Mortgage Reduction Strategies (4)

Method 4 – Make Additional Payments When Possible: taken from http://www.financiallyfree.com.au/mortgage_reduction.htm

When you begin paying off a mortgage, the first few year’s payments are predominantly made up of interest. In fact, in the first 14 years of a 25 yr P&I loan, you’ll be paying more interest with every payment you make than principal off the loan.

If you can pay a little extra to eat into the principal, then the difference can be significant.

Let’s look again at Heath and Melissa. They may be unable to take advantage of Methods 1 and 2 at present, but have chosen to make use of Method 3. However, they would still like to clear their loan faster than the 20yrs 8mths we came up with in the last example.

Every year in August, they receive a combined tax refund for about $2000, and they have chosen to put this directly towards their home loan every year until the loan is paid out. The table below shows the difference this will make:

	P&I Loan with Monthly repayments	P&I Loan, Fortnightly repayments + Annual ATO refund for $2000
Repayment Amount	$1032 p/mth	$516 p/fortnight + $2000 per annum
Time To Repay Mortgage	25 years	15yrs 10mths
Total Interest Payments to the Bank	$159,547	$93,130
Total Principal Payments Made	$150,000	$150,000
Total Repayments Made	$309,547	$243,130
Time Saved	Nil	9yrs 2mths
Interest Saved	Nil	$66,417

By combining methods 3 and 4, Heath and Melissa will now save $66,400 in interest and slash over 9 years off their loan.

Conclusion:

In conclusion, the most important element in all Mortgage Reduction strategies is YOU.

You can derive much benefit by using these methods, but you’ll derive maximum benefit if you set targets, write out a plan and budget and monitor it monthly. Be discerning with your expenditure. We suggest using some budgeting software such as the Financial Advisorprogram as a basic example. This will also allow you to create and calculate your own mortgage amortisation schedule (as we have done for Heath & Melissa). Be disciplined – it’ll be worth it.

Here are a few additional tips:

• When restructuring your finances, spend the time to do some research on interest rates and fees across many lenders. Check out the smaller lenders – you may be concerned about their long-term viability, but remember that it’s you that will have their money not the other way around!

• Hidden charges, fees and restrictions usually counterbalance lower advertised interest rates: quite often the lowest interest rate is not the best or most efficient loan.

• Speak to your lender about what financial packages they have on offer. By consolidating your banking with one provider, you may be able to get a fee free home loan, offset account, and credit card, as well as discounted home and car insurance. Over a period of years, ploughing the savings you make into your mortgage could make quite a difference.

• If you think you might be moving, consider a “portable” home loan (such as most Home Equity Loans). You will thereby avoid some stamp duty, discharge costs and establishment fees when you move as you will be able to use the same loan.

• If you are self-employed or run a business in your own name and are able to, temporarily park the business cashflow in your Offset account or Home Equity Loan until it is needed. This could reduce your loan interest significantly.

• If you’re a professional (teacher, dentist, etc..), look out for “professional” loan packages. You can get a discounted interest rate and bonuses just because the finance providers believe you have stable employment.

• Make sure your finances are structured correctly. Some money spent on good financial advice could well be worth it. For example, if you have investment property in addition to your own home, it’s usually best to put the investment property on an “interest only loan” and plough the saved principal repayments into your “principal and interest” home loan. The interest on an investment property is tax deductible whereas the interest on your own home is not. Do all you can to pay off your non-deductible home loan first, and then look at reducing your tax deductible loans. If you’re in the top tax bracket, the difference over time can be quite significant.

Mortgage Reduction Strategies (3)

Method 3 – Make Weekly/Fortnightly Payments instead of Monthly: taken from http://www.financiallyfree.com.au/mortgage_reduction.htm

If you’re unable to use a 100% Offset or Home Equity Loan for your Mortgage Reduction, and you are currently making monthly payments, then switch your payments to fortnightly or weekly.

There are two fundamental reasons why weekly or fortnightly is better.

