The term “investing” holds different meanings for different people.
Some think investing is more important than saving. Others think saving is the first step to investing, because how can one invest in anything if there are no savings to begin with?
A cornerstone of investing is diversification, meaning you shouldn’t put all your eggs in one basket.
Another important factor is timing regardless of whether it’s stocks, properties or gold.
Take for instance this scenario: interest rates are low today and gold prices are moving up. Do you convert all your cash into gold? Absolutely not. What if there’s an emergency and you need cash on the spot?
Other misconceptions about investing are that it is a form of gambling or an activity reserved only for the rich or those about to retire.
There is also a considerable number of those who consider investing too risky or too complex and stressful.
While it is true that a certain degree of risk is involved, there are different investment products depending on one’s appetite for risk and timing.
Also, being young with years of working life ahead will help to even out the ups and downs of investing.
Fixed deposit
The most basic form of investing is the fixed deposit. The minimum amount one of Malaysia’s largest banks offers is RM1,000 for a period of two months and above.
The minimum amount for a duration of one-month is RM5,000 with an interest rate of less than 2% a year.
If you have RM5,000 or more in hand, you can place the funds in a fixed deposit account for longer.
A fixed deposit is as good as cash because the money is instantly accessible although you may lose some of the interest if the money is withdrawn before maturity.
The compounding element is another advantage.
However, the disadvantage of investing your money in a fixed deposit is today’s low interest rate of less than 2%. Some banks however, may offer an interest rate slightly higher than 2% a year.
As Malaysia prepares to transition towards an endemic Covid-19 phase, most of the restrictions on the economic and social sectors will be lifted.
The pent-up demand may cause a surge in consumer spending and the inflation rate is likely to rise to more than 2% in the last quarter of 2021.
Insurance
Investing is about building wealth. Insurance is about protection. Nonetheless, there are endowment plans and investment-linked policies with a protection element.
Depending on the insurance company and the product, premiums from investment-linked insurance policies are invested in unit trusts, which in turn, are tied to the stock market.
Its performance depends on the performance of the funds and the performance of the managers.
You may withdraw or opt for early surrender but it is likely that your cash value will be less that the total amount put in. Therefore, the cash value is not guaranteed.
You may go on paying until 100 if you so wish. The longer you continue with the policy, the more will be set aside for investment as during the initial years, more will be set aside for protection.
Unlike investment-linked products, an endowment plan is a kind of savings plan with various maturity terms, for example 20 years.
After it matures, one lump sum will be paid. Some may consider this a safe way of saving. Its scope of investment includes blue chip shares, property, government bonds and other low risk products.
Unlike an investment-linked policy, one can opt to pay for 10 years, and let the policy run for the next 10 without having to pay any premiums. Again, there are many different products out there.
Unit trusts
A unit trust involves many investors pooling their money together to be managed by a team of full-time professionals.
One may leave instructions to divert money from your savings on a monthly basis to invest in unit trusts.
There are different types of trusts depending on your risk appetite, your investment objectives and your focus.
Generally, they are divided into three categories, namely bonds, shares and balanced funds that combine shares and bonds.
Some may be focused on a single country, or specific region, for example Asia and US, or Europe, or globally. Others may be focused on specific sectors or industries, such as the technology sector.
The commission is quite high in Malaysia and must be paid whether the returns are positive or negative.
Stocks/equities
Depending on what stocks/sector/company you buy into, you as the shareholder will derive returns in two ways: dividends or capital appreciation, or both.
Stocks, which are also known as equities, are considered as among the best hedges against inflation.
For example, a listed food-based company will likely raise prices of their goods because the flour, oil and other ingredients that it uses to create its food products have risen in price.
So, the price of its end product will rise in tandem. The company is considered to be keeping up with inflation.
The issue about stocks is their volatility. There are so many companies and sectors out there so some level of research is important as you may not know which sector or company to buy into.
The strategies you employ depend on your risk appetite. The market, as at the end of October, was trading sideways.
Malaysia is on the road to recovery but there may be factors – like a surge in the number of Covid-19 cases or even deaths that will affect the market negatively.
Properties
Investing in a house may well be the largest investment in one’s lifetime. Because this is a big ticket item, be clear about the reason why you’re buying a property. Is it for your own stay? Or is it for investment?
If it is for your own occupation, ask yourself if you and your family will find the amenities around the area pleasing and convenient. This is important because this will be the centre of your life for the next couple of years.
If it is for investment, you may want to stay a while or rent it out after a few years before putting it on the market.
Buying a property for investment involves two factors – price appreciation and rental income.
A property is always a long-term investment. Right now, it is a renter’s market. Landed properties have always been a popular investment.
If a house costs RM700,000 and the monthly rental is RM2,000, the yield is about 3.42% (RM2,000×12=24,000/700,000). This is very simplified. Deduct outgoings from the rental income.
Property developer Matrix Concepts Holdings Berhad has a range of landed projects that offers worthwhile investment potential.
Located in Bandar Sri Sendayan, there are ample amenities in the vicinity such as schools, clinics as well as spots for leisure and recreation. There is also easy access to major highways, all important considerations when buying any property.
If you have a household income of RM7,000, our team at Matrix Concepts can advise you on the right property investments to consider.
Meanwhile, why not participate in this survey as you could win a Touch n Go e-wallet worth RM88 in a lucky draw. - FMT
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