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DCA & EPF Roleplay

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

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DCA & EPF Roleplay

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  1. DCA & EPFRoleplay

  2. 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)

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

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

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

  6. 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

  7. 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 ?

  8. Retirement issues Provocative facts… Life Expectancy … Malaysians by year 2020 : Males - 75.4 years Females - 80.4 years Source: The Star Online by Hizwani Hassan, senior general manager, Organisational Development Division of EPF.

  9. Retirement issues • 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

  10. 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 personRM500 a month over the next 20 yearsand enable him to meet his basic expenditure needs after retirement.

  11. Retirement issues Provocative facts… Healthcare Cost at private hospital … on the rise (since 1997): additional20% - 120%drug costs rise30%in surgical costs basic diagnostics shot up by150% - 200% Source: http://www.pacificbridgemedical.com/publications/Regulatory_update_Malaysia_Medical_markets.pdf

  12. Can your retirement fund outlast you? • A simple math facts… • Assumption • Maintain your lifestyle, as upon retirement. • Nil inflation.

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

  14. How much do you need? You need 70-80% of current income per year to maintain same lifestyle. • Assumption • Maintain your lifestyle, as upon retirement. • Inflation at 4%. • Retire at age 55 • Funding for retirement for 20 years.

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