accum.(age 60) less capital RM336,499 – RM10,000 = RM326,499 gains 33x 2. Ali – invest RM1,000 later (same period) gains 12x (even if Ali con’t RM1,000 till retirement, he gains only 19x) 3. Ahmad – invest RM2,000 later (double amount over same period) gains 25x

Dollar Cost Average & EPF   Provocative questions… Q1. Is your highway to retirement strong enough ? suitable if prices fluctuate over a period of time Q2. How much do you need for your retirement, whilst maintaining your lifestyle ? Q3. Where will this money come from ? * DCA (RCA) also applicable to Education Fees Funding/Plan

Dollar Cost Average & EPF   Provocative questions… Q4. What do you think will be your retirement challenges ? Q5. How long can you Retirement Funds (EPF) outlast you ?

Retirement issues  Provocative facts… Life Expectancy … Malaysians by year 2020 : Males years Females years Source: The Star Online by Hizwani Hassan, senior general manager, Organisational Development Division of EPF.

 Provocative facts… How EPF members exhaust their savings in just 10 years : EPF survey (1995) : 70% of members who withdrew contributions at age 55 spent all their EPF savings within 3 years Source : The Star, pp.1, 28 Feb 2003 An average EPF contributor would have exhausted 70% of his retirement benefits in just 10 years Lower income most affected i.e. most of them spend all their savings 5-10years after withdrawing their money at age 55 Source : The Star, N10, 9 April 2007 Retirement issues

The Star, July 21, 2008 Average worker will have RM120,000 in EPF KUALA LUMPUR: An average worker will have about RM120,000 in his Employee Provident Fund (EPF) account by the time he reaches the age of 55, Deputy Finance Minister Datuk Seri Ahmad Husni Hanadzlah said in Dewan Negara on Monday. He said this amount would give a person RM500 a month over the next 20 years and enable him to meet his basic expenditure needs after retirement.

  Provocative facts… Healthcare Cost at private hospital … on the rise (since 1997): 20% - 120% additional 20% - 120% drug costs 30% rise 30% in surgical costs 150% - 200% basic diagnostics shot up by 150% - 200% date_Malaysia_Medical_markets.pdf date_Malaysia_Medical_markets.pdf Source: date_Malaysia_Medical_markets.pdf date_Malaysia_Medical_markets.pdf Retirement issues

Can your retirement fund outlast you? Monthly expenses * Your retirement fundYears to outlast your retirement fund RM2,000 RM100,000 4 years 2 months RM3,0002 years 8 months RM4,0002 years RM5,0001 year 7 months Assumption Maintain your lifestyle, as upon retirement. Nil inflation.  A simple math facts…

  Your options… Sources of Retirement Highway : Government – epf, pension Children, Spouse, Relatives EPF Why not build a second Retirement Highway ! You have the choice NOW !

How much do you need? Monthly expenses *Nest egg required to maintain RM2,000RM727,160 RM3,000RM1,090,740 RM4,000RM1,454,320 RM5,000RM1,817,901 Assumption Maintain your lifestyle, as upon retirement. Inflation at 4%. Retire at age 55 Funding for retirement for 20 years. You need 70-80% of current income per year to maintain same lifestyle.