Seven pitfalls to avoid in stock investing

Investopedia columnist explores ‘forehead-slapping stock blunders’.

The past one month has been agonising for equity investors across the globe who have seen their portfolio deplete considerably. This then may be the time to take stock of the situation and analyse what are the pitfalls to avoid when investing in equities.

There are some basic principles of investing that one should always bear in mind. In a recent slideshow presentation, Investopedia columnist Glenn Curtis explored seven “forehead-slapping stock blunders” made by investors. We analyse these factors in the Malaysian context.
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● Mistake No. 1: Ignoring catalysts
According to Curtis, the No. 1 mistake is ignoring catalysts that drive companies’ earnings. He says proper valuation, calculating price/earnings (PE) ratios, and running cash-flow spreadsheets only provide half the picture when selecting a stock, as they merely depict where a company stands at that point in time and not, more importantly, where it is heading.

Therefore, in addition to a quantitative evaluation of a company, investors need to do a qualitative study to determine which catalysts will drive future earnings.

Take for example, Astro All Asia Networks plc. The counter, not unlike countless others, has been on a steady downtrend since January 2008.

It seemed to matter little that it was offering a dividend yield of some 7%, had cash of RM1.06bil and achieved record domestic subscriber base of 374,000 as of January this year.

While from a valuation perspective, one may deem the counter an attractive buy, but its share price kept falling. Why? Because investors were more concerned over its operations in Indonesia and the high provisions it has had to make. It recently announced a wider-than-expected loss of RM529mil for financial year ended Jan 31, 2009, largely due to losses from its Indonesian venture.

However, some analysts believe the company will return to the black in the current year (no further writedowns expected) and that it may declare higher dividends in the absence of any major capital expenditure requirement.
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● Mistake No. 2: Catching the falling knife
Buy when everyone is selling. That is easier said that done. Too often, investors buy in before all of the bad news is out, or before the stock stops its freefall.

“New lows in a company’s share price often beget further new lows, as investors see the shares dropping, they become disheartened and sell their shares. Waiting until the selling pressure has subsided is almost always your best bet to avoid getting cut on a falling-knife stock,” says Curtis.
In Malaysia, remember when crude palm oil prices were plunging alongside crude oil? Plantation heavyweights saw their share prices fall, which has yet to subside even now.

This time last year, Sime Darby Bhd was at RM9. Today, it hovers at RM5.55. Asiatic Bhd too was trading at RM7.40 a year ago while today it is RM4.04. IOI Corp Bhd has seen its share price drop from RM6.65 to RM3.82 on Thursday.

For investors who had started accumulating commodities or commodities-related stocks last October, they would have seen their portfolios dip by an average 30%.

For those who accumulated Resorts World Bhd last December, thinking its downside was close, especially since it hit its 52-week low of RM2.15 on Dec 12, how wrong they must have been.
The stock is now trading at its new low of RM1.92 despite its cash pile of RM4.55bil. It continues to be haunted by corporate governance and related-party transaction issues.
Looking purely at the historical PE ratio of a stock can be deceptive. More so when trying to buy a stock at its lowest historical PE.

“This is because if price is constant and earnings continue to drop, then the PE ratio will rise and distort the picture. You never know if you’re buying at the lowest price,” says a head of retail research at a local brokerage.
He says it is better to buy a stock when the related sector bottoms out.

“The way to gauge this point of inflection will be to compare the sectoral data with historicals during previous economic crisis,” he says.
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● Mistake No. 3: Failing to consider macroeconomic variables
Let’s say an investor finds a spectacular company to invest in. Valuations are reasonable and it has several new developments pending announcement. Fund managers are accumulating the shares and the stock looks ready to rock!

Hold your horses and check that enthusiasm.
The current macroeconomic conditions, both global and local, are going to largely dictate the sentiment and buying momentum of the stock.
“If the whole market is falling, there will be very few stocks that will go up. The odds of a retailer selecting these quality stocks are slim,” says a retail head.
The Malaysian investing environment at the moment is far from encouraging, particularly after the fourth quarter 2008 gross domestic product growth of 0.1% stunned the market.
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● Mistake No. 4: The issue with dilution
Another red flag to look out for are companies that issue millions of shares, hence causing a dilution in earnings per share. Malayan Banking Bhd (Maybank) fell below RM4 on Monday, the first time in more than a decade, on concerns over its proposed RM6bil cash call and potential hefty impairment losses.