1. Because interest on loan accounts is calculated on the daily balance. As you’ll be reducing the balance of the loan more than monthly, you’re creating a slightly lower balance upon which the interest will be calculated. However, the advantage of doing this will be pretty minimal.

2. The main benefit achieved using this method is because you will be tricking yourself into making an additional annual monthly repayment, and the advantage of doing this is quite significant.

You see, if you are making monthly payments, you will be making 12 payments every year. But if you make fortnightly payments, you will not be making 24 annual payments but 26.

However, for this method to be of benefit, you need to set your new fortnightly payment amount at exactly half your current monthly payment.

Beware: if you approach your bank manager and tell him you wish to switch from monthly repayments to fortnightly, he/she may use the following calculation: (Mthly Pmt x 12) / 26

If you use the bank’s formula, there’ll be virtually no benefit to you.

Taking the example of Heath and Melissa (see Method 1 above), the table below shows how many years the use of Method 3 will reduce off their mortgage.

	P&I Loan with Monthly repayments	P&I Loan with Fortnightly repayments
Repayment Amount	$1032 p/mth	$516 p/fortnight
Time To Repay Mortgage	25 years	20yrs 8mths
Total Interest Payments to the Bank	$159,547	$127,600
Total Principal Payments Made	$150,000	$150,000
Total Repayments Made	$309,547	$277,608
Time Saved	Nil	4yrs 4mths
Interest Saved	Nil	$31,947

By simply paying 50% of their current monthly repayment fortnightly instead, they will save nearly $32,000 in interest and 4½ years off their loan.

Incidentally, this method proves to be far more effective in high interest rate times, and can slash many more years off your loan than with the current low rates we are experiencing at present.

Mortgage Reduction Strategies (2)

Method 2 – Use a Home Equity Loan/Line of Credit: taken from http://www.financiallyfree.com.au/mortgage_reduction.htm

A Home Equity Loan, or Revolving Line of Credit as they are commonly referred to, applies the same principle as the 100% Offset account in that it enables every dollar of your income and savings to be used to reduce the mortgage interest.

However, it’s probably fair to say that a Home Equity Loan is only suitable for people who maintain a budget and STICK to it. There are three important considerations with using a Home Equity Loan for mortgage reduction purposes versus using a 100% Offset account:

1. Home Equity Loans are interest only loans and have no term, hence you are not constrained to ever pay it off

2. Your credit limit is normally 80% of the value of your home, which could be hazardous for those who are tempted to stick their hand into the cookie jar for discretionary spending purposes!

3. The interest rate on a Home Equity Loan is generally a little higher than for a standard variable rate loan, maybe 0.5% as an example

For those who are disciplined, a number of advantages apply to Home Equity Loans:

1. You can consolidate other loans and credit cards which are on a higher rate of interest into the lower rate Home Equity loan

2. They’re generally portable, hence saving you on application fees and establishment costs should you move house in the future

3. More aggressive or sophisticated home owners could use their equity to invest at a higher rate of return & use the returns to pay off the principal on the debt faster

See the section entitled Home Equity Loan/Line Of Credit in the article The Different Types of Home Loans for more detail on this type of loan.

Putting aside the features and flexibility of these loans as detailed in that article, the example we used for Heath and Melissa in Method 1 would yield essentially the same result if they had used a Home Equity Loan. They would still slash 14 years off their home loan and save nearly $100K in interest.

A final word: if you spend more than you earn, then this is definitely not the option for you. Stick to a 100% Offset account.

It’s best to do a budget first and set a goal as to how much you want to have paid off the loan at the end of each year. Put dates on your plan and work out what the loan balance will have to be at the end of each month in order for you to get there. And finally, and most importantly, after setting up your Home Equity Loan, review your expenditure against your budget plan monthly.

Mortgage Reduction Strategies (1)

Method 1 – Use a 100% Offset Account: http://www.financiallyfree.com.au/mortgage_reduction.htm

The 100% Offset Account method, as well as Method 2 – Using a Home Equity Loan/Line of Credit, use the same principle.

