235) Investment Accumulation vs Investment Returns

235) Investment Accumulation vs Investment Returns

 

Let me explain the different meanings as below for our discussion.

Wealth Accumulation means you keep adding new investment or savings to steadily increase your wealth: 
Investment Returns means the rate that your assets multiply in value.

Many investors worry more about their investment returns as compared to wealth accumulation.
In other words, increasing your wealth by accumulation or by multiplying them. The best is to do both. Accumulate and multiply your wealth.
 
What is the difference?
Which is more important?

Investment Accumulation

You keep investing or save your money consistently and regularly. By adding more money, you increase the total amount. Even if you keep the money and have ZERO returns, you will have more money after accumulation for some time.

Investment return

Investors want their investment to give a high return every year.
However, high returns comes with high risks. Depending on the investment types, their returns are according to the risk you willing to take.

For example, investment in stock market may potentially give you 10% return per year.
A Unit Trust bond fund may give you 4% per year.
Fixed Deposit in the bank may give you 3% per year.

Nobody will give you a high return when you take a low risk. If anybody promises you that, be ready to run fast and far. If it is too good to be true, it most probably is.

Which is More Important?

What if you invested your money in a moderate risk investment like a Unit Trust Equity fund.
After 10 years it gave you 300% return. You will have 400% of your money.

Is this a good return? Definitely yes.
Using Compounding calculation it is 14.87% annualized return

Will you have a lot of money and become rich?
Most probably NOT...

Why? 
Because it depends on how much you invested 10 years ago.

If you only invested $1000, you will only have $4000 after 10 years. Nothing much you can do.
But, if you had invested $1 Million, then you will have $4 Million now. This is something you can celebrate for.

What if you invested $1000 and then Accumulate $1000 every month for 10 years. Let's compare how much your investment amount will be under different return rates.

With 0% per year, you will have $121,000
With 4% per year, you will have $148,740
With 6% per year, you will have $165,699.
With 8% per year, you will have $185,165
With 10% per year, you will have $207,552

As you can see, with $1000 per month, you have accumulated at least $121,000 at 0% return.
 
From this case example, you will have more Wealth from Accumulation as compared to going for High Returns. 

It is better to Accumulate Wealth slowly and steadily, then to chase for High Returns investment.

Always remember High Returns comes from High Risk. 

Many people lost everything from chasing high returns investments.
Those who consistently save and invest into a low risk investment will definitely have more wealth in the future.

This reminds us of the Tortoise and Rabbit story.
Slow and Steady Wins the Race.



Wealth Accumulation is like a Marathon race.
High Returns is like a 100m Sprint race

You do not need a high return, 
but you definitely need time 
to accumulate your wealth.

#highlevelrules

Book 1) Retire at 55

Book 1) Retire at 55

Retire at 55
Can or Not?

By KeanSeng Lim

Front Cover:

Back Cover:

Content:

Sample Pages:

Synopsis

RETIREMENT - a phase in our lives that everyone tries to ignore until it is too late. When we are forced into mandatory retirement, we are then faced with a dilemma on how we will survive.

The author had the rude awakening when he had a career change at the age of 41. It took him almost a year before reality hit him very very hard. It forced him into doing things that were difficult to accept but had to be done. And he did it to be able to retire by his 55th birthday.

If he can make it, you can too. Just commit to it.

Book Details

Number of Pages: 80
Type: Softcover
Size: 201mm(W)  x 149mm(H)
Publication Date: 2019

Price: RM40.00
Shipping: Free within Malaysia

To get a copy:

Contact: KeanSeng Lim
Facebook: https://www.facebook.com/ksjohnlim
Email: keanseng@live.com

For bulk purchase of more than 10 copies, contact author for special pricing.

234) 7 Habits That Will Keep You Poor

234) 7 Habits That Will Keep You Poor

We have always wanted to know how to be a Millionaire.
However, to be a Millionaire is a multiple way process.