Following the announcement of a rights issue on Feb 24, the stock price has fallen 26% to RM3.98 from RM5.40. Recall that Maybank has offered a rights issue of up to 2.2 billion new shares on the basis of nine-for-20. The issue price for its proposed renounceable rights issue is fixed at RM2.74 per share, which represents a 34% discount to the theoretical ex-rights price of RM4.17 per share and a discount of 43% to the closing price of RM4.82 on Feb 24.

AmResearch says Maybank’s estimated earnings per share for the year ending June 30, 2010 will be diluted to 38 sen from 52.2 sen previously. “The general perception of a company that raises capital during difficult times is that it is desperate and this will have a negative effect on its stock price,” says the retail head.

Curtin instead advises to try seeking companies that are repurchasing stock and, therefore, reducing the number of shares outstanding. This process not only increases earnings per share but also tells investors that the company feels there is no better investment than its own company at the moment.
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● Mistake No. 5: Not recognising seasonal fluctuations
Most sectors go through booms and bust. In other words, they are cyclical. Investors looking for stocks to buy, need to take into account the sectors that are at present in vogue.

For instance, would it be a good idea to invest in the semiconductor sector, knowing full well there’s a major slowdown in chip sales and a case of layoffs and inventory building up?
In the case of the retail and consumer sector, their sales go up and down depending on which part of the year it is. The year-end school holidays and festivities normally see sales picking up.

At other times, sales are fairly staid.
Similarly, would it be wise to invest in a property company when the sector has gone through a five-year bull market, and will probably need to undergo a period of correction before it rises again?

“The fact is that many companies, such as retailers, go through boom-and-bust cycles year-in and year-out. Luckily, these cycles are fairly predictable, so do yourself a favour and look at a five-year chart before buying shares in a company,” says Curtis.
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● Mistake No. 6: Missing sector trends
While stocks can buck the larger trend, this behaviour usually occurs because there is some huge catalyst that propels the stock.

For the most part, companies trade in relative parity to their peers. This keeps the stock price movements within a trading band.

Let’s say an investor owns a banking stock in Malaysia. While Malaysian banks are not exposed to the huge debts and toxic assets of Citigroup, American International Group or Bank of America, Malaysian banks may likely be affected in a protracted downturn.

Not surprisingly, Public Bank Bhd, Maybank and Bumiputra-Commerce Holdings Bhd have come under heavy selling pressure on negative newsflow and a worsening economic outlook.
Financial valuations in Malaysia have pulled back substantially from a peak of 2.5 times price-to-book (P/B) in January 2008 versus 1.2 times P/B currently.
Hence, if other banks are experiencing certain negative perceptions or problems, most likely the Malaysian banks will also be affected. The same is true if the situation was reversed.
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● Mistake No. 7: Avoiding technical trends
Learning basic technical analysis can be very useful when deciding to take a position in a stock. For instance, would you bet heavily on stocks on Bursa Malaysia when the Dow Jones Industrial Average is trending down every day? Curtis says investors don’t have to be a chartist to be able to perform technical analysis.

“A simple graph depicting 50-day and 200-day moving averages as well as daily closing prices can give investors a good picture of where a stock is headed,” he says.

He advises investors to be wary of stocks that trade close to their average as it usually means it can sink even lower. The same can be said to the upside. Also, when volume trails off, so does the stock price.

“Sticking purely to fundamental analysis can be detrimental to one’s portfolio,” says the retail head.

He says technical analysis measures the real demand and supply for a particular stock. “It helps guide investors to determine the exit and entry points,” he says.

The Star 21 March 2009

Enforced Savings Needed

AS someone who is ill disciplined when it comes to saving money for a rainy day, I am thankful that the EPF remains a solid bastion of enforced savings for ordinary salaried workers like me.
The EPF likes to remind us that its main role is to manage the retirement savings of its members, including the type of withdrawals made as governed under the EPF Act 1991.

So I am actually happy when the mandatory contributions are increased and hugely disappointed when the dividends are reduced. In my opinion, what we have in the EPF must always remain at the maximum possible, based on our earning power.

Even though certain withdrawals are allowed, I feel we should only use those that are absolutely essential, such as when my wife and I withdrew from both our accounts to help buy our first house.

Withdrawing to buy a computer, for example, is a no-no. Although I do invest in unit trusts, my consultant finds it very hard to convince me to take out more money from Account 2 on a regular basis despite all the forms I had pre-signed.