Method 1 still requires you to make your monthly payment and your loan will thereby be reducing over time. Method 2, however, requires a certain amount of discipline and restraint, as you need only make the interest payments.

The principle both methods employ is to funnel all of your income and savings into a facility that will either:

i) “offset” or annul the interest which is charged against a portion of the balance of your loan (method 1); or

ii) directly reduce the loan balance upon which interest is calculated (method 2)

Most people deposit their money into an every day savings account to pay for living expenses, bills, and as a place to store savings. Banks usually only pay in the vicinity of .01% to 3% on such accounts, and you have to pay tax on that.

By putting your money in a 100% Offset account, you will be putting it where it can work the hardest for you by offsetting the interest on your mortgage – tax free!!

Let’s use an example to best illustrate how a 100% Offset Account can slash years off your loan and save you $10′s of thousands of dollars in bank interest.

Heath and Melissa are humble battlers.

• • They both work and have a combined weekly after-tax take home pay of $770 (or $3337 p/mth).

  • They have a $150K mortgage at 6.7% which they have taken out over 25 years.

  • Their mortgage payment is $1032 p/mth, and they share a car so they get by on $400 p/week (or $1734 p/mth) to cover all their living expenses.

They restructure their accounts in the following manner:

1. Instead of having all their income go into a separate savings account, they open a no minimum amount, low/no fee 100% Offset account which they link to their home loan and organise for both their pay-cheques to go into the Offset account. Some providers require that you have a minimum balance of $2000 or so before they apply the Offset so beware and shop around (see: Conclusion).

2. They also apply for a no fee credit card with a $2000 limit (enough to cover their $1734 p/mth living expenses), a minimum 30 day interest free period, and organise with their finance provider to automatically payout the monthly balance of the card from the funds in their offset account at the end of the interest free period. This is known as a “sweep” feature – it’ll avoid you ever having to pay interest on the card balance as you won’t need to remember to pay the card out at the due date every month.

3. They then make most of their monthly purchases using the card instead of using cash.

By structuring their finances this way, they will be having their full combined net salaries of $3337 per month sitting in their offset account for the month until the credit card balance is paid out. This will be effectively reducing the balance of their home loan, upon which interest is calculated daily, by $3337 for the month.

So what difference does this then make over time? Well, assuming they set and monitor their budget so that they don’t spend more than their $400 p/week allocated for living expenses, and assuming they pay all their bills via their credit card, the result will be that they will completely pay out their mortgage in 11yrs and 1mth (not 25 yrs), and will save nearly $100,000 in interest in the process.

Let’s look at the stats:

	Traditional P&I Loan	P & I Loan with Offset Account
Time To Repay Mortgage	25 years	11yrs 1mth
Total Interest Payments to the Bank	$159,547	$63,006
Total Principal Payments Made	$150,000	$74,250
Offset Account Balance	Not Applic.	$75,943*
Total Repayments Made	$309,547	$137,256 + $75,750 (Offset a/c bal.) = Total $213,006
Time Saved	Nil	13yrs 9mths
Interest Saved	Nil	$96,541

* Note: The $75,943 which has accrued in their offset account over 11yrs and 1mth time is calculated by multiplying $571 x 133mths (11yrs 1mth). They are paying their combined salaries of $3337 into this account monthly, and deducting $1032 for their mortgage payment, and $1734 for their monthly living expenses.

$3337 – ($1032+$1734) = $571 p/mth left to accrue in the offset account.

If you don’t like credit cards and choose not to use one, that’s fine – it’ll just take a bit longer to amortise your loan. In the example provided, Heath and Melissa will still be miles ahead by using a 100% Offset account, even if they have to dip into their account during the month to cover expenses.

You should close all your other non-essential savings accounts and use the 100% Offset account to hold all your cash and to conduct all your transactions. You’ll save on fees by not having multiple accounts, and the maximum balance possible will be working in your favour against the mortgage. Finally, make sure it is a TRUE 100% Offset and not one that pays a lower rate of interest to your mortgage – see the article The Different Types of Home Loansfor more detail on this.