Which is the way to be Rich?
A) Earn More
B) Spend Less

The answer is both of the above.

It is not how much you earn, but how much you save to make you a millionaire.
A person who earns a Million per year can also be a bankrupt.

Although you earn a million, you will still be broke if you spend more than a million.

Here are the 7 habits and behaviors that will make you remain broke.

1) Overspending

You spend more than you earn. No matter how much you earn, you spend it all away and accumulate credit card debts. Most people wants to upgrade their lifestyle whenever they have extra money. It ends up the upgrading costs more than the additional earnings.

Do keep your expenses low and do things that will increase your income.

2) Reading only for Entertainment or never read at all

You do not read or learn new things. You are not growing. With the same knowledge, you can only do the same thing and remains the same. Then your earnings also will remain the same.

You need to take steps to enhance your skills and gain new knowledge. You need to grow better everyday. With the current technology, you can learn new skills via YouTube, listen to podcasts and google for any information. Have a Learning Mindset.

3) Toxic Relationships

You keep hanging out with negative people who likes to Complain, Blame others, give Excuses and Gossip about others. The negative people will want you to remain the same, just as they are.

Move away from those negative people and look for positive people. You can join groups of entrepreneurs or businessperson who can and willing to help you.

4) Only One Source of Income

You only have one source of income. You are dependent on that source. If something bad happens and that income source stops, you lose your ability to pay for your living expenses. You put all the eggs in one basket.

Get yourself a few streams of income. Learn new skills and you can explore into a new business. Start to grow your incomes. However, do be careful of the many gurus promising easy money. There are too many scams out there. If it is too good to be true, then it most probably is.

Find out more details about the business opportunity. Check if the business is legitimate and is there any regulators monitoring the business. Check the background and talk to others who are already in the business. Find out from those who had good and bad experiences.

5) Engaging in Negative Self Talk

Do check what you are talking to yourself. Do you often say that you cannot do it? "I am not good enough", "It is too difficult for me to do." "Life is a Struggle."

When you allow negativity to rule your thoughts. you are programming yourself to be a failure.

Stop telling negative things to yourself. Whenever you hear yourself say "Cannot" , ask "Why Not?"

More articles: 10 Kaizen Basic Principles

6) Have No Plan

You do not have any idea on what to do. You just live life as it comes along. Just like floating in a small boat in the sea, just let the sea bring you where it wants.

You need to have a plan on what to do to improve your situation. If you do not know what to do, look around for others who are doing something to improve their income. Talk and get help from positive people who had done something to change their life.

Do be careful of those who promises you easy money by following their plan. Be careful if you need to pay a lot of money before you start. There are many scams.

More articles on: Take Appropriate Actions

7) Unhealthy Lifestyle

Unhealthy habits like excessive drinking, excessive smoking and excessive eating. These excessive habits make you spend more. Do cut off your drinking and smoking to reduce your expenses.

Do keep yourself occupied with healthy lifestyle habits. Remember to do exercise to keep your mentally and physically fit.




Adapted from Original Article:
https://www.businessinsider.my/bad-habits-that-wont-make-you-rich/?r=US&IR=T

233) 4 Main Paths to be a Millionaire

233) 4 Main Paths to be a Millionaire

What are the Main paths to be rich? 
Which is the easiest and the hardest?

The first and the Super easiest way is to be born into a Rich Family. Your parents and family already have the money to give to you. Nothing much you need to do. The problem is not many of us are born with a silver spoon.

The second easiest way is to marry into a rich family. But then again, how many of us have this "luck" and "attraction to rich people"?

The third easiest way is to buy lottery tickets and hope to strike the Million Dollar Jackpot.The problem is too many people hoping for the same thing. You must be the "Chosen One".

The fourth way is to rob the bank, goldsmith shop or other people. This is morally wrong and never recommended under any circumstances. Forget about this way.

OK, seriously, the 4 paths above are actually not counted in this article.

