The frequent premise of EPF, Berkshire Hathaway

The much-anticipated Workers Provident Fund (EPF) dividend announcement introduced nice delight to members of the scheme.

A 6.1% dividend payout for 2021 is exceptional, contemplating the EPF needed to navigate the problem of a historic withdrawal by members amounting to RM101bil.

Even underneath peculiar circumstances, most pension and financial savings funds wouldn’t have the ability to ship such returns. Nonetheless, up to now decade, the EPF has constantly delivered a mean return of 6.12% (typical financial savings). That is why members should take cognisance of the significance of the EPF financial savings.

It wasn’t too way back when there have been rising issues among the many individuals in regards to the viability and stability of the EPF as a result of leeway granted by policymakers to members to dip into the sacred Account 1 as a result of onslaught of the pandemic.

On account of a variety of steady packages comparable to i-Lestari, i-Sinar and i-Citra, many individuals had been frightened about their retirement nest egg. It wasn’t simply the priority on the dividend payout for 2021 however even the capital itself.

For these round me who had been frightened and contemplated taking their cash out from the EPF, I directed them in the direction of Part 27 of the EPF Act 1991 which states that the assured minimal dividend price is 2.5% per yr on members’ financial savings.

On the EPF’s web site FAQ part, it particularly mentions, “As such, members are assured to obtain the minimal dividend price in any scenario.” But, I do know many who truly withdrew the funds with no second of hesitation upon eligibility.

Naturally, everybody has various causes on why they should withdraw funds from the EPF together with troublesome circumstances, shopping for a primary property or financing youngsters’s training.

All is nicely and good if it had been because of this. What’s worrying is after I hear horror tales of these withdrawing from the EPF to spend money on cryptocurrency, speculative belongings, cash video games or just splurging on luxurious items solely to be left with barely ample retirement financial savings.


Warren Buffett’s letter to shareholders

Coincidentally, a couple of week in the past, Warren Buffett shared his annual letter to shareholders for 2021, a observe he has been endeavor for the previous six many years.

On account of his legendary standing on the planet of investing, it’s a must-read for any investor who’s passionate in regards to the capital markets. Earlier than going into any deeper insights, a high-level have a look at the figures as per Desk 1 paints a unprecedented image.

There may be actually no different investor that may come near Buffett’s observe document. I remembered vividly throughout the world retail investor mania in 2020, characters like Barstool Sport’s Dave Portnoy known as Buffett “washed up” and the way he’s higher at investing. What occurred to him?

Effectively, frequent day buying and selling and being caught up in meme shares comparable to GameStop and AMC has landed him a lack of US$1.3mil (RM5.5mil). There have been additionally critics of worth and elementary investing as “useless within the water”.

People like Arkk ETF’s Cathie Wooden grew to become the star of the capital markets in a single day. It’s now apparent who the final one standing is.

Other than Charlie Munger and possibly Invoice Gates, time has at all times been Buffett’s greatest pal. It’s time that permits him to work the magic of compounding in his favour, particularly when he believes strongly in investing in good high quality firms with great administration.

As he repeatedly identified up to now and once more on this letter, “No matter our type of possession, our objective is to have significant investments in companies with each sturdy financial benefits and a first-class CEO.

“Please word significantly that we personal shares based mostly upon our expectations about their long-term enterprise efficiency and never as a result of we view them as automobiles for well timed market strikes. That time is essential: Charlie and I usually are not stock-pickers; we’re business-pickers.”

The expansion of the enterprise is additional compounded by the expansion in worth over time.

Similarity between EPF and Berkshire

Don’t get me unsuitable. I’m not saying the EPF is performing in addition to Berkshire, however there are particular similarities between each.

In Malaysia, we undoubtedly don’t have a automobile or firm like Berkshire, not by way of measurement, administration or observe document. Whereas most listed firms, particularly big-cap ones, are often funding holding firms, they don’t operate like Berkshire.

That being mentioned, the EPF and Berkshire do share some similarities comparable to they’re each enormous in measurement, their funding horizon is long-term in nature they usually contemplate themselves the custodian of the financial savings of their members or shareholders.

In 2021, the EPF surpassed RM1 trillion in funding belongings, whereas Berkshire’s present market cap stands at US$ 721bil (RM3 trillion). The EPF was arrange in 1951, whereas Berkshire began in 1964. Lastly, the EPF and Berkshire deal with all members or shareholders equally and prioritise managing financial savings for many who entrust it with them.

The most important distinction is that the EPF is a statutory physique, a part of the federal government establishment whereas Berkshire is a company entity listed on the inventory change. But, each carry out the operate of rising the financial savings of those that park their hard-earned monies with them.

Energy of compounding

There shall be many opinions and columns dissecting the stellar efficiency of the EPF such because the why’s and the way’s. Even political commentators would possibly chime in because the EPF’s document dividend seems to coincide with the final election. I don’t intend to dwell on these and like to focus my consideration merely on the advantage of financial savings and the ability of compounding.

There may be the rule of 72 whereby dividing 72 by the annual price of return helps derive an estimate of the time required to double one’s cash. As an illustration, should you can generate 8% return each year of the capital, by the ninth yr, you’d double your capital.

Within the case of the EPF, as talked about above, the common return was 6.12% during the last 10 years. To double your capital, you would wish barely over 11.7 years. Which means if an EPF member had an preliminary financial savings of RM 100,000 in 2012, by 2023, she or he would have near RM200,000 on the present EPF price of return. That is merely due to the ability of compounding whereby it assist snowball the returns when the dividend is paid on the preliminary capital plus the annual dividend paid out yearly.

I want to finish with what I really feel is probably the most significant recommendation from a pair of nonagenarians with confirmed expertise in navigating probably the most ruthless capital market on the planet.

“Berkshire, these shareholders would typically acknowledge, is perhaps removed from the perfect choice they may have made. However they’d add that Berkshire would rank excessive amongst these with which they’d be most snug. And people who find themselves snug with their investments will, on common, obtain higher outcomes than those that are motivated by ever-changing headlines, chatter and guarantees.”

With that, I hope readers can be much less anxious about preserving a portion of their financial savings within the EPF and let the EPF give you the results you want after a lifetime of onerous work.

Ng Zhu Hann is the CEO of Tradeview Capital. He’s additionally a lawyer and the creator of “As soon as Upon A Time In Bursa”. The views expressed listed here are the author’s personal.


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