Retire On Your Own Terms In 5 Steps

What You Should Know About Investing In Tech Stocks

Have you stopped to think about what retirement really means? The difference is that you continue to live with your life and your daily expenses BUT without the monthly salary you used to work or be employed.

This brings us to the next question: how long can you survive without your monthly salary? According to the Department of Statistics Malaysia (DOSM) survey, many Malaysians only have enough savings to survive for 1-4 months.

If your plan is to spend more time on your hobbies or even volunteer for your favorite charity, you’ll still need access to a fixed income stream just to live your life on your terms afterwards. retirement.

So what can you do?

Well, if you want to be able to retire on your own terms, you’ll need to start taking action long before retirement with these 5 steps.

Step 1: Start saving as soon as you can

Experts recommend that you dedicate at least 10% of your income to retirement savings. However, if you’re just starting to enter the workforce and don’t have enough disposable income, saving as little as possible as soon as possible can make a big difference over the next 20 to 30 years.

The trick, however, is to be consistent with your savings. Rather than choosing to save aggressively over a short period of time when you’re older, saving regularly over a longer period ensures that you don’t need to take huge chunks of your salary all at once. Here’s how much more you can save if you start in your 20s instead of 40s.

Person A who starts saving in their twentiesTotal
Age: 23 to 30Saves RM200 per month at 2% return for 7 years18,264.72
Age: 31 to 40Increases savings to RM500 per month at 2% return for 9 years80,987.93
Age: 41 to 50Increases savings to RM600 per month at 2% return for 9 years167,779.96
Person B starting to save in their 40s
Age: 41 to 50Saves RM600 per month at 2% return for 9 years95,611.92

Example of calculation source:

Of course, as you age, it’s a good idea to strive to save 20% of your monthly income for your retirement fund as your salary increases over time.

Step 2: Invest early and fight inflation

If saving as early as possible is a good start, making your savings grow by investing them is even better.

This is because what you earn in interest or profit rate for the money you put in savings accounts may be less than the rate of inflation. For example, the inflation rate in May this year has already reached 2.8%, which means that the money you have saved so far may lose value while it sits in your account. savings if the rate of interest or profit is lower than that.

Investing can offer potentially greater returns than if you just put them in a savings account. Over many years, these returns on investment can generate their own returns.

How much are the returns? Let’s compare what happens if the 23 year old who has been saving for 7 years decides to invest the amount in an asset that can offer potential returns of up to 7% every year instead of just saving money.

YearSavings with 2% return per yearInvest with 7% return per year

Example of calculation source:

After 10 years of investment, the savings could potentially reach over RM35,929.47 and after 20 years, this amount can even reach RM70,678.70 compared to RM27,140.41 by simply keeping the money in a savings account.

Step 3: Be consistent with your investments

When embarking on investments to build your retirement fund, it’s important to understand that you may experience some setbacks or losses along the way.

However, you can combat these losses by using ringgit or dollar cost averaging (DCA) to minimize the impact of your investments. With DCA, what you are essentially doing is when the unit price is low, you buy more units, and when the price is high, you buy fewer units with the same amount of money invested.

The idea is that since you’ve spread out your investments, any losses you take won’t have as much of an impact as if you brought in all the units in one lump sum.

How do you use the DCA?

Basically, instead of putting a lump sum into your investment, you spread it out over a few months or years. For example, if you have set aside RM3,000 to invest, instead of going all in one lump sum, you can break it down into 12 months of monthly investment of RM250.

This consistency in investing a specific amount of money will be easier to maintain than if you had to save huge amounts of money just to start investing.

Step 4: Diversify your investments to reduce risk

Diversification is considered a basic principle of investing, but it can seem daunting to someone unfamiliar with the world of finance.

But, if you just focus on the first part of the word, diversify, it all just means adding variety to your investments.

And diversification is necessary when considering investing for retirement because you can spread your investment risks across a wide range of assets to greatly reduce the risk of losing money if any of your investments went bankrupt.

Having a diversified portfolio also increases your chances of getting better returns, as you might have several successful investments.

Investment idea!💡

There are several ways to approach the diversification of your investments. These can be high risk investments like stocks or something more low risk like the Amanah Saham Nasional Berhad (ASNB) and Tabung Haji funds.

If you are unsure about going to the stock market or don’t have access to ASNB, you may want to consider EPF as it is a fairly safe investment with an annual growth rate compound (CAGR) average of 6%.

Principal Asset Management makes it easy for you to start investing through EPF i-Invest in just a few simple steps. Find out how here.

Step 5: Keep track of your investments and savings

If you have reached this milestone, then congratulations! You have almost reached your capacity to retire on your terms. But don’t stop just yet, because once you’ve set up your savings and investments, you’ll need to check regularly to see if you’re still on track.

An annual review of your savings and investment goals can help you determine if you need to make any changes to your finances to stay on course for retirement.

What should you check regularly?

  • That you have access to enough cash and not everything is locked into investment assets
  • Review your risk profile annually or as your financial commitments change
  • Make sure your asset allocation is in line with your risk profile over time

Many factors can affect your finances, such as changes in life goals in the form of a mortgage or starting a family, market fluctuations that impact your portfolio, or simply unforeseen medical situations.

Retire on your terms with the principal

As in life, the allocation of your investment portfolio cannot stay the same for 10 to 30 years and you need to track it to increase your chances of retiring on your own terms.

But why stop there? Take the extra step to ensure your retirement plans are solid by letting Principal take care of the investing with its goal-based investing solutions. From PRS (which gives you tax deductions!) to EPF i-Invest, ETFs and even Islamic funds, they will match your investment preferences.

Contact Principal Asset Management here!

You are advised to read and understand the relevant Prospectus, Information Memorandum and/or Information Document, including any supplements thereto and the Fact Sheet (if any) before investing. You should understand the risks involved before investing. You should compare and consider the fees, charges and costs involved and make your own risk assessment and seek professional advice, if necessary. The Securities Commission Malaysia does not review advertisements produced by the Principal. For a full disclaimer, please visit here.

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