Below are the more workable method that require actual effort and talents to be Millionaires.

1) The Saver - Investor Path

This is considered as the easiest, but you need a lot of time and to start early. This is using the Magic of Compounding. Dr Albert Einstein mentioned that it is the Eighth Wonder of the World. The Millionaires started to save and invest early in their lives.    
 .

Things in Common:

1. Typically had a middle-class income (many reached a six-figure salary early in their career, and if they didn’t, they lived very frugally.)
2. They had a low cost of living and preferred to save, rather than spend lavishly.
3. They saved 20% or more of their income.
4. They started investing their savings early in life and continued to do so prudently for many years.

They made saving and investing part of their routine
They were constantly thinking about smart ways to grow their wealth.

2) The Dreamers Path

This is perhaps the Hardest Path. They pursue a dream such as starting a business, become a successful actor, musician, speaker or author.

They make pursuing their dreams as their focus. They loved what they do for a living, and their passion showed up in their bank accounts.

They worked very hard and spent long hours in the beginning before becoming successful.

3) The Company Climbers Path

These people worked for big companies and devoted their time and energy to climb the corporate ladder until they land into a senior executive positions. In many cases, they become rich by stock compensation, partnerships and share of profits of the successful company.

They have strong relationship-building skills, networking and making lasting connections with powerful people in the industry.

They also worked very hard and spent long hours. Many have to travel frequently and sacrificed a lot of family and vacation time.

4) The Virtuosos Path

They are among the BEST in their profession.They are paid highly for the knowledge and expertise. Some worked in the medical fields, sports and even law. Some worked for large corporations while others were business owners with highly profitable enterprises.

They spent many years continuously to study, learn and upgrade their skills.


These are the 4 Main Paths. 
Which path do you want to pursue? 
Which path is still available to you?


Original Article:

The article above was adapted from the findings of:
Tom Corley, an accountant, financial planner and author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life” and ”Rich Habits: The Daily Success Habits of Wealthy Individuals.”

He spent 5 years interviewing 233 wealthy individuals with at least USD160,000 annual income and USD3.2 Million in net assets.

Tom Corley books at Kinokuniya Malaysia :
Rich Kids: How to Raise Our Children to Be Happy and Successful in Life

Rich Habits, Poor Habits : Learn the Daily Habits That Separate the Rich and the Poor


Original article:
https://www.cnbc.com/2019/09/27/4-main-paths-to-becoming-millionaire-here-is-the-easiest-way-says-money-expert.html

232) How Many Funds Should You Invest In?

A very common and interesting question.
However, be ready to get many different answers from different people.

Some people will say 3 is enough.
Some people will say 10 is too many.
Some will say it depends on your goals.
Some will ask you what you want?

Here are few questions to ask and understand about Unit Trust Investment.

Is there any difference in charges between a few funds vs many funds?

Unit Trust companies normally charge a fixed percentage of the investment amount for the same fund type. Equity funds (eg 5%) are normally charged higher than bond (eg 1%) and money market funds (eg 0%).

So, it is not based on the number of funds you invested into. It depends of the funds types and amount. The more the investment amount, the higher is the total charges.

Is it difficult to monitor too many funds?

Unit trust funds are managed by the Fund Managers. As a Unit Trust investor, you do not need to monitor the investments so frequently. Your Unit Trust Consultant will also assist to monitor your funds performance and recommend appropriate actions from time to time.

So How Many Funds?

It all depends on your Investment (Financial) objectives. Each objective will require different amount and at different time.
 
What are the common financial objectives that people have?
- Education money for children
- Retirement savings
- Money for down payment of a new house
- Money for down payment of a new car
- Money for a special holiday
- Emergency Money
- Money to start a new business

We have a lot of things that we want to do, but we have limited resources (money).

You need to be very clear on what, when and how much money required for each objective.
Once you have clear objectives, you can choose suitable unit trust funds for each objectives.