Mortgage Reduction Strategies

Reducing the term, and the amount of interest you will pay over the life of your mortgage, is quite a straightforward process. By applying a few basic strategies, one can pay off one’s home loan in half the mandated time or less, without making any additional repayments over and above those normally required. How is this possible?

The key principle of Mortgage Reduction is that“Interest is calculated on the daily balance”. Therefore, the day-to-day balance of the mortgage account has a significant impact on the interest charged to the loan, and therefore the term of the loan.

There are four basic methods one can employ for Mortgage Reduction. You can use only one of these, or you can use a combination of several of these for maximum benefit. The first twodo not require you to pay anymore than your standard repayment, and yet you can halve your loan period. If you don’t use either method 1 or 2, then the third requires only a fractionally higher repayment, which you will hardly notice, and yet it will likely shave 6 years and $10′s of thousands in interest off your home loan.

The 4 methods are:

1. Use a 100% Offset Account

2. Use a Home Equity Loan/Line of Credit

3. Make Weekly or Fortnightly repayments instead of monthly

4. Make extra payments when possible (i.e. tax return cheque / Christmas bonus)

The basis behind methods 1 and 2 is to restructure the funding of your property in order to minimise the interest which is charged to your loan.

If you’re a little unfamiliar with the account types I mentioned for methods 1 and 2, see the article The Different Types of Home Loans.

Let’s expand upon the 4 methods.

The basis behind methods 1 and 2 is to restructure the funding of your property in order to minimise the interest which is charged to your loan.

Eliminates Your Debts! Wajib!

DEBT REDUCTION PROGRAM: taken from http://www.financiallyfree.com.au/debt_control.htm

This is the fun part because if you can stick to your budget and maintain your target “Disposable Income” figure, you can literally calculate how long it will take you to pay off debt and be debt free. Then it’s just a matter of crossing off the months in countdown mode!!

1. Create a Debt List:

First, make a “Debt List” of all your debts. Put them in order so that those with the highest interest rate are at the top of the list. List the minimum monthly payment that you must make against each.

Note: The annual interest rate and minimum monthly payment amount are usually listed on your monthly statements.

Heath and Melissa’s debt list looks like this:

Debt	Interest Rate	Amount Owing	Min. Monthly Payment
Coles-Myer Card	22%	$1756	$38
ANZ Visa Card	18%	$3300	$68
Car Loan	10.5%	$7000	$151
Home Loan	6.5%	$110,000	$744
Total Debt:		$123,580	$1001

1. Eliminate Debt Target No. 1 – $1780 Coles Myer Card:

Your target will always be to eliminate the debt at the top of your list – the one with the highest interest rate. Therefore, you need only make the minimum payments on the other debts until the one at the top of the list is eliminated.

Heath and Melissa have an extra $200 p/mth to throw against target debt no. 1 in addition to the $38 already budgeted for.

Let’s see how long it will take them:

Coles-Myer Card

Month	Start Balance	22% Interest Added	Accumulated Balance	Repayment	End Mth Balance
July 2003	$1,756	$32.19	$1,788.19	$238	$1,550.19
Aug. 2003	$1,550.19	$28.42	$1,578.61	$238	$1,340.61
Sept. 2003	$1,340.61	$24.58	$1,365.19	$238	$1,127.19
Oct. 2003	$1,127.19	$20.67	$1,147.86	$238	$909.86
Nov. 2003	$909.86	$16.68	$926.54	$238	$688.54
Dec. 2003	$688.54	$12.62	$701.16	$238	$463.16
Jan. 2004	$463.16	$8.49	$471.65	$238	$233.65
Feb. 2004	$233.65	$4.28	$237.94	$238	-$0.06

Presto. In 8 short months they’ll be able to cross item 1 off the debt list – permanently if they cut up the card and never use it again!! (highly recommended).

