Sunday, July 12

UT fund investing and estate planning for 2020


WITH the greeting of happy new year still ringing in our ears, the market was hit by volatility in the form of US President Donald Trump’s first drone missile killing Iran’s Major General Qassem Soleimani. Iran has vowed for revenge and have started to retaliate.

Has Trump stirred a hornet’s nest in Middle East? Will other countries get dragged into the conflict? Is this part of Trump’s to-do list in his re-election campaign, with US Presidential election scheduled on November 3, 2020?

Who else will he pick fight in his trade war in 2020? I am sure countries which have substantial trade deficit with the US are all on his potential hit list.

Therefore, when you review your unit trust investment fund portfolio, volatility is something that you will have to deal with in your mind.

The typical method to reduce your portfolio as’ risk is by diversification. Another useful method for you is value averaging (VA). This formula-based mechanical method is particularly useful when the market is volatile, as it will turn volatility into your advantage when the unit fund price drop.

With the value averaging system in place, it will switch buy with more budget when the equity fund price come down, thus bringing down the average cost per unit as low as it can, much more than Dollar Cost Averaging (DCA).

When the market cycle is up again, more profit can be generated and taken.

Another distinct advantage of VA is to take the emotion out of the equation and prevent unit trust investor like yourself from panic selling when there is a sudden so-called black swan event that causes a big drop in the equity market. Sure there will be some more so-called black swan events generated by Trump this year.

Other than trying to manage risk that will affect your fund portfolio, there is actually another two areas that merit your serious attention in your planning in 2020, your life insurance review and estate planning review.

Life insurance review

When reviewing your life insurance, an important question comes to mind: Are you paying too much premium for your coverage?

I see a pattern in many people’s life insurance purchasing behaviour – most will buy more life policies over time as their income and needs increase, and they end up owning a whole stack of policies which they have to pay premium during their life. Most policies are whole life policies that require premium paying for the rest of their life.

Thus it is time to do a thorough review of your life insurance coverage and the premiums you are paying now to life insurance companies. There may be a need for a restructuring of your insurance program to make sure the premiums you are paying now and for the next 25-30 years are not going to waste.

Estate plan review

Life is uncertain as you know and that’s why life insurance purchase is big business for insurance companies. Along with that you need to have your comprehensive will written or reviewed so that your estate can be properly administered and your beneficiaries will not suffer and their interest not caught in the complexities the law and probate process.

In actual fact, estate planning is more than just having a will written. Be mindful that a will instrument cannot solve all your estate issues when the time comes.

Thus a competent and experienced estate planner is key in estate planning as other legal instruments including but not limited to private trust, power of attorney, assignment, shareholders’ agreement for business owners will be used to design a comprehensive estate plan.

Not forgetting the area on how to protect your estate value from shrinkage, such as drastic reduction in financial value, upon your untimely demise.

Private company shares in Sdn Bhd will end up with little convertible financial value upon the death of a shareholder cum company director. In probate situation, estate creditors will be the first to claim your assets ahead of your intended beneficiaries.

For financial and estate planning appointment, contact Lee Khee Chuan ChFC, CLU, CFP, FLMI, BA (NUS) at 016-8880138. Lee is a financial adviser representative with StandardFA, a CMSRL license holder, a senior franchisee of Rockwills and Islamic Estate Planner with A-Salihin Trustee Bhd.