In unit trust investments, you can diversify your investments easily. Most unit trust companies charge the same either you invest into 1 or 10 funds. The reason being the Initial Service Charge are calculated based on a fixed percentage of the amount invested.

For example, a Unit Trust Company charges Initial Service Charge of 5% for equity funds. Your $100,000 investment will incur $5,000 Initial Service Charge. The total charge of $5,000 is the same either you invest into 1 fund or 10 different funds. Even if you invest 100 different months of $1,000 each, the Total Initial Service Charge will still be $5,000.

You can select as many funds as you want to properly diversify your investments. If you have higher amount, you can diversify into more funds. If you just start with $1,000, then just invest into 1 fund first. When you have more money to invest, then you can decide to invest into the same fund (top up) or invest into another fund (diversify). 

This is one of the main benefit of Unit Trust Investments.

What if I want to Change into A Different Fund?

Even if you wish to change your investment, you can easily "Switch" from 1 fund into another fund with a minimal Switching Fee. Try to compare the fees when changing your investment from a house into a condo.

If you had started with only a few funds, you can still switch some money into few other funds.
If had invested into too many funds, then you can consolidate into fewer funds.

The Unit Trust structure allows you to modify and adjust your investment portfolio and diversify your investments into different funds. It all depends on your investment objectives.

Summary

Do refer and discuss with your Unit Trust Consultants on the number of funds you need.
You can always do switching to adjust the portfolio of funds. You do not have to be correct the first time, and can always rebalance later according to your investment needs.


For more articles and details, click links below:

95) Unit Trust Asset Allocation for Retirement

158) Why You Should Diversify Your 3PF into Unit Trust?

109) Need Based Portfolio Model.

231) Give More, Get More

You have heard many times of the phrase,

The More You Give, The More You Get.

Other phrases includes,
"What goes around, comes around"

In other words, you can interpret it as, when you give something, you will get more of the thing that you gave out.

If you have been giving help to others, you will get more help..
If you have been giving happiness to others, you will get more happiness.

For example, when you put in (give) a lot of effort into your work, you will get more results.

Many times, many people give something out and they expect to get back more.

Some people think that when they give help, they will get more money back.
Sometimes, you get more money back, but sometimes it is not more money.

You will get back more things back, but you may not get what you wanted.

What if you give more knowledge to others?
Will you get more knowledge? You will definitely get more knowledge.
The questions people ask you will definitely make you do more research and enhance on your knowledge. You have to find out more information that you had never thought of before. You will have to think where to get more knowledge. You may even have think deeper about what you already know.

If you give problems, you will get back more problems.

So, be careful of what you give to others.

If you give and expect something in return, it is called an Exchange.  

The best gifts are the ones you never expect to get any return back.

Happy Giving.

.

230) Bond Market vs Bond Fund

230) Differences between investing into Bond Market vs Bond Fund

 

Invest Direct into Bonds

1) Larger investment amount is required.

2) Less choice of bonds available for non-institutional investor.

3) Investor needs to monitor the bond investment directly. Lack of time will be an issue.

4) Lack of bond investment knowledge and time to trade bonds for better returns.

5) Investment returns are normally not reinvested and withdrawn. Not able to fully maximize the investment to compound the returns.

6) No need to pay initial service charge.

7) No need to pay for on-going management fee, trustee fee and other fund operation charges.

8) Investment are for long term until bond maturity. Redemption before bond maturity is subject to current market bond value. It can be lower or higher than bond face value.

9) Redemption before maturity depend on other bond buyer to buy the bond in the bond market.

10) Direct bonds are taking the full risk of the investment. Investor can lose their investment if the bond defaults. This means the bond issuer is not able to pay the yearly coupon payment and/or pay back the bond face value.

11) Direct bond investor needs to monitor the bond rating and any rating changes. To reduce the risk, bond investors normally invest into higher rating bonds and get lower returns.

