$68 per barrel - Are We Blessed or Damned?

It has been about a week since OPEC made the decision not to cut oil production and sent the oil price on a free fall.

The first thing that relates to us may be the lower fuel price. Being a commodity that almost every household depend on, lower fuel price is giving a break to our wallets.

However, is it as simple as this? Is it as good as it sounds? There are a hundred and one reasons for us to doubt so.

One of them being, you guessed it right - the falling stock market. It did not happen for no reason, the market is reflecting the fact that a handful of public listed companies have their profitability undermined by the weak oil price.

The first three trading days in this week is characterized by a steep fall on Monday, a slight rebound on Tuesday followed by again by a decline on Wednesday.

Despite the rebound on Tuesday, there are still 11 oil and gas related counters losing at least 10% of the value as of the closing price on Wednesday. 

Counter	Code	Monday Open Price	Wednesday Closing Price	Loss	Loss in percentage
DAYANG	5141	RM2.850	RM2.500	RM0.350	12.28%
DELEUM	5132	RM1.800	RM1.540	RM0.260	14.44%
KNM	7164	RM0.550	RM0.455	RM0.095	17.27%
KUB	6874	RM0.495	RM0.435	RM0.060	12.12%
PERDANA	7108	RM1.250	RM1.040	RM0.210	16.80%
PERISAI	0047	RM0.650	RM0.505	RM0.145	22.31%
SKPETRO	5218	RM2.760	RM2.440	RM0.320	11.59%
TGOFFS	7228	RM0.370	RM0.330	RM0.040	10.81%
THHEAVY	7206	RM0.430	RM0.370	RM0.060	13.95%
UMWOG	5243	RM2.820	RM2.520	RM0.300	10.64%
UZMA	7250	RM2.140	RM1.800	RM0.340	15.89%

At the end of the day, the shareholders and the employees are facing the consequences of the diminishing profitability of the companies.

Even without job cuts, given the current situation, we can expect with a certain probability that the paycheck will be increasing at a much slower rate, maybe even lower than the rate of inflation. When this occurs, the purchasing power of the employees decreases, as a result.

So, is falling oil price a blessing or a curse? Of course we leave the judgment to you.

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Financial Legacy!

Legacy

The topic that we are going to discuss about this week is on Legacy. Legacy is defined as the transmission or receive from and ancestor or predecessor.

Parents are undeniably the breadwinners in a family. However, should an unfortunate event happen, parents should prepare a contingency plan so that their children (if they are not of age) would not have any financial problems. A reduction in quality of living is inevitable but the degree of reduction should be modest in such a way that it still enables the child to fulfill their basic needs. Problems would still arise even if children are all grown. One of the most common disputes among siblings is the dispute of the distribution of assets.

Through a thorough research by BYIC’s research team, it has been estimated that the monthly cost of leaving a non-working spouse and a child studying in UNMC is RM6000. If one is only depending on the interest fixed deposit (which provides a 4% interest) to cover their living costs, the deposit would have to amount to RM1.8 million! Another low risk investment tool with a higher return rate would be the insurance plan.

Planning for the distribution of inheritance

Planning how ones inheritance would be distributed is crucial as not all children take care of their parents well and the law may distribute ones inheritance in such a way that the siblings might seize the assets.

(child A --> father --> child B)

	Parents	Spouse	children
Situation 1	¼	¼	½
Situation 2	X	1/3	2/3
Situation 3	1/3	X	2/3
Situation 4	½	½	X

One of the most common ways for us to plan out the distribution of assets is through will. Will is a legal document with details about the distribution of inheritance. The advantages of writing a will is that it is cheap with only a cost of under RM300 and the procedures to write one are easy and simple. However, writing a will means disclosing private information publicly in court. A will is usually written when there is a change in family members who are eligible for inheritance such as the coming of age of a child. Next, a significant change in the amount of assets own would also result in the change of will.

The other alternative for distributing assets would be preparing a living trust. Living trust is the legal arrangement for the trustee to manage the assets on behalf of the trustor. This way, private information will be kept secret and assets will be managed by professionals. However trustors would have to pay a higher legal fees.

credits to:

Kim Kim
Kim Pham
Lara Tan
Terence Then

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Oil Prices Crashing!

On Thursday, oil prices crashed.

And now on Friday, shares of oil companies around the world are following suit.

Here are some of the biggest losers in pre-market trade on Friday:

BP (BP), down 5%
Royal Dutch Shell (RDS.A), down 5%
Total (TOT), down 7%
Statoil (STO), down 11%
Exxon Mobil (XOM), down 3%
ConocoPhillips (COP), down 4%
Marathon Oil (MRO), down 4%
Occidental Petroleum (OXY), down 3.5%
Anadarko Petroleum (APC), down 6%
Linn Energy (LINE), down 5%
Whiting Petroleum (WLL), down 8%
Oasis Petroleum (OAS), down 12%
Kodiak Oil & Gas (KOG), down 10%
And this list can go on.

