Sunday, October 29, 2006

What's the difference between unit trust and mutual fund?

What? I thought they're the same? Technically they're the not the same but you can say that they're similar. Nowadays, it seems like both terms are confusing and interchangeable. To make thing simple and let’s kill all the confusion, mutual fund is the American term for unit trust. Mutual fund is found in US and unit trust is found in UK. They’re very similar and you’re safe to assume they’re the same.

Why do you still border to know their differences since they are both are investment scheme that serve the same purpose? In terms of their structure, they are the same too. Both of them have the fund manager, trustee and unit holders just like the unit trust. So, let’s ignore it. No difference. They’re the same.

Most importantly what you really need to understand is the types of unit trust and different categories of unit trust. Finally, choose what types of unit trust fund that meet your desired objective.

Wednesday, October 25, 2006

What is unit trust?

A unit trust is an investment scheme that pools money from investors to meet a specify finance objective. The fun manager runs the fund and invests the money from investor to make sure it meets the fund's objective. When we talk about unit trust, it involves 3 parties that you must know. This is how the whole unit trust structure works.

  • Fund Manager to run the trust for profit.
  • Trustees to ensure the fund manager keep to the fund's investment objective.
  • Unit holders to invest like you as an investor.
You are the unit holder, the investor. The fund manager help you to manage while the trustee make sure the manager do a right thing - do not cheat your money.

There are many reasons why unit trust is for you and indeed for most of the people. I’m here to only list down top 2 reasons:
  • Professional Fund Manager. Ok, you have the money. Do you really know which share you should buy? Ok simple question, do you think you can do a better job than those professional full time fund manager who is expert on this area? If the answer is yes, then you can forget about unit trust. I would suggest you to take your money (assuming you have enough money) and invest on your own. If the answer is no, well, you can hire those professional fund manager with a little of money just to help you to invest. Isn't that good?
  • Diversification. Your funds are instantly diversified the moment you invest your money. Your money will be invested in a broad range of shares, bonds, and other securities. The fund manager typically invests in 50 to 100 companies. If you’re investing on you own, do you think you have the enough money to get the same effect of diversification? Opps… I forgot to tell you why we need diversification. The whole point we need diversification is to reduce the risk. Diversification is also the main concept of unit trust – help you to reduce the risk rather than to put all your money into 1 company’s stock.
To make it simple and short, unit trust is a investment scheme that allow you hire someone to invest for you and also allow you use other’s people money to help you diversify your investment. That is all about “Unit Trust”. Just remember this just in case someone asks you.

Tuesday, October 24, 2006

An ultimate financial freedom book

I always keep asking, is there an ultimate financial freedom book? It guides me to achieve financial freedom and financial independence to solve all my financial problems. So, I keep searching for it many years. I read many financial and investment books and sadly it doesn’t seem help at all until I read a book called The 7 Habits of Highly Effective People by Stephen R. Covey

Yes, you read it right. As you may know, this book is not a financial book. But, how does it help? The answer is rather simple. It helps me to transform all my knowledge on those financial books to the action. I never take action until the day I read this book. Knowledge without action is useless. This book explains the 7 habits which are based on the basic principle and natural law. Due to the fact the 7 habits are universal, it must be learned if you want to succeed in anything you want in life. Therefore in order to achieve financial freedom or financial independence, you must also master these 7 habits. If not, no matter how many financial books that you have read, it is going to be wasted.

As a conclusion of my years of finding, I have to admit that there is no one ultimate financial freedom book. You have to read many financial books and most importantly you need to apply what you have learned. To apply what you have learned and to reach your goal or success, The 7 Habits of Highly Effective People by Stephen R. Covey
is a must.

Friday, October 20, 2006

The secret of wealth and happiness

In many years, I was searching for the answer of wealth and financial freedom until one day I finally realized this secret. What is the secret of wealth and financial freedom? Ok, let me reveal and share the secret to you but please don't be surprise when you know the answer is that simple. Well, human is a very weird and complex animal, I have to admit that. We are working so hard to achieve our goal and yet our goal is so simple to reach. Why? Probably they haven't realized the 3 simple steps below. Sad to say that, yet it is simple, most of the people cannot do it.

Ok here it comes. The 3 simple steps are:

  1. Spend less than your monthly income
  2. Buy only things that you can really afford
  3. To accept the that there are things that you have to do without
These 3 steps not just necessary for financial freedom but also critical to happiness. Ok, let assume you are violating step 1 and step 2 continuously for years. Yes, you may enjoy the one little happy moment at the beginning, and what is next? Will you still happy? Even if you follow the step 1 and step 2 but not in step 3 which means you can't accept the things that you have to do without, will you still happy? Step 3 is the hardest thing throughout my life experience.

Now, you have already known the secret. These 3 steps are very important and very basic for wealth and happiness. If you are able to perform all these 3 steps continuously for years, you will be financial freedom and it is just a matter of time. Step 3, think about it. Can you really make it?

Tuesday, October 17, 2006

Why do you need Financial Planning?

Many people do not realize the importance of financial planning. The reason is simply nobody tells them the importance of it. Let's look at the reality, did your teacher in school teach you how to invest? Did your professor in university teach you how to buy insurance? How about your parents? Perhaps yes? How about your colleagues at work? Even if they do, do they really give you the right information about financial planning?

Let me share with the 3 major things why financial planning is important.

  • Inflation. At 4% inflation, $ 100 k today will be worth only $ 67 K in 10 years. Do you aware that the percentage of your yearly income increment has to be factored in the inflation rate?
  • Retirement. At the age of 55, the average man is expected to have 14 years of retired life and the average woman is expected to have 19 years. Do you have enough money to support yourself for that length of time after your retirement?
  • Education Cost. If you have kids, the education cost of $ 100 k will cost $280 k in 18 years. Do you realize that college cost is increasing faster then the inflation?

Financial planning is important because it is a basic defending tool against these 3 major unrealized future financial issues.

Sunday, October 15, 2006

What is financial planning?

Financial planning is a continuous process to analyze your current financial situation and then to identify the actions to be taken to solve your financial problem and to achieve your financial goal.

For instance, financial planning helps you to decide the following:

  1. Should I spend now or should I save for later?
  2. Should I pay off my housing loan or spend the money for renovation?
  3. Should my investments focus on short term or long term?
  4. Should I increase my retirement savings?
  5. What type of insurance I should buy?
A true financial plan does not focus on one particular aspect or product, but instead it takes all areas of planning into consideration when making financial decisions.

Sunday, October 01, 2006

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