12) Bonds are affected by interest rate risk. Higher interest rate, reduces the bond value. Lower interest rate, increases the bond value. Bonds that are held to maturity not able to optimise the bond value fluctuations.

13) Direct bond investors may not be able to buy bonds with different maturity periods. Mostly invests into shorter maturity bonds which gives lower return rates than longer maturity bonds.

Invest into Bond Fund

1) Low amount to start. Most funds can start as low as $1000.

2) Low amount to add more investment. Most funds can be added with as low as $100.

3) Able to switch to other bond funds, balanced funds, equity funds or money market funds. Investor can switch easily if the market changes.

4) Professional fund manager to manage the bond fund. The team of fund managers do research and look at the economics to decide on buying and selling of bonds.

5) Bond fund managers have a wider selection and access to more bonds.

6) Having a large investment amount enables the bond fund manager to have a lower cost per dollar. Better rates from the economies of scale.

7) Fund manager monitors the bond market and handle the operations.

8) Investment returns are reinvested and compound the investment returns. Fund manager uses the returns to invest into other bonds.

9) Investor no need to worry about the daily operations and market conditions.

10) Investor have to pay the initial service charge.

11) The bond fund pays the on-going management fee, trustee fee, auditor fee, tax consultant fee and other operation charges. The charges are calculated and deducted from the Net Asset Value. The published fund returns are already net (minus) the charges.

12) Investor can redeem partial or full amount at Net Asset Value. No penalty for redemption.

13) Bond funds invest into many different bonds. A small percentage of the investments are in the money market instruments. Some bonds can also invest into foreign bonds. Bond fund enables investment diversification which reduces investment concentration risk.

14) Bond funds are diversified into higher rating and lower rating bonds. Lower rating gives higher returns. The funds are also not allowed to invest into very low rating. Eg. Rating below BBB grade are not allowed to be invested by the fund.

15) Bond funds are less affected by interest rate risk. Fund managers can change the bond funds strategies during different market conditions. Fund manager sell bonds when expecting the interest rate going to increase. Fund manager buy bonds when expecting interest rates to reduce.

16) Bond funds are diversified into shorter term and longer term maturity. Longer term maturity gives higher return rates.

Definition:

Bond Yield = Bond Coupon Rate / Bond Price

Bond Fund Yield = Bond Fund Distribution / Bond Fund Price after distribution.



Do consult the professionals for advise and understand your investing requirements.


For more related articles:

239) Bond Specification & Calculation

https://highlevelrules.blogspot.com/2020/03/239-bond-specification-calculation.html

222) Does Bond Fund Move Opposite to Equity Fund?
http://highlevelrules.blogspot.com/2019/03/222-does-bond-fund-move-opposite-to.html

22) Bond Price Moves Opposite to Bond Yields
https://highlevelrules.blogspot.com/2017/06/bond-price-moves-opposite-to-bond-yields.html

48) Money Market Fund vs Bond Fund
http://highlevelrules.blogspot.com/2017/07/money-market-fund-vs-bond-fund.html

61) Unit Trust Bond Fund Vs Fixed Deposit
http://highlevelrules.blogspot.com/2017/07/unit-trust-bond-fund-vs-fixed-deposit.html

229) Why My Investment Returns Different From Fund's Performance Report?

229) Why My Investment Returns Are Different From The Fund's Performance Report?

You have read and seen the Unit Trust Fund Performance Reports. You are impressed with the returns. However, when you check with your actual investment, the returns are different.

You may start to wonder why there are differences? Is the report accurate?

These are common questions from Unit Trust investors.

Here are possible reasons why there are differences.

1) Different Dates.
The Fund Performance Graph & Report are based on lump sum investment on the specific first and end dates.

For example, if you are reading the 2019 Quarter 1 report, the 3-year Total Return is based on the last 3 years performance up to the Report date. If the report is dated 29 Mar 2019, it may show the report of the fund performance from 30 Mar 2016 to 29 Mar 2019. There may be slightly different dates due to weekends are non business days.