If it is so difficult for me to even use part of my EPF savings for pre-retirement needs as allowed by the law, why then would I volunteer to reduce my monthly contributions as suggested in the economic stimulus plan?

Perhaps the policy makers, taking a macro viewpoint, are convinced that the total sum that can be technically added to the market if everyone were to volunteer to take a three percentage-point cut, will make a difference.

They may imagine all of us heading to the shopping malls to spend, spend and spend. Or at least head to the teh tarik stall each evening to do our bit for the local economy.

But it will take much more to convince me that I will be helping to boost the national economy with about RM200 extra in my pay packet each month if I were to volunteer to make the cut.
I wonder what difference it would make to the majority of contributors who will have even less of the extra cash to spend each month.

Considering the cost of living has gone up and our purchasing power has been significantly reduced in recent times, there is little this magical three percentage points can do for the individual per se.

And another thing, there is now a tax-free limit on EPF savings and insurance premiums amounting to RM8,000.
If, by reducing our contributions, we go below the limit, it can also have implications on our tax bracket.

Unless we are those who truly know how to manage our funds to make our money grow, I will certainly not interfere with what I have in my EPF. I would rather the taxman take less from me each month. That would be a reason to go on a spending spree.

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● Soo Ewe Jin is deputy executive editor, The Star. He believes God never gives us more than we can handle, even in money matters.

Right To Play

Playing is a way for children to cope with anxiety.

I asked a group of primary school-age children to jot down their ideas on what their rights are. They all agreed that they had the right to live, be loved and be protected. One thing they left out in their list was the right to play. When I asked them whether they felt they had the right to play, many of them felt that the adults in their lives controlled this.

Play allows children to learn to manage their anxiety. When children play, they are in a safe space where they can experiment at will. All rules are suspended and they are not bound by any physical or social constraint. In play, children can go their own way. A child at play makes her own decisions instead of following what others say. When children play, they can set aside what is going on in their lives.

Play helps children come to grips with their past and also, just as importantly, to build their future with a sense of a happy ending.

Play is active. Children do not have to be passive observers or suffer what is happening around them. They can actively participate in whatever is happening around them. For many young children who are living in silence, they can speak up without fear.

Play is the way a child works out his problems. As adults, we are constantly talking things out with one another. We talk about our past experiences and how they affect our present. We try to understand what is going on in our lives by pondering the possibilities and making connections.
When children play, they act out what they have heard or seen. They use their own words and actions to respond to what is going on around them. Their play actions help to relieve the anxiety they feel about what has happened. Through their make-believe sessions, children find the strength to cope with the challenges.

A 2½-year-old girl feeds her teddy bear food. She tells him, “Eat up. You cannot grow if you do not eat.” She keeps shoving the spoon with her pretend food into his tightly sewed up “mouth”. She gets angry with him and hits him. Then she picks him up and cuddles him, repeatedly saying, “I’m sorry.”

Play allows the child to test-drive their ideas before they use them to cope in real situations. I remember when my girls first started preschool, they often played pretend school with one another. I could tell how they perceived school as I watched and listened to them. One time, I was alerted that one of their teachers was using the cane in the classroom when I saw my daughter using a long stick. She kept telling her “class” to sit down and be quiet.

Play helps children come to grips with their past and also, just as importantly, to build their future with a sense of a happy ending. Children need to play out their fears after undergoing difficult situations, such as illness, family squabbles and adversities. During times of uncertainty, children use their play situations to give themselves some comfort and guidance.

Humour is also a powerful tool in managing anxiety, and children delight in their growing capacity to make use of it. They start to experiment with practical jokes from an early age. Children would do something funny or make up funny words to fend off their vulnerabilities or the boundaries set by their parents.

My second daughter would make up a language to communicate with us whenever she felt uneasy or reluctant to co-operate. She would either tell a joke or make a remark that no one understands. She would also say something really outrageous when things get a bit tense. She told us that this was her way of refraining from a fight or argument with us.

Children learn to adapt to many situations that are tense or aggravate them to feeling anxious, for example, when they have to attend a new class or on a visit to the doctor’s. Young children who engage in varied play situations with their siblings and peers will discover that things are not so bad after all. Having enacted the situation in their play, children feel they have better control over things.

Parents can help their children to play out how they feel about a particular situation. To do so, they have to give them space without structuring their play with adult rules. Let them say the words they choose. There is no right or wrong in play. Let the child lead. Parents need to respect that children will play and work out their problems at their own pace and in their own time. It is the child’s right to play.