1. Eliminate Debt Target No. 2 – $3300 ANZ Visa Card:

Having killed debt target no. 1, Heath and Melissa now have an extra $238 p/mth to throw against the next debt on their list in addition to the $68 already budgeted for it.

Therefore, they’ll be able to pay it off at the rate of $306 p/mth. Without drawing the table, at this rate they would pay off their ANZ Visa card within less than 12mths even though its balance was nearly twice that of their Coles-Myer card.

As you can see, your ability to kill the remaining items on your Debt List improves significantly as each item from the list is scratched as you are able to roll-over those repayment amounts against the new target.

Let’s move on…

1. Eliminate Debt Target No. 3 – $7000 Car Loan:

With the first two debts paid off, Heath and Melissa have an extra $306 to allocate against the car loan in addition to the $151 already budgeted for. They are therefore able to throw $457 at the car loan.

At this rate, the loan will be paid off in under 17mths (less than 1½ years).

1. Eliminate Debt Target No. 4 – $110,000 Home Loan:

Now their $110,000 home loan was originally designed to be paid off over 25 yrs. With the budgeted repayments of $744 p/mth, this is how long it would take them.

But now, with all other debts eliminated, they have a spare $457 to throw against the home loan in addition to the $744 already budgeted for. They’ll therefore be able to pay their home loan down at the rate of $1201 per month.

At this rate, their loan will be paid off in just over 10 yrs.

This period could be shortened even further if they were to apply some of the techniques discussed in our Mortgage Reduction Strategies article.

Why you need to “Pay Yourself First”

Assalamualaikum w.b.t and a very good day to all,

There will always be uncertainties and risk that we need to face each time we decide to invest, but being afraid to overcome the risk won’t lead us anywhere. It is necessary to prepare ourselves of the upcoming consequences by taking some extra measures to ensure that our investment won’t lead us to a big catastrophe. There’s a saying that “journey of a thousand miles start with a single step” which means that every preemptive step that we make before investing can really make a difference in the future.

Have you encounter the term “pay yourself first” before? Why does this concept plays an important part in paving your way in achieving financial freedom? Here’s an example for a better understanding of the concept. A big structure will require a strong foundation to support its weight. The structure will be safer from earthquakes, soil settelment and etc thanks to the strong foundations. The same strategycan also applies to the world of investment. Before investing, you need to have a solid plan and objectives since failing to plan is planning to fail at the first place. A good personal financial management and self discipline are necessary to face the obstacle in the future.

Paying your self first means that, we allocate a certain amount of money for our savings each time we receive our salary. We then planned our budget with the remaining salary. Most people spend their money to pay bills and other necessities and put savings at the end of their list which leaves almost nothing in their savings account and the cycle goes on forever. As you get married and grow old, you would eventually realize that the only plan you have for your post retirement days are from your EPF which won’t be enough since a study reveals that majority of people spend out all their EPF money in 2 years. This is why we need to plan ahead by saving our money in adequate investing instruments that suits our requirements.

The minimum recommended savings that we should have each month is 10% from our salary. The higher your savings, the better it is. Once you have accumulate a certain amount of money (some financial experts recommends 6 months of salary), then we are ready to begin the journey. Please bare in mind, the money you have gathered will act as a buffer to absorb potential changes in the future (loss of employment, accident & etc). The best way to manage this is by automaticaly deducting your salary early every month.

CONQUER YOUR FEAR OF INVESTING

Conquer Your Fear of Investing

Many of the most worthwhile things in life are scary at first. Consider, for example, going to school for the first time, falling in

love, learning to drive, starting a family, figuring out your new Tivo…

Investing is no exception. The thought of possibly losing money is a terrifying prospect. And the fact that today’s economy has

seen better days probably isn’t helping those fears. Investing in the stock market has its risks. But if you give in to fear, you’ll

pass up some incredible opportunities—ones that come with big dollar signs attached.