Your investment dates may be different from those 2 dates. Even 1 day difference will have an impact on the total returns. The stock market may have experienced a change of 1% to 2% in a day.

2) Invest multiple times.
As the report is based on 1 lump sum, the fund performance report will be different from your actual fund's performance. As most investors do regular Unit Trust investments, the different times and periods will affect differently on the Total Returns.

3) Withdrawals and Reinvestments.
Your redemptions and investments have affected your funds performance differently. The different transactions on different dates will have different prices and units.

4) Switching between different funds.
Switching of funds involves selling out of one fund and buying into another fund. The investment values are calculated based on different funds.

5) Initial Service Charge
For unit trust investments, investors are charged an Initial Service Charge. If the fund is charging 5%, then your actual investment amount is the amount paid less the charges.

For example, you invested $10,000 into a fund with 5% Service Charge.

Actual Investment (or also known as Working Money)
= Amount Paid / (1 + Service Charge)
= 10,000/(1 + 0.05)
= 9,523.81

Only $9523,81 is used to invest.
Your fund future value is based on the actual investment amount.

What is the actual value if the fund grows 10% over the next 1 year?

The actual future value is:

FV = PV(1+i)^n
      = 9,523.81 (1 + 10%)^1
      = 9,523.81 (1.10)
      = 10,476.19

It is not,
FV = 10,000 (1+10%)
      = 11,000

The Initial Service Charge is only charged on the first day of the investment.

6) Distribution Payout
Paying out the distributions basically will also reduce the invested capital. When your investment value is reduced, the actual returns performance will also be lower. Distribution Reinvestment would not affect your investment performance.


There may be other reasons on the fund performance differences that is not listed here.

Please contact your Unit Trust Consultant for more details.


Links to other related articles:

143) Service Charge and Other Considerations in Unit Trust Investment.

https://highlevelrules.blogspot.com/2018/01/service-charge-and-other-considerations.html

106) Is Unit Trust Initial Service Charge really that HIGH?

https://highlevelrules.blogspot.com/2017/09/is-unit-trust-initial-service-charge.html

186) Does Unit Trust Fund Performance include Service Charge?

http://highlevelrules.blogspot.com/2018/07/does-fund-performance-include-service.html

133) Benefits of Distribution in Unit Trusts

http://highlevelrules.blogspot.com/2017/11/benefits-of-distribution-in-unit-trusts.html

228) Bond Coupon Rate & Maturity

If you have been reading about the Bond Fund pages in the Quarterly Reports, you will see percentage and  there are one or two years indicated after the bond issuer’s name. Have you wondered what the numbers mean?

Example 1: Sabah Development Bank Berhad – 5.50% / 2026

The number 5.50% indicates the yearly coupon rate.

The year 2026 indicates the bond maturity date.

This is a bond with plain structure. No callable feature.

Example 2: AmBank (Malaysia) Berhad – 5.20% /2022 / 2027

The year 2022 is the callable date. If the issuer don't call the callable bond (means repay the principal to investors) in 2022, then the issuer can have the option to call the bond after every 6 months during coupon payment date. The year 2027 will be the legal maturity where the issuer must pay back the principal to investors.

Example 3: CIMB Group Holdings Berhad – 5.80% / 2021 / 2116.

The year 2021 is the first call date. If the issuer don't call back the bond, they can call the bond back every 6 months during coupon payment time.

The year 2116 is a very long time from now. This is a perpetual bond structure, where the maturity date is after very long years like 2110, 2116, etc. There is still a maturity year indicated, just for system recording purposes.

When a bond investor see this kind of long maturity years, they know that this is a perpetual bond. It means a Bond without legal maturity dates.

Perpetual bonds normally gives a higher coupon rate. Although it is perpetual, the issuer normally call back the bond on the first call date.

Please contact your Unit Trust Consultant for more details.

