This article is taken from Facebook account of Mr. Abdullah Haron after we receive an approval to publish in Clickuz. This article was written after his brother need some advice on considering to terminate the ASB loan.


Amanah Saham Bumiputera (ASB) Loan (with minor editing) By

1. The other day, I had a long chat with a brother of mine, a doctor, from my extended family about financial planning, savings and investment. So, bro, here is thanke reading for you to ponder. Ni bodo-bodo analysis je.

2. What if I tell you that you can get RM1 million? No matter who you are, well, for most people, you will be immensely attracted by mere saying of RM1 million. You do not really pay attention to how the hell I am going to get you RM1 million, you don’t really concern with circumstances or whether it is a scam or legitimate. One research by a reputable university in Washington discovered that the effect of money on our brain is the same as effect of drug to drug addicts. Both, money and drug are addiction.

3. So, companies and salesmen understand this nature, use the money attraction to make weak human fall for their schemes. Just imagine. If I persuade you to invest in me by offering RM1,000 return for small investment, you will find it hard to be concerned. What if I just simply tell the word “RM1 million”, you definitely succumb to it.

4. I would like to draw you to many sales illustration for Amanah Saham Bumiputera (ASB) loan. I had seen brochures where they put a large prominent title of “Become millionaire through ASB” or “Get RM1 million through ASB”. They manipulate this human weaknesses to get attention for the loan products.

5. Well, it is not very wrong, maybe half-wrong, but the truth is they are misleading. You may get RM1 million but you cannot become millionaire just like that.

If you want to obtain something, you must give up something of equal value.”

6. The annual dividend of ASB, no matter how good the economy is, just within 7% to 10% only. How long before you become old and retire? If you are 30 years old, you need 25 years of accumulation. Saving money diligently plus some compounding effect of little dividend, you will not get that RM1 million. Logic applies here. You must sacrifice huge chunk of your income every month for that.

7. So, the largest factor is not ASB, it is not the loan, it is not the dividend. The reason, you get RM1 million is because you sacrifice RM800 every month or more for it. How are you going to eat, pay for your house, and other expenses? The ones who can afford such large amount every month are the ones who earn big income.

8. However, rich people do not fall for such petty trick (ASB loan). Lower income earners do. Just like what I have explained earlier, big money enchants everyone, especially average people. The salesmen just use the money bait, then persuade these people, this ASB loan is the only tool for poor people like them to get rich! But from what I know, even these people fall for the trick, most of them are not able to pay the loan installment for long. The reason is obvious, such investment method defies the investment rules.

9. Common people use mathematics to understand investment. They see figures and naively believe they are absolute. But of course, they are wrong because they do not learn other important things, of what statisticians, actuaries, mathematicians and investment analyst have learned.

10. If you invest your money every month and wait for the result for 10 years or so, the calculation is not RM100+RM100 = RM200, or RM10,000 x 10% = RM1,000. The calculate will not be that straightforward.

11. For example, there is these time value of money and risk adjustment, then inflation to be considered into the formula. How this is done? There are so many methodologies and you may not want me to teach you these as they are damn complicated.

12. For you who are laymen, I would like just to draw your attention to simpler things. Let’s say, after 15 years, you get final figure of RM100,000, do you really think that this is it? If you take the loan for ASB, plus compounding interest, you pay almost RM60,000 for that loan. So, from the very basic common sense calculation, the gain you actually get is RM100,000 minus RM60,000 = RM40,000. If you set aside monthly about the same amount of money into ASB, you get about the same finally.

13. If you argue, that by ASB loan, you get RM60,000 now, and annual dividend will make that big amount compounding from now, you will overlook something. By borrowing ASB loan of RM60,000, your loan interest will be compounding on that RM60,000 as well. You gain a little because the ASB dividend is a bit bigger than ASB loan interest.

14. If you gain 7% dividend annually, it will be reduced by say 4%, the gain is 3% only for compounding effect. By saving a little by little, yes, the sum will only grow little by little, but the compounding will be based on net 7% without interest reduction. That’s why if you make a simple calculation, the final amount you get after every expense, is about the same.

15. In investment, we must not blindly look at one simple final figure. We must take into account at all cost that we sacrifice for that final figure. Loan interest is one thing. There are also other factors, that expert usually calculate in investment analysis, like risk factor, Net Present Value, and inflation. If deducted by all these, without a doubt, the final ASB figures will definitely be a lot smaller.

16. Just think about it, you sacrifice like crazy for 15 years or so, to pay the ASB loan, but actually there are hundreds of investment out there, that can give you more money. Even, by slowly saving in ASB, you can actually get about the same amount. Think about all the time you are going to waste, time passed is something non returnable. And your hard earned money.

17. Another thing is the ASB growth calculation that is illustrated on the flyers are mere prediction. How wrong if you blindly trust a prediction just for the sake of 3% return every year. Furthermore, the calculation is very wrong as it is simple calculation that ignores many factors. Of course, the illustrated calculation is done by the normal bank employees who are not even proper investment analyst.

Photo: Warehouse Wealth

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