In this article, I am going to share with you my experience investing in Malaysia. What are the vehicles you can invest in and what are the precautions to take. Before we dive into that, let’s discuss why is it important to do investment and put your money to work.
Why is Investing my money important?
If your money does not work for you, then you will be working for money. Don’t be the slave of your money but let your money be the slave for you.
Let’s compare some of these scenarios, between the cost of buying a bowl of noodles a decade ago and today. Buying groceries with 100 dollars ten years ago and now, or buying a house 30 years ago and today. Can you feel the differences in these three situations? I am sure many will agree that it definitely costs a lot more to buy things now than before. This is what we call the weakening of purchasing power, i.e. the money that we work for will only buy you lesser and lesser things.
Therefore, your money will have to increase in value, at the same rate if not more, with the weakening rate of your purchasing power. Well, how hard you want your money to work would depend on what is your ultimate financial goals. We can discuss this in another article more deeply. For now, after understanding why you should make your money work hard, let’s look at some of the precautions you must be aware of before investing.
Precautions before investing
Before making a decision to invest, you should always make sure you have done your risk-benefit analysis. And most importantly, never ever invest based on gut feel, other people’s opinions, or unreliable sources. Here are some guiding tips I would give myself before putting my money out.
1. Make sure your money work at a ‘legal company / environment’
First of all, you should always treat your money as a person with human rights. Ask this question, is this place that I put my money in, a lawfully abiding vehicle? This is so important because you do not want your money to vanish without justice. And not knowing what happened to them. For every investing placement, you should be informed how to exit the investment. That is your FIRST and FUNDAMENTAL RIGHT as an investor.
Secondly, you have to make sure that your investment is legally protected and regulated by the relevant law enforcement agencies in your respective country. In Malaysia specifically, we can always consult the Securities Commission Malaysia or Bank Negara Malaysia (Central Bank) for any queries on legal entities that accept money for deposits or investment. This is to make sure that if your money has gone wrong, you always have some authorities to back you up for any unlawful treatments towards your investments.
Always remember this, no one should ever rush you to make a decision to invest. You should be given sufficient or ample time to perform checking and due diligence to decide before investing. If it sounds too good to be true, then it probably is. If it sounds like a big opportunity that you are going to miss out on if you delay further, you should probably check them even deeper.
2. Make sure your money are the extras
Another important thing worth considering is that – are you able to still meet your necessary/daily expenses after investing. There are two scenarios to this point, say your parents sent you to work downtown. And before you got acquainted with the boss and colleagues, your parents force you to return home after two months because they need you to help out at home.
Another scenario is that, say a farmer borrows his only horse to a soldier for war, and during the war, the horse was sacrificed. As a result, the farmer will need to use a smaller carrier to transport his goods since he could not pull the bigger carrier.
The first scenario is as if you pull out your money from investment halfway through, as you need the money to pay living expenses before the investment shows any results. In this case, you will hardly see any good returns on your investment. In the real world, withdrawing out from an investment may even cost you high transaction fees. And before you know it, you are paying more than you invest in the long run.
Whilst in the second scenario, the money that you invested has made some losses and you were hoping that the return would buy you a bigger car or bigger house. Now that your investment has reduced in value, you have no choice but to live below your means.
Therefore, you should always make sure that the money you use for investment is on top of your living expenses, emergency funds or that you will not touch it for the foreseeable near future.
3. Make sure you have a plan
It is important to have an investment plan before putting your money to work. We need to know for how long we are gonna invest and the purpose of investing our money. Imagine you are cycling on a road trip without knowing the destination, and not knowing why you are cycling, and why are you not driving a car or taking a flight instead. Without a proper plan, you might invest ineffectively.
Now that you are ready
Now that you know the precautions to take before investing, let’s look at some of the investment vehicles available in Malaysia, starting from the lowest risk and progressively to higher risk instruments. These are the instruments that I am currently investing in or have experienced previously.
1. Fixed Deposit (FD)
Also known as time deposit in some countries. A fixed deposit allows you to earn an interest rate higher than the normal saving accounts with a minimum deposit and fixed term of period. Your money will have to remain in this account for a period of time. Early withdrawal before maturity will cause you to lose your interest earned.
FD is available in most of the banks in Malaysia. Usually, they will offer a competitive rate in the market, based on their capabilities, to attract investors placing deposits with them. The risk level of investing in FD is generally near to zero. In Malaysia, placing FD in a licensed financial institution is insured and protected up to the amount of RM250,000 per individual per bank. Read more about Malaysia Deposit Insurance here.