Links to other related articles:

22) Bond Price Moves Opposite to Bond Yields
https://highlevelrules.blogspot.com/2017/06/bond-price-moves-opposite-to-bond-yields.html

48) Money Market Fund vs Bond Fund
http://highlevelrules.blogspot.com/2017/07/money-market-fund-vs-bond-fund.html

61) Unit Trust Bond Fund Vs Fixed Deposit
http://highlevelrules.blogspot.com/2017/07/unit-trust-bond-fund-vs-fixed-deposit.html

222) Does Bond Fund Move Opposite to Equity Fund

https://highlevelrules.blogspot.com/2019/03/222-does-bond-fund-move-opposite-to.html
 

227) Why You Should Think Twice Before Selling Losing investments

227) Why You Should Think Twice Before Selling That Losing Unit Trust Funds

You had made your Unit Trust investment earlier. After you invested, the fund starts to lose money due to market down turn.

You waited for a while longer as you are hoping that the fund will start making money again. As you wait longer, the fund lost more money.

By now, you are already stressed with the losing investment. You are thinking whether to sell or not?

Before you decide to sell or not, do think again what was the objective of the investment.
Why did you invest into that fund?
What was the money reserved for?
Is it for retirement, education, house down payment, pilgrimage fund, etc.

Is the objective time frame achieved?
Is the investment still valid?
What are the market future potential?

If the objectives still valid and still within the investment time horizon, then you should hold on the investment.
Investments have their ups and downs. Remember the saying,
.
"Higher Risks, Higher Returns."

Nobody will give you a high return from low risks.
Everybody will expect a high return from high risks.

Many investors sold too early and only later to see the investments recover the losses and gain more.

When the investment is sold, the investor made losses and realised the losses. They will miss the upward recovery that is normal for a stock market.

They cannot stand the pressure of waiting and seeing their money keep losing more.

If the investment was made with the right objectives, the investor should stick to the objectives.
A strong investment that still has value will have the price recover.

"Price is What You Pay, Value is What You Get" ~ Warren Buffet

Be clear of the Price vs Value of your investments.

The simple idea of any investment or trade is to:
"Buy Low, Sell High"

Very simple to understand, but very difficult to follow.

Most people think they are investing, but in actual fact, they are trading.

Investors should know the time frame on how long to stay invested.
Traders should know the time to buy and sell.

If you find out the value of the investment and see the potential growth, then you are an investor.

If you keep monitoring the prices to find the lowest and highest, then you are a trader.

Be clear of what you are doing to the investments.


For more related articles:

Trader vs Investor
http://highlevelrules.blogspot.com/2018/07/trader-vs-investor.html


Time In vs Timing the Markethttp://highlevelrules.blogspot.com/2017/10/time-in-vs-timing-market_24.html


Price Top & Bottom Cyclehttp://highlevelrules.blogspot.com/2018/08/price-top-bottom-cycle.html
 

226) No Distribution? Did the Fund Make Money?

This is a popular question about Unit Trust investment.

The Unit Trust fund did not give any distribution.
Does this mean the fund is not making any profit?

The Unit Trust fund gave distribution even during a crashed market.
Does this mean the fund is making profit?

The Unit Trust fund gave a lower distribution than last year.
Does this mean the fund is making less profit?

Have you wondered about these questions?

Many people are confused between the term dividend and distribution in the Unit Trust context.
Unit Trust funds only give Distribution. Never give Dividend. 

Companies give dividend to their share/stock holders.

The main difference is the Distribution payment is from the Asset of your Unit Trust Units.
It means the payout amount will reduce the current Unit Price.

For example, the Unit Price is $1.00 and giving a distribution of $0.10.
The Unit Price will be $0.90 immediately after the distribution payment.

What if the same Fund did not give any distribution?
The Unit Price will still remain at $1.00.

It is the same like any other day between the distribution dates.