By Ruth Liew

Treasure Moments

Children live for the present, and this is something parents need to be mindful of. PARENTS work hard every day for their children’s future and pray that their children will not make the same mistakes as they did in the past.But children live for the present. They seize the moment to love and take delight in everything they see, hear and feel.

Most parents feel pressured to safeguard their children’s future. They put them in the best schools and enrol them in various classes so that they can learn as much as possible. One 10-year-old boy mapped out his day on a piece of paper. Looking at the detailed account of what he participates in daily, I asked him when is leisure time. He told me that it is when he goes to bed.
Ask any parent with adult children, whether they have any regrets of the past. Many would tell you: “I wish I had spent more time with my children.”

In a newspaper article, one Hong Kong businessman who suffered great loss in the economic crisis said that he finally got a chance to slow down and spend more time with his family. Parents often worry that they will spoil their children. Some treat their children harshly, calling them derogatory names and punishing them whenever a behaviour is deemed inappropriate.

According to Dr Maria Montessori, during the first three years of life, children are guided by what nature has intended for them. They have natural instincts to learn in a way that is best suited for them.

It is important that parents respect this inner teacher. Well-meaning parents who do not fully grasp what the child really needs from them will unwittingly frustrate his efforts by making him follow their lead and keep up with fast-moving schedules.

Instead of reaching their full potential, children feel stressed out and misunderstood.
School-age children who are overwhelmed by homework and exams find no outlet to express their frustration. They get punished in school for not passing up their homework; at home they face the music for not doing well in school.

When asked whether their parents love them, many children will say: “I know they love me when they buy me things I want. And when I do well in school.” Children equate their parents’ affection to gifts. Parents need to be happy, well-adjusted adults, so that their interactions with their children will foster emotional stability.

Sharing lots of hugs and kisses can help children overcome stress and make them happy and healthy. Sometimes when parents sacrifice time for their children, they find that the child is not interested in interacting with them. And then they want their parent’s complete attention at the most inappropriate time. This can be upsetting for busy and stressed out parents.

Children need time alone with their parents. They need to know this is a priority and not a burden for their parents. If you have very little time in the morning, make time for your child in the evening. Doing homework together is not spending time alone with your child. He needs you to find him interesting to be with.

Arrange for some time alone with your child. You may not be able to do this with your child every day. Some of my best memories of childhood were the times my mother and I spent reciting poems together. Now whenever possible, I will pick up a poetry book and read aloud to my girls.

The idea here is to share what you love. My mother-in-law used to tell stories from the Bible to her children whenever she could find some time. Today, her grown-up children are constantly reminded of the values and beliefs they picked up during those treasured moments with their mother.

How to curb your debts

Good spending habits can help curb debts. It’s discipline that matters most WAGES is a sensitive matter and with the economic downturn, there are suggestions for it to be paid on a weekly or even fortnightly basis.

A system of weekly salary payments, said reader Saad Hashim in his letter to the editor on Monday, would help people plan their budgets better and hopefully, avoid going to the Ah Long.
With modern technology, he reckons that this should not be too difficult for companies to implement.

Many feel that getting weekly wages enables them to plan their cashflow better with one person suggesting that it could be more useful to those in the lower income group.

This is the group that manages their expenses on rather tight cashflow. A weekly wage system would help them plan on a more realistic basis when it comes to big ticket items. These items usually require lump sum payments on a monthly basis and those who got caught in the initial euphoria of such large purchases, may find that they don’t have much left after that big monthly payment.

What if there are several of these payments? With the sudden downturn in the global economy, many companies find their sales and exports zooming down, leaving them with little recourse but to cut working days, freeze salaries and bonuses.

In view of the protracted economic downturn, it may be timely for companies to look into suggestions for weekly or fortnightly salary payments, depending on the needs of their employees.

Some worry that it may be even more difficult to plan with weekly wages as sizeable items such as rentals are usually paid monthly here. Again, with modern technology, arrangements can be made for deductions via Internet banking.

In fact, with so much gloom and doom outside, the excitement of receiving wages on a more frequent basis may be an event to look forward and become a motivating factor. This is especially so for those who were used to receiving bonuses, allowances or ex-gratia payments in between. Nowadays, there doesn’t seem to be much to look forward to apart from fixed salaries.
Even as investors, many have turned risk averse and learned to accept very low savings rates. Once in a while, they rush to snap up some savings bonds, whenever they are offered.