Now is actually a good time for young adults to bite the bullet and get started investing. Think of a market downturn as a

clearance sale: It’s a good idea to go shopping before prices climb again.

Bottom line: Surrendering to fear only holds you back. If you want to get ahead financially, you’ve got to invest in your future.

Below are five common excuses and the strategies you’ll need to overcome them.

FEAR: I don’t want to lose all my money.

CONQUER IT: Diversify.

If your investments are too heavily-weighted in one stock or even one particular kind of stock, you can deep-six your savings

goal. (Remember the tech bubble or, more recently, the financial services crisis?) Mutual funds are a good way to achieve

instant diversification because they allow you to invest in dozens of stocks within a single fund.

One of the quickest ways to diversify, if you’re new to investing, is with a fund of funds that invests in other mutual stock funds.

Or if you’d like something a little more conservative in this uncertain market, go for a so-called “balanced” fund that owns

stocks as well as bonds. But bear in mind that for long-term goals, stocks should earn you the highest return.

FEAR: How will I know the best time to invest?

CONQUER IT: Dollar-cost average.

There’s no crystal ball that tells you exactly when the market will rise and fall. The trick is to invest regularly no matter what the

market is doing. A simple strategy called dollar-cost averaging eliminates the guesswork. By investing a fixed dollar amount

at regular intervals, such as every month or every quarter, you smooth out the ups and downs of the market. This trick takes

out all the emotion—it’s scary to invest when the market’s falling, for example—and investing becomes much less daunting.

Mutual funds are, again, a great investment for dollar-cost averaging because you aren’t charged a commission each time

you buy (like you are for individual stocks).

FEAR: I’m too queasy for the ups and downs of investing.

CONQUER IT: Ignore your investments.

When you obsess over how your investment is doing from day to day or week to week, you could be more tempted to tinker

with it instead of sticking to your long-term diversified plan. Not to mention, you’ll probably lose sleep.That’s not to say you

shouldn’t ever reevaluate your investment choices. Just don’t fixate on them.

FEAR: I don’t have the time or knowledge to manage a portfolio well.

CONQUER IT: All-in-one funds or index funds.

Think simple. When you start investing and aren’t sure what you’re doing, don’t pretend you do. Truth is, most actively

managed mutual funds don’t beat their market benchmarks. If those fund managers have the time, the education and the

motivating paycheck, and they can’t pull it off, don’t worry if you’re afraid you can’t either.

Go with funds of funds to achieve instant diversification. Or assemble a simple index fund portfolio. Index funds don’t try to

beat the market benchmarks, they match them. Put 75 percent of your money into a fund that tracks the overall U.S. stock

market, 25 percent into one that tracks international stocks. Then let ’em ride. As your investments rise and fall, all you’ll have

to do is realign your money every year or so to maintain the proper weighting in each fund.

One more way to set it and forget it: Sign up with your broker or fund company to have your regular contributions automatically

withdrawn from your bank account.

FEAR: What if I need the money?

CONQUER IT: Set clear goals and choose your investments accordingly.

Before you start investing, write down what you’re investing for and when you think you’ll need the money.Conquer Your Fear of Investing

CONQUER YOUR FEAR OF INVESTING

Many of the most worthwhile things in life are scary at first. Consider, for example, going to school for the first time, falling in love, learning to drive, starting a family, figuring out your new Tivo…

Investing is no exception. The thought of possibly losing money is a terrifying prospect. And the fact that today’s economy has seen better days probably isn’t helping those fears. Investing in the stock market has its risks. But if you give in to fear, you’ll pass up some incredible opportunities—ones that come with big dollar signs attached.

Now is actually a good time for young adults to bite the bullet and get started investing. Think of a market downturn as a clearance sale: It’s a good idea to go shopping before prices climb again.

Bottom line: Surrendering to fear only holds you back. If you want to get ahead financially, you’ve got to invest in your future.

Below are five common excuses and the strategies you’ll need to overcome them.

FEAR: I don’t want to lose all my money.