The Unit Trust fund price fluctuates according to all the investments market values.
If the current total value is higher than yesterday's total value, then the unit price will go higher.

Similarly, the reduction of the total values will reduce the unit price.

The Unit Trust fund give or not give any distribution is decided by the Fund Manager. It depends on the fund strategy, accumulated values, market conditions and future market outlook.

If the Fund Manager decides to keep all the investment value and want to invest as much as possible, they may not declare any distribution.

If the Fund Manager decides to reduce some of the investment value and not to invest all the amount, they may declare a distribution payment.

Normally, the Fund Manager will declare the distribution amount at the end of the Fund financial year's end. Although there are some funds that declare distributions twice a year. Some funds even declare distribution on monthly basis.

A fund that gives distribution can also be losing their total value during the market downturn.

For example, in 2018, the world stock market was affected by the US Federal Reserve increased the interest rates and the US - China trade war. Although most Equity funds lost value, many Equity funds still declared distributions.

As a summary, Distribution payment is not an indication of the fund's performance. 

Check the fund's actual performance by reading the Annual Report and Performance Graph. 

Distribution payment is more on the Fund Manager's fund management strategy.


For more information, please consult your Unit Trust Consultant.

More Related Articles:

253) Why My Unit Trust Fund Did Not Give Distribution?

http://highlevelrules.blogspot.com/2020/07/253-why-my-unit-trust-fund-did-not-give.html

250) Distribution Yield vs Total Return

https://highlevelrules.blogspot.com/2020/05/250-distribution-yield-vs-total-return.html

Click the link below to know the differences between Dividend vs Distribution.
http://highlevelrules.blogspot.com/2017/11/dividend-vs-distribution.html

Click the link below to know the Benefits of Distribution.
http://highlevelrules.blogspot.com/2017/11/benefits-of-distribution-in-unit-trusts.html

225) The Fund Price Dropped. Do You Lose Money?

Recently, there was an angry comment by a Unit Trust investor and published in a local newspaper. The Unit Trust investor was angry because his fund's Unit Price dropped. He had bought the Unit Trust fund in 1994 when the fund price was $1.24.

Currently, the Unit Trust fund price is around the range of $0.40 to $0.45. That is a drop of more than 60% since the day he started the investment.

Do you have similar experience? Even after 25 years (1994 to 2019), you lost 64% (1.24-0.45/1.24) of the fund price.

Does it really mean you lost 64%? 

Well, it depends on the fund you invested. For unit trust funds, most funds give out Distributions regularly.

If the investor had requested for Distribution Payout, then the investor should have received the distributions payment money on regular basis. It is part of the funds returns.

If the investor had requested for Distribution Reinvestment, then the investor should have received more Unit Trust units. New units were bought with the distributions money on regular basis.

To know the total investment value, you need to multiple the current number of units with the current unit price. The formula is a shown below:

Total Value = Number of Units X Unit Price

Refer to the Fund Performance graph above, comparing a Unit Trust Growth Fund vs FBM-KLCI since Jun 1994 to Jun 2019. The Growth fund gave a Total Return of 327% for 25 years. That is around 6% Annualized Return.

For FBM-KLCI, it only gave a Total Return of 65%. That is only around 2% Annualized Return.


In Conclusion, do check the Total Value of the investment to determine whether you gain or loss in the investment. Not only based on the fund price.

For more information, please consult your Unit Trust Consultant.

More related articles:

226) No Distribution? Did the Fund Make Money?

https://highlevelrules.blogspot.com/2019/06/226-no-distribution-did-fund-make-money.html

250) Distribution Yield vs Total Return

https://highlevelrules.blogspot.com/2020/05/250-distribution-yield-vs-total-return.html

132) Differences between Dividend vs Distribution.

http://highlevelrules.blogspot.com/2017/11/dividend-vs-distribution.html

133) Benefits of Distribution.
http://highlevelrules.blogspot.com/2017/11/benefits-of-distribution-in-unit-trusts.html