There is also a large group out there who can’t be bothered with small wage payments every week or once in two weeks. They could be the more disciplined group who stick to an overall budget allocation for specific items every month. Some suggest monthly salary payments are more feasible for this group which are likely to have surplus funds and therefore, may not need to budget so tightly.

In fact, some may have used up their surplus funds in the stockmarket; those who got burnt may want to opt for weekly wages to help them tide over! In the long run, it is personal discipline and good spending habits that will help curb debts which can be incurred as a result of addiction to drinks, gambling and other vices.

Many also have a tendency for showing off, living beyond their means and keeping up with the Joneses, which can be difficult in the current economic situation.

● Senior business editor Yap Leng Kuen advocates careful spending amidst hard times as the debt spiral can be disastrous in terms of ballooning payments and damage to otherwise, enduring relationships.

Planning for retirement

Only 34% of Malaysians putting aside money regularly for retirement funds

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YOUNG parents Xavier Arumugam and Kavitha Nair has been putting aside a fixed sum every month into their savings accounts as part of their retirement nest egg after deducting expenses for the household, medical insurance as well as education plans for their children and house loan installment.

Both of them had also voluntarily increased their employees contribution to 15% for the Employees Provident Fund (EPF) compared to the usual contribution rate of 11%. Loke Kah Meng ... 99.9% of the contributors will withdraw their EPF savings in a lump sum and 70% will use up money in 3 years. “We are aware though, that we do not have a formal retirement plan in place besides the EPF,” Kavitha admits.

According to Great Eastern Life Assurance (M) Bhd executive vice-president and chief marketing officer Loke Kah Meng, only 34% of Malaysians are putting aside money regularly for their retirement funds, but these may not take into account inflation, the rising cost of living and medical expenses in future, which could be a major financial burden.

“Although EPF savings is one of the main channels to provide for retirement, 99.9% of the contributors would withdraw their EPF savings in one lump sum once they reach 55 years of age and 70% of them would use up all their EPF savings in just three years post-retirement,” Loke notes.

Loke adds that longer life expectancy, delayed marriage and having children later would leave the retirees in a vulnerable position in their old age as they need to need to set aside medical funds for themselves and education funds for their children.

Meanwhile, Prudential Assurance Malaysia Bhd chief marketing officer Thomas Wong, survey findings shows that although Malaysians have a high propensity to save (72% claimed that they do save for retirement), 41% do not have a concrete plan on how to build their retirement fund.
“They just save as much as they can now and hope they will have enough to cover their retirement needs,” Wong says. Wong adds that among those who save for retirement, 77% are putting their money in low-yielding savings vehicles such as bank fixed deposits and savings accounts to accumulate their nest egg.

“Contrary to the common belief that keeping our money in the bank is the best way to preserve our capital, this instrument may not be good enough given that interest rates of bank deposits can hardly outrun inflation,” Wong says.
He also notes that most Malaysians do not segregate their savings for retirement, which made matters worse.

“This means, all their monies are lumped together as general savings. More alarmingly, out of those who consciously separate their savings for retirement, 83% have said that they would use the money should other needs arise,” he says.
This is indeed a risky situation because if they are not careful, they may not have enough money for their retirement, Wong explains.

In addition, a staggering 73% do not seek advice from financial professionals – a behaviour that compounds Malaysians’ poor retirement planning ability further.
“All these could probably explain why about 39% of those surveyed see themselves working beyond the mandatory retirement age, citing income boost as the main reason for doing so,” Wong adds.

Loke advises that instead of relying solely on one’s EPF and personal savings, Malaysians should consider early financial planning, which would save them the stress of dealing with insufficient retirement funds or seeking prolonged employment to ensure financial stability.
“We could plan ahead with investment-linked insurance plans to counter the effects of inflation. In addition, there is also the need to consider providing for your medical needs after you have retired and would be no longer entitled to medical coverage provided by your employer,” Loke says.

Meanwhile, Wong advises that there are a variety of choices available when it comes to building your retirement fund.
“Depending on your risk appetite, investment horizons and affordability, you can invest in properties, equities, unit trusts and investment-linked insurance to name a few. The key is to have a sound investment strategy that is the ability to balance risks and returns effectively according to the desired investment tenure,” Wong says.
Nevertheless, it is always advisable to contact a professional financial advisor or a wealth planner who can provide advice on how to best go about securing your retirement based on your financial circumstances, priorities and needs, Wong adds.