CONQUER IT: Diversify.

If your investments are too heavily-weighted in one stock or even one particular kind of stock, you can deep-six your savings goal. (Remember the tech bubble or, more recently, the financial services crisis?) Mutual funds are a good way to achieve instant diversification because they allow you to invest in dozens of stocks within a single fund.

One of the quickest ways to diversify, if you’re new to investing, is with a fund of funds that invests in other mutual stock funds. Or if you’d like something a little more conservative in this uncertain market, go for a so-called “balanced” fund that owns stocks as well as bonds. But bear in mind that for long-term goals, stocks should earn you the highest return.

FEAR: How will I know the best time to invest?

CONQUER IT: Dollar-cost average.

There’s no crystal ball that tells you exactly when the market will rise and fall. The trick is to invest regularly no matter what the market is doing. A simple strategy called dollar-cost averaging eliminates the guesswork. By investing a fixed dollar amount at regular intervals, such as every month or every quarter, you smooth out the ups and downs of the market. This trick takes out all the emotion—it’s scary to invest when the market’s falling, for example—and investing becomes much less daunting.

Mutual funds are, again, a great investment for dollar-cost averaging because you aren’t charged a commission each time you buy (like you are for individual stocks).

FEAR: I’m too queasy for the ups and downs of investing.

CONQUER IT: Ignore your investments.

When you obsess over how your investment is doing from day to day or week to week, you could be more tempted to tinker with it instead of sticking to your long-term diversified plan. Not to mention, you’ll probably lose sleep.That’s not to say you shouldn’t ever reevaluate your investment choices. Just don’t fixate on them.

FEAR: I don’t have the time or knowledge to manage a portfolio well.

CONQUER IT: All-in-one funds or index funds.

Think simple. When you start investing and aren’t sure what you’re doing, don’t pretend you do. Truth is, most actively

managed mutual funds don’t beat their market benchmarks. If those fund managers have the time, the education and the motivating paycheck, and they can’t pull it off, don’t worry if you’re afraid you can’t either.

Go with funds of funds to achieve instant diversification. Or assemble a simple index fund portfolio. Index funds don’t try to beat the market benchmarks, they match them. Put 75 percent of your money into a fund that tracks the overall U.S. stock market, 25 percent into one that tracks international stocks. Then let ’em ride. As your investments rise and fall, all you’ll have to do is realign your money every year or so to maintain the proper weighting in each fund.

One more way to set it and forget it: Sign up with your broker or fund company to have your regular contributions automatically withdrawn from your bank account.

FEAR: What if I need the money?

CONQUER IT: Set clear goals and choose your investments accordingly.

Before you start investing, write down what you’re investing for and when you think you’ll need the money.If you’ll need the money within the next three to five years, preservation is your number-one aim. Put that money somewhere

safe and accessible, such as a money market mutual fund or a high-yield online savings account. You could also opt for a bank certificate of deposit. But bear in mind your money is locked in for the term of the CD, and you’ll pay a hefty penalty if you need to cash out early.

If you’re investing for the long term, growth is your goal. Invest that money in a broad-based mutual fund that holds mostly stocks. If disaster strikes and you really need the money, you can cash out at any time – but you’ll have to pay taxes on the money you made.

