How to Achieve Financial Independence by Investing in Sukuk Instruments

Yesterday on Friday, after a work-related briefing, I added financial literacy briefing for the staff at PT Excellent Infotama Kreasindo and PT Aktiva Kreasi Investama, my small business.

Non-work briefings are usually held every Friday. The material can be varied and not necessarily related to work. We have invited my friend Mr. Endy Muhardin to speak about his experiences, Mr. Wahyu Alam to speak about the importance of education and his struggle to go to college, and other figures that I consider inspirational and can brighten the mindset of staff working at Excellent.

The financial literacy briefing yesterday focused on one investment instrument, namely Sukuk and Bonds issued by the Indonesian government.

What is Sukuk all about?

Sukuk is a financial certificate that represents ownership in an underlying asset or assets. It is similar to a bond in that it is a debt security, but unlike a traditional bond, sukuk represent partial ownership in a specific asset or assets, rather than a loan made to a borrower. Sukuk are often used to raise capital in a way that is compliant with Islamic law, which prohibits the charging of interest.

I took the example of ST-009 sharia bond investment launched in December 2022. With a coupon rate of 6.15%, an investment of IDR 1 million will provide an income of about IDR 4,600 per month. It’s small, right?

Yes, it’s small, but that’s because the investment value is IDR 1 million. That value is also even higher compared to if the money is kept in a bank. Just compare it. The income is also obtained without doing anything. This is purely passive income. Below is some example of the income for a different amount of investment:

There are indeed disadvantages, namely that the money must be saved for two or three years. It can be taken ahead of schedule after half the period, but assume that it must be saved for that period while still getting a monthly income. If we save in a bank with a value of IDR 1 million in one year, the value may not increase but rather decrease due to administration costs.

Sukuk may not be an investment instrument with the highest income value, but Sukuk also has a very low risk. Stock investment can have the opportunity to get a big profit, but the risk of loss can also be big. Buying GOTO stock at an IPO price of IDR 338 has the opportunity to get a big profit when the price goes up almost IDR 400, but it becomes a big loss when the stock is now at a price of IDR 90. High-risk, high return.

In addition to discussing Sukuk, I also discussed Financial Independence, especially in relation to the 4% rule. An explanation of the 4% rule can be found here and here. In principle, the financial independence position can be achieved if we have reached a number where the value of our investment if taken at 4% per year, will not decrease and may even increase. The way to get the value is by determining the monthly expenses made in a year and then multiplying by 25.

For example, if our monthly expenses are IDR 1 million, made into a year, it becomes IDR 12 million, and multiplied by 25, it becomes IDR 300 million. That means our financial independence position can be achieved if we have an investment value of IDR 300 million. If the monthly cost of living is more than IDR 1 million, the financial independence number can still be calculated using the same formula.

Sometimes there are skeptics that the above calculation does not take into account political turbulence, policy changes, economic climates, and so on, but for me, the above calculation is sufficient for financial literacy and preparation for retirement.

I have been starting to strive for financial independence since 2014 and more seriously in 2019. I can say that the calculation mechanism above works well even though I have experienced several market crashes or economic conditions that go up and down, including during the pandemic last year.

In addition to Sukuk, we also discussed other investment instruments such as mutual funds, stocks, and property. Each has its own advantages and disadvantages. It’s good to diversify the investment portfolio to minimize risk.

The goal of financial independence is not to stop working but to have the option to choose whether to work or not without having to worry about the availability of financial resources. Are you interested in finding out about the mechanisms of Sukuk investment and the concept of financial independence?”

Image by Mohamed Hassan from Pixabay

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