When the revealation of how dopey palm oil plantation can be to some unfortunate Dayaks, one can wonder instead letting your NCR lands being cheated for small peanut dividends, it’s way MUCH better sell it off and keep the money in any long-term investment such as ASB accounts. Speaking of investment and improving your income, a commentator, Sheikh Seliong Ak Wau in Dayak Baru offer a good tips and therefore lead to my observation on how to benefits from ASB. My intention is to bring the question of break even point in such investment, why and when we should invest or withdraw the investments and the cost vs benefits in taking loans for your ASB investments. The following was my posted comments:

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The following is sample ASB investment, but not at 12.5 percent p.a. interest rate after discounting conventional inflation rate at around 3-4 percent to get a rather conservative ASB interest rate at 8 percent. Any comments, suggestions, corrections from all of you is highly appreciated to improve the best model of basic investment for Dayaks in general.

Monthly ASB savings: RM200.00

Annual total savings: RM2,400.00

For period: 25 years or 300 months

Annual interest rates: 8 percent p.a. (conservative rate)

Note: Assume that ASB compounded once a year and not on monthly basis, and also assuming monthly remittance of RM200.00 as alternate to conventional savings account. As ASB normally pay higher interest rate than conventional bank, remittance to ASB account purely for higher capital gains.

Cumulative 25 years saving: RM2,400 X 25 years = RM60,000.00 (basically the accumulated capital)

Compounding it 8 percent p.a = RM189,490.60 (your investment worth after 25 year period)

Cumulative interest after 25 years = RM189,490.60 – RM60,000.00 = RM129,490.60 (your total net profits)

Break-even point:

Using the above sample, only after 16 years of continous savings, that is your monthly RM200 comparatively compounded at RM209.38 or RM9.38 net returns and higher thereafter.

Eg. Year-1:

Cumulative savings, RM200 X 12 months (or 1 year) = RM2,400.00

Compounded balance = RM2,592.00

Accumulated interest = RM2,592.00 – RM2,400.00 = RM192.00

Actual monthly returns = RM192.00 / 12 months (or 1 year) = RM16.00

RM16.00 < RM200.00 or -RM184.00 net returns per RM200.00 invested.

Eg. Year-16:

Cumulative savings, RM200 X 192 months (or 16 years) = *RM38,400.00

Compounded balance = RM78,600.54

Accumulated interest = RM78,600.54 – RM38,400.00 = *RM40,200.54

Actual monthly returns = RM40,200.54 / 192 months (or 16 years) = RM209.38

RM209.38 > RM200.00 or RM9.38 net returns per RM200.00 invested.

*Note that the accumulated interest (RM40,200.54) starts to grow higher than principal cumulative savings (RM38,400.00). That’s explain your initial RM200.00 monthly savings starts to ‘repay’ itself back.

Eg. Year-25 (end-period):

Cumulative savings, RM200 X 300 months (or 25 years) = RM60,000.00

Compounded balance = RM189,490.60

Accumulated interest = RM189,490.60 – RM60,000.00 = RM129,490.60

Actual monthly returns = RM129,490.60 / 300 months (or 25 years) = RM431.64

RM431.64 > RM200.00 or RM231.64 net returns per RM200.00 invested.

Apparently, break-even point also dependent on interest rates, the higher rate the less period required to break-even.

What next? Passive income for retirement? FD transfer?

You can withdraw it all that RM189,490.60 after 25 years of investment plus with your EPF withdrawals to at least top up your cash reserve for your retirement life. But alternately, you can transfer that RM189,490.60 into any bank fixed deposit (FD) accounts that normally gives you around 3 or 3.7 percent interest monthly. (minimum RM5,000.00 required for monthly FD) FD with 3.5 percent p.a. of RM189,490.60 will give you RM6,632.17 returns/ passive income while you still keep your ASB-withdrawed money. The same applied if you wish to combined your EPF money together for bigger returns. Well, 25 years from now the amount RM6,000 passive income maybe “just” sufficient to survive but at least better than nothing right?

The same example applied for instance if you **target to have maybe RM1million for your retirement**. My guesstimate is to save RM1,000.00 every month for 23 years (but at 10 percent ASB interest rate) with you start making money on each your RM1,000.00 after year-13 or break-even at year-13. After year-23 the amount is around RM1,049,967.92 for your retirement.

Then, there’s a good comment from commentator Sheikh Seliong Ak Wau regarding ASB loans is worth take it or not:

“ASB – this was the second instrument developed by PNB after the original ASN. The word is ‘invest’. You buy ASB through bank loan (Type A or Type B), and then you must keep the paid certificate over a prolonged period of time; maybe 25 years as suggested above.

The mistake I notice; once ASB-loan fully paid, many people liqidate (sell). That is wrong because effectively you haven’t earn anything yet. **You only tighten your belt for the duration of the loan and then enjoy the fruit of your suffering, but not the fruit of your investment.** I hope we can see the difference.

As a remisier, I hope to see more Dayaks/Ibans take an interest in equity investment. In a down-market as now, many asking prices are below Net tangible Asset value (NTA). Buy well-managed and profitable companies and keep the shares over 6 months, 12 months. Sell once you make your earning. This is the only way to earn in equities. (Please read some of the articles I posted in RumahDayak.com). Terima kasih.”

My response:

Exactly, which will lead the question of break-even point. For example taking RM10k ASB loans, instead of liquidate or withdraw it out all after full repayment, there is included the cost of interest payable to banks around RM2k while total interest from actual ASB can be as high as RM5K during the repayment period (total RM15K accumulated capital plus interest at 8 percent p.a) leaving the net returns you received is RM3K. That is the cost of servicing ASB loans thru bank. Worst still, you withdraw it before the break-even point. If repayment period is at 10 years, just wait another few years or leave it more than 15 years to make your investment basically more than principal capital. The accumulated interest should be higher than accumulated capital to reach the break-even point and each remittance therafter will be total net profits.The only differentials here is the higher interest rate that will speed up the break-even year earlier. One percent interest increase/decrease can delay/fasten break-even by 2 years. Other important elements of course your time and patience, which is a rare commodity among Dayaks and also part and parcel of Sakai Mentality.

Another Dayak blogger upon researching (coincidently), Tiyung Dayak also point out the rationale of using bank loans for your ASB investments with calculation examples in taking the loans vs investing your own funds. Again, the determining factor is time period as I see it. The advantage is on the immediate ‘loan’ funds you received in 1st year therefore the immediate interest payments you received compare by using your own fund initially. But bear in mind the servicing cost to the bank against the dividends received. The fixed repayment rate and period can only guide you in giving the clearer picture the actual worth of the investment since ASB do change their rates every year and it’s all depend on the overall issue of inflation and the general economic conditions in our country.

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**The Dyaks Blog Final Donkeys:**

One thing for sure for Dayak NCR land owners: if they ever sell their land (against joining the evil palm oil schemes) and keep the money for long term ASB investments it’s definately HIGHER than receiving RM1.00 per acre NCR lands after 15 years.

December 2, 2008 at 8:02 am

[…] Then, I got another message from WORDPRESS.COM, informing me that another Dayak blogger (The Dyaks Blog) has referred to me. So, with a quick search, I’ve landed in that blog. At first, I thought […]

December 3, 2008 at 2:06 pm

I had visited your blog the other day and jotted down few comments, but then, it didn’t pop up lah…

Yup, it’s nice and easy to be in here. Do have a visit to my blog.