taken from Quicken

Unit Trust : Understanding the Risk

Any investment carries with it an element of risks. Therefore, prior to making any investment, prospective investors should consider the following risk factors:
1	Market Risk
Any purchase of securities will involve an element of risks, As unit trust funds principally invest in listed stocks they may be prone to changing market conditions as a result of global, regional or national economic conditions, governmental policies or political developments. Market uncertainties and fluctuations in the market caused by these uncertainties will affect the net asset value(NAV) of unit trusts which may fall or rise, thus causing the income generated by the fund to fluctuate.ing from funds with higher risk, higher returns to funds with lower risk, lower returns.
2	Liquidity Risk
The various securities that are purchased by a fund may encounter liquidity risk. Liquidity risk relates to the fund’s ability to quickly and easily trade at a reasonable price, in and out of positions. Should a fund comprise a security that has become temporarily or permanently illiquid or difficult to sell, the fund manager may need to sell the security at a discount to its fair value, which eventually affects the fund’s value.
3	Management Risk
Performance of the fund depends on the experience, expertise, knowledge and investment techniques of the fund manager. Poor management of a fund can cause considerable losses to the fund, which in turn may affect the capital invested.
4	Inflation Risk
Ideally the purpose of any investment is to secure returns that are greater that the inflation rate. While a fund will constantly seek to maximize returns and exceed inflation rate, it may occasionally experience losses, which result in returns that will not keep pace with inflation in the short run.
5	Interest Risk
Fixed income securities and bonds are particularly sensitive to movements in interest rates. When interest rates rise, the value of fixed income securities and bonds fall and vice versa, thus affecting the NAV of the fund. The general interest rate environment of the country may affect the value of the investment even if the fund(e.g Syariah Fund) does not invest in interest bearing instruments.

Benefits of Unit Trusts Investing

For an individual to maintain his own portfolio of investments, he needs to keep up to date with market information and sentiments. In today’s sophisticated financial markets, this means having to embrace a wide range of information from a plethora of sources. For many individual investors, this is difficult, if not impossible and at times, very frustrating as they attempt to ” keep on top ” of the information pile. Investing in unit trusts transfers most of the necessary ‘know-how’ of investing to those best equipped to handle it – the professional fund managers.There are a number of other substantial benefits of investing in unit trusts that should be noted.

Affordability

Unit trusts are very affordable. Investors can start with an investment amount as low as RM100.

Diversification

Rather than concentrating an investment portfolio of one or two investments or shares, a portfolio of market securities can be held. The wider the spread of investments, the less volatile (i.e. variable) the investment returns will be. In simple terms, investment into unit trusts means diversification of risk: “not putting all your eggs in one basket.”

Liquidity

Most investors prefer their investment to be liquid. That is, they can easily buy and sell without difficulties. Unit trusts provide this benefit, easily bought and sold. An excellent return that cannot be “cashed-in” (i.e. sold) does not necessarily mean a good investment as poor liquidity constitutes an additional risk factor for the investor.

Professional Fund Management

The people entrusted to manage unit trusts are approved professionals. Their training and background ensures that decision making is structured and according to sound investment principles. In the process, unit trust funds enjoy the depth of knowledge and experience that fund manager can bring. In the long term, it is this expertise that should generate above average investment returns for unit trust investors.

Investment Exposure

For the individual investor, it is sometimes difficult to gain exposure to a particular asset class. For instance, if an investor with RM5,000 wants to gain exposure to the Malaysian property market, global equity markets and the Malaysian bond market, it would be impossible to simultaneously hold a direct investment portfolio in all of these markets. With unit trust investments, it is possible to spread your money around to all of these asset classes at the same time, so that the investor can gain the investment exposure he requires.

Wholesale Investment Costs & Access to Other Asset Classes

When making direct investments in the Bursa malaysia, the investor faces costs and charges that are much higher. With unit trust the economics of the transaction are more favorable i.e. the fees and charges/brokerage etc. per investment ringgit are likely to be less. Because fund managers invest in larger amounts, they are able to get access to wholesale yields and products which are impossible for the individual investor to obtain. For instance, unlike unit trust funds, most individual investors cannot have direct access to the Malaysian Government Security market because, amongst other reasons, the amount of each transaction could run into millions of Ringgit.

The Comfort of Regulation

With the introduction of unit trusts in Malaysia came regulation from various regulators, especially the Securities Commission. The entire range of variables relating to the unit trust industry is governed by various legislations.The sole purpose of such regulations is to protect the interest of the investing public. Regulations provide investors with a level of comfort that they are investing in a safe investment mechanism. article from http://www.fmutm.com.my/contents.asp?id=100052&sid=100036&cid=100030&zid=100008