2. Unit Trust (UT)
Investing in a unit trust is one of the common investment vehicles among Malaysians. Unit trusts are usually managed by fund managers/fund houses. What is a unit trust? Imagine this – money from you and other investors are gathered into a pool, and authority is then given to a fund manager to use the pool of money to invest into shares, bonds, unit trust, or other instruments based on the objective of the pooled investment.
The risk of investing in unit trust depends on what the fund manager invests in. If the unit trust is solely investing in stocks, then the risk is definitely higher than unit trust that invests solely in bonds.
And investors are usually well informed via prospectus or fund factsheet on all information about the unit trust fund. One tip about investing in UT is that do not rely solely on opinions, make sure you know what are the underlying companies, bonds, and where the funds are investing. Furthermore, make sure you are comfortable with the allocation of funds and do take note if the unit trust pays out any dividends.
Bonds are basically a loan agreement between issuers (the borrowers) and investors (the lenders). Technically, if you invest in bonds, you are lending your money to someone in return for interest payments. Well, investing in FD is also a form of lending money to the banks.
However, in Malaysia, FD is protected or somewhat guaranteed but bonds are subjected to default risk. Meaning, there is a possibility borrowers might not be able to repay your capital or interests. However, the chances are rather low. That is why when you invest in bonds, you are compensated with a higher interest rate, usually range from 3% and up to about 8%.
Generally, there are two types of bonds you can invest in, i.e. Government sovereign bonds (a.k.a Treasury bills or Treasury bond in the US), and Corporate bonds (issued by big companies). Prior to 2019, you will need a large sum of initial capital of at least RM100,000 to invest in bonds. For example, to invest in Malaysian Government Sovereign (MGS) bonds, a minimum of RM250,000 is required (source).
Now, investors are allowed to invest in MGS with a lower minimum of RM10,000. I strongly recommend Fundsupermart if you are interested to invest in retail bonds with just RM1,000 as a start. Click here to learn more.
Stocks or shares are one of the most common topics when people were asked if they have any investments. In fact, many people relate investing with shares solely and it becomes taboo to them subsequent to their bad experiences buying shares that did not perform in their favor.
Personally, I would think investors should build their investing experience and confidence level from the lowest risk investments, i.e. FD, unit trust before investing in stocks. Also, apart from the precautions to take as mentioned above, one should study the company thoroughly as though you are the owner of the company before investing in it. In fact, after buying a share, you are technically one of the owners of the company!
However, not studying the company and investing blindly, would be equivalent to placing a bet in a roulette game in which you might win big or lose big, totally based on luck. This is highly not recommended.
5. Robo-advisor investment
I started to invest via robo-advisor investment in 2019 where it involves non-banking institutions. They offered investment based on artificial intelligence (AI) or peer-to-peer (P2P) platforms.
Some of the platforms which I am currently using are Funding Societies, where investors lend money to companies that offer competitive interest rates range from 8% – 13%. Another platform is called StashAway, where they offer portfolio management based on risk appetite. You may click the links above for more information.
You may read more about these robo-advisor investments here.
6. Cryptocurrency (Bitcoin)
Finally, cryptocurrency. If this caught your attention, you might realize that year 2020 was the best year to invest in Bitcoin based on the price increase rate. I was fortunate to have invested some but unfortunate to have exited a little too early from the investment.
There is a reason I placed this type of asset at the end of this article. I would say this is the highest risk asset you can invest in during this century. The risk here could be good or bad. The good is that the upward limit of a bitcoin value is basically the sky can reach. Whilst the bad is that you can lose a big part of your investment within seconds or minutes.
And as a finance student, it is not easy to understand the behavior and the trend of a bitcoin value. But to me, the basic principle is that the trend depends very much on the demand and supply amount. You can refer to this article which I find super informative to understand how bitcoin works.
In Malaysia, you can invest these cryptocurrencies via registered institutions, e.g. Luno Malaysia. If you open an account with Luno Malaysia, enter this promo code below and we both get RM25.00 of value in Bitcoins!
Last but not least, be sure to invest with care and wisely. Make sure to check out my future posts where I share more experience or thoughts about investments. Do check out some of my recent posts here.
Disclaimer: This article is not a form of investment advice nor suggestions for anyone to invest in any assets. Also, this is not professional advice but solely a personal experience sharing and for reading pleasure. This article is not any form of promotional or marketing material nor is sponsored by any entity. Furthermore, the experience that I shared here is applicable only if you are a Malaysian and/or have access to the Malaysian financial market.
Image attributions : Money photo created by pvproductions – www.freepik.com, Money vector created by pch.vector – www.freepik.com, Background vector created by vectorpocket – www.freepik.com, Green photo created by wirestock – www.freepik.com, Woman photo created by bublikhaus – www.freepik.com, People vector created by pch.vector – www.freepik.com, Money vector created by vectorjuice – www.freepik.com