Every area of the oil space, from international behemoths like BP, to state-controlled companies like Statoil and Total, to US shale producers like Whiting and Kodiak, is getting hit on Friday.

On Thursday, while the US markets were closed for the Thanksgiving holiday, OPEC, the 12-member oil exporting cartel, announced that it would not cut production.

Many in the market had expected OPEC to announce a production cut to combat the global supply glut that has been blamed for some of the massive decline we’ve seen in the price of oil over the last several months.

Instead, OPEC said it would maintain its current production level of 30 million barrels per day, which has been in place since December 2011, and OPEC said it would meet again in June 2015.

On Thursday, West Texas Intermediate crude futures fell below $70 for the first time since June 2010. Thursday’s one-day drop in WTI was also accompanied by a drop in Brent crude prices, and both benchmarks fell more than 6% in a 24-hour period.

In early trade on Friday, crude prices were around $69.50.

An incredible 24 hours for crude oil.

On Thursday, Russian oil tycoon Leonid Fedun told Bloomberg that OPEC’s decision not to cut production is part of an effort to flush out US shale producers, which have ramped up production significantly in the last few years.

Fedun said that the US shale boom is “on par” with the dot-com boom.

In a post on Business Insider on Thursday, former PIMCO CEO Mohamed El-Erian wrote that while the market’s reaction Thursday indicated clear surprise at OPEC’s decision, the market shouldn’t have been shocked.

“OPEC has a history of opting for strategic rather than tactical decisions; and, this time around, it may have done so from a position of caution rather than overwhelming strength,” El-Erian wrote.

And early on Friday, oil companies are feeling the pressure.

Source (Business Insider Malaysia)

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What is financial freedom? How can you plan to be financially free?

Financial Freedom?

Financial freedom is quite a famous term, but do we really know the real meaning of it? It is used widely by people intending different meanings. However, there is a recognized definition for it.

The Common Misinterpretation

 The common misinterpretation on financial freedom is having a lot of money. This can be disproved by examples of people who make abundance of money yet having huge financial constraint due to high consumption. On the other hand, there are also people who has an average income who consider themselves to be financially free. It is possible as this people might have fewer needs, thus, having less constraints financially.  

The Definition

The best way you can put it is financial freedom is the ability to spend our time as we desire, without financial constraints. You should think of financial freedom as what defines you. It’s what you want from life and it doesn’t necessary have to revolve around dollars and cents.

Why strive for Financial Freedom?

• Enables you to pursue what makes you happy
• Boosts your confidence 
• Able to be the curator of your life
• Helps to foster healthy relationships
• Peace of mind

Robert Kiyosaki (A prominent figure who strongly advocates "Financial Freedom")

• A Japanese American investor, businessman, self-help author, motivational speaker, financial literacy activist, financial commentator, and radio personality
• Author of  Rich Dad Poor Dad series of motivational books
• His book series ‘Rich Dad Poor Dad’ is an international bestseller
• He talks a lot about the importance of financial freedom, which concept is even included in a game he invented called "Cashflow"

Passive Income

The simplest example of a financially free person would be someone who has a passive income which exceeds the total expenses. In this example, the person is now free to do whatever he/she loves to do since there is no more responsibility of working to cover the expenses. This is what we call freedom. To be specific, financial freedom.

Passive income:

Wikipedia : Passive income is an income received on a regular basis, with little effort    

                     required to maintain it. It is closely related to the concept of "unearned income".

Investopedia: Earnings an individual derives from a rental property, limited partnership or  

                         other enterprise in which he or she is not actively involved.

Examples of passive income:

·      -   Earnings from royalties

·    -     Rental income from Property

·    -     Interest earned (e.g. fixed deposit)

·   -      Revenue from Internet advertisement

·    -     Pension

·    -     Stocks

·   -      Bonds

Steps one can take to be closer to financial freedom

Step 1 : Visualise your goals and write them down

·         How old do I want to retire?

·         What kind of lifestyle do I want to live in the next 10-20 years?

·         What will make me truly satisfied and happy?

·         How much money will actually satisfy me? (topic of concern as ultimately money by itself will not bring you happiness)

Step 2 : Think about where you are currently at financially

·         How many streams of income?

·         Am I spending within my means?

Step 3 : Educate yourself

·         Books

·         Seminars

·         Workshops

·         Internships

·         Part-time jobs

Step 4 : Track your expenses

·         Writing them down

·         Phone apps

Step 5 : Plan your finances

·         Leaving aside a fixed amount every month for certain reasons

Step 6 : Accumulate assets

·         Property

·         Paper assets

·         Commodities

The Crossover Point

The crossover point is when your passive income/returns from investments is more than your expenses. By achieving this you have just bridged a huge milestone. For some, the journey will end here. For others, it would have just begun. This is when the fun begins! Learn to play the game and play it wise. Don’t forget what/who you are doing this for and your purpose along the way.

Peace.

Credits to:
 Dhivyamaaran Anparasan @ A.D.Maaran
Nelson Liew
Fabian Au 
Jeanne Chong
Tan Shen Tze

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