According to a study conducted by RinggitPlus, an alarming 21% of Malaysians do not invest their money for the future while 2 in 3 adults do not have emergency funds to last them 3 months. A number of these individuals do not even track their daily or monthly expenses and are left with less than RM500 of savings a month.
Saving and investing for the future is a crucial part of ensuring that you are prepared for any milestone expenses along the way. Furthermore, having money set aside for when you retire will help ensure that you can afford to live comfortably when the time comes.
Before beginning any investing journey, you will need to ensure that you have sufficient savings and that you are financially stable. This means you need to have a sufficient amount of disposable income left over once you have deducted your monthly expenses and have an emergency fund that can sustain you for three to six months.
Once you are confident that you are in a financially secure situation, you can start exploring investment options that are best suited for your risk profile and financial goals.
1. Fixed Deposits
Fixed deposits (FD) are usually the go-to solution for those just starting on their investment journey. This low-risk investment involves placing your funds in an FD account that promises a fixed rate of return. This investment will provide you with a steady stream of money during the period of investment.
However, you should keep in mind that you are not allowed to withdraw your funds before the FD matures and will only be paid the interest at the end of the investment period.
If you were to withdraw your funds prematurely, you will earn less interest and could also be charged a penalty. Therefore, this is only an appropriate investment option for you if you have some funds that you are willing to part with for a certain period. If you find that you are tight on cash and prefer an investment option that is more liquid, FD is not an appropriate investment for you.
Fixed deposits are considered a very low-risk type of investment because your returns are guaranteed. While FD’s will provide you more interest than you would be able to get from your savings account, it is low compared to other investment options.
2. Robo Advisors
Robo Advisors like Stashaway or Wahid have gained a lot of popularity over recent years as they provide several advantages. Among them is the ease of getting started, having a diversified portfolio and even having exposure to foreign investments. Furthermore, these platforms do not require a sizeable minimum investment amount to begin with.
The way it works is that once you’ve deposited your funds, the management of the portfolio will be automated based on an algorithm catered to your risk profile and goals. From there, monitoring your investment progress is easy and you can manage the inflow and outflow of your portfolio via a mobile or desktop app.
The platform will also periodically rebalance your portfolio. While you do not have control over what the robo advisor invests in your portfolio, you can control your risk profile and investing goals.
Robo advisors typically charge management fees below 1% per annum, which is low in comparison to some unit trust funds that charge up to 2.5% per annum. Robo advisors are a great option to get you started on your investing journey and building your wealth.
3. Unit Trust
Unit trusts refer to a collective investment scheme managed by a fund manager. Money from investors is pooled into a single fund which is then invested by the fund manager in securities such as shares or bonds.
Before starting your investment in a unit trust fund, you must first determine what is your investment horizon and your risk appetite. This is to ensure that the fund you invest in resonates with your own financial goals. Speaking to a unit trust consultant as well as doing your research will help you determine what is the best-suited fund for you.
Unit trust funds usually do not require a large minimum investment amount, with some funds allowing you to start investing as low as RM100. Also, there are generally low fees associated with these funds, ranging between 0.5% and 2.5%.
Investing in stocks or equity is a riskier investment option compared to the rest on this list. The premise is that buying a stock or share issued by a company means that you own a portion of that said company. If the company performs well, its stock price will increase which will make your investment more valuable. You can either derive your earnings from capital