June 20, 2021

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iSinar EPF Withdrawals For The Stock Market, One Should Err On The Side of Caution

Retail investors was the unsung hero of Bursa in 2020. As we are now coming towards the end of March 2021, retail investors participation remains very high. Local institutions have been selling non stop since the start of the year which in my honest view was quite surprising. Considering how bullish research houses are on the Bursa KLCI year end target, it would appear that optimism and bullishness have not spilled over to local funds.

Year End Bursa KLCI 2021 Target

Maybank 1830

MIDF 1700

Rakuten 1870

Affin Hwang 1730

AmInvest 1695

UOB Kay Hian 1680

It is possible the year has just begun, so there is potential for stronger catch up in later part of the year as vaccination roll out continues and potentially economic reopening. Although I hold a different view (more conservative in terms of outlook due to political instability and lower consumer, investor & business confidence), that is a story for another day.

Back to the topic on hand, I would like to draw readers attention towards the iSinar EPF Withdrawal scheme. Based on the news headlines on 27th February, 'Leaving just RM100' - 30 per cent of EPF members withdraw almost all of Account 1 savings , it goes without saying I am deeply concern. I strongly believe there is some level of manifestation of these withdrawals appearing in Bursa KLCI. The reason I am concern is because the "original intent" of the iSinar EPF withdrawal scheme is to assist those who are facing dire situation to cope with the current hardship caused by Covid-19 pandemic towards their daily lives. These hard earned future savings were not not supposed to be utilised for discretionary spending, luxury goods consumption or speculating the stock market. I personally do not believe in borrowing from the future for present gratification. It goes against every sound financial logic. However what one does with their money, is one's right and business which I am in no position to meddle or comment. I would like to point out though, the dangerous mindset of withdrawing EPF money to speculate or punt the stock market.

Most readers know I am a strong fundamentalist in terms of investing philosophy. I believe in this notion strongly and rarely waver. Speculating and punting with excess cash to me, is highly risky activity. Imagine, speculating and punting the stock market with EPF savings. It is akin to walking a tightrope blind folded on a windy day.


With regards to new retail investors in the stock market, let me highlight some of the dangers of investing your EPF money recklessly :

1. Majority of new retail investors enjoy speculating and punting penny stocks without fundamentals, logic or sound investment thesis except for "hearsay, rumours or tips". This can be seen that although retailers are net buyers of the market, mostly the ADV is high but value is low.

2. New retail investors do not invest or build a diversified all weather portfolio, but rather concentrate their funds into several "hot" stocks. This would be dangerous especially when using future savings with an aggressive investment strategy.

3. A go big or go home mindset is not the right way to handle your EPF money. The stock market is not a casino

4. EPF long term investment strategy allows your EPF savings to grow over time through boom and bust cycles. However, once you take it out and invest in the stock market, very few retail investors have the long term investment horizon of more than 5 years, not to mention 30 years.

5. There is no guarantee one will succeed in making money from the stock market. EPF on the other hand is guaranteed by law to provide a minimum return of 2.5% per annum. (Under Section 27 of the EPF Act 1991, the guaranteed minimum dividend rate is 2.5% per year on members' savings.)


The current market condition is as such :

When everyone is talking about the stock market, it is usually a sign of a vibrant market.

When everyone is justifying future earnings of companies with lofty valuations, that is a sign of the market overheating.

When everyone is talking about loss making penny stocks and justifying speculating it on the basis that "I know it is not a bad company, but I will get out first", the market is fleshing red signal.


Safety Net

EPF savings are your safety net. When all else fails, you still have the EPF to fall back on in your golden years. Taking it all out now, and if you are not able to preserve or grow it, worst, if you lose it all, how and where are you going to turn to?

I have always believe investing should be enjoyable, utilising excess cash, free from the stress of leverage (margin) and to grow over time, not overnight. Unless and until absolutely necessary, it is my view that withdrawing EPF savings to invest in the stock market is unwise.


Food for thought: 

The Glove Surge, A Mirage or A Path To Oasis?
Are Research Analysts’ Reports Worth Their Salt?
 

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This  information should not and cannot be construed as or relied on and (for  all intents and purposes) does not constitute financial, investment or  any other form of advice. Any investment involves the taking of  substantial risks, including (but not limited to) complete loss of  capital. Every investor has different strategies, risk tolerances and  time frames. You are advised to perform your own independent checks,  research or study; and you should contact a licensed professional before  making any investment decisions.

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