Four ways to stay debt-free

It's important to avoid being highly indebted as it can leave you financially vulnerable in tough times. Here's how to keep your credit card account in the black.

1) Mind your debt
When it comes to problems in managing debt, your mind may be the first area you need to conquer. Mohamed Akwal Sultan, CEO of the Credit Counselling and Debt Management Agency (AKPK), notes that debt is a psychological problem, whereby some people would resort to spending when they are depressed. Dr Goh Chee Leong, vice-president of Help University College, says the basic principle that explains why people spend without thinking on their credit card is attributable to the desire for instant gratification. “We tend to want short-term pleasure even though it means long-term pain,” he says. “We think, if ‘I pay less now, I’ll have more money and it doesn’t hurt me now’. It’s the same principle as to why people procrastinate — have fun now and suffer later,” explains Goh, who lectures in psychology at Help. Another factor that contributes to mindless spending, notes Goh, is the lack of control over desire. “Some lack the will-power to say no to what they feel they want. So, this is a matter of heart versus head.
Is there an antidote for this? “Focus on your limit,” he advises. “Don’t get distracted and compare yourself with other people. If you want to spend the same amount of money that others are spending, you either have to increase your income or decrease your expenditure. Although it is a cliché, it is important to live within your limit.” The good news is that like many things in life, delaying one’s gratification can be attained through practice. “Discipline is a mental muscle. It’s willpower that makes us do something we don’t feel like doing, such as jogging and saving money,” Goh explains.

2) Know your limits
You can’t control debt if you don’t know what you are spending your money on. In Mohamed Akwal’s opinion, budget is one of the most important tools in financial planning. Tabitha Tan Boon Nie, 25, makes it a point to come up with a budget each month. “I only have one fixed income. If I do not budget, then I might be spending more than my income. This is very dangerous!” Each month, she deducts her monthly fixed debts and expenses such as her housing and car loan instalments as well as her parents’ pocket money from her income. “If you’ve just started working, then, in two to three months’ time, you should have a rough idea of how much you need for meals, petrol and toll. If your expenses are more than the balance, then you’ll have to look at how you can reduce them,” she says.
Ruban Thomas, 30, a senior business development executive, took almost three years to clear his credit-card debt. But the experience has taught him how to manage his personal finances better. He now drafts a monthly personal budget planner, putting together a very basic list of monthly income and expenses. “You can just give it your best guess. Stick to the list of things that you can easily identify, such as rent, car payment, insurance and utilities. As time goes by, you can add more details.” Ruban makes it a point to pay himself a minimum of 20% every month when he gets his pay cheque. Next, he sets aside money for “unavoidable payments” such as car and housing loans, PTPTN (National Higher Education Fund Corp) loan and utility bills. Nelson Ng, a banker, does something similar. “The housing and car loans are my main priorities. I spend what’s left of my income after deducting 20% to 30% for savings,” he says.

3) Keep a tight rein on the ‘extras’
Budgeting helps to identify your regular expenditures, but it doesn’t help if you blow the budget regularly on big items. Ng points out: “You must always remember to not overspend and indulge in impulse purchases, especially during sales.” Credit card issuers tend to give a credit limit that is two to three times higher than one’s earning capacity. This can give you the illusion that you are able to afford a lifestyle that is two or three times beyond your means. Hence, make sure you have the money to pay for each purchase. You could have a little ‘savings accounts’ set aside for treats like travel or large purchases like a handphone. After purchasing the items, use the money to pay the charges in full.

4) Limit temptation
When Ng managed to settle his outstanding debts after around two years, he decided to cancel four of his credit cards to avoid the temptation of overspending. Currently, he only owns two credit cards — one for petrol transactions and the other for daily use. “There is always the temptation to overspend when we have too many cards in our wallet,” he opines. “With a minimal payment of 5%, the monthly payments seem to be small, but the bigger debt is always waiting for us at the bottom of the statement. Clear your credit card debts as fast as possible because every month, there will always be additional bills being credited and your debts will accumulate very fast, with the high interest of 18% per annum.”
Similarly, Tan owns two credit cards and does not intend to apply for more. “The interest rate is way higher than the interest rate your saving account is giving,” she points out. “Furthermore, my credit limits are already over my monthly income. I really wouldn’t want to get into such debt that will take me years to clear.”

This is an excerpt from an article which appeared in Issue 90 (February 2009) of Personal Money, the personal finance magazine published by The Edge Communications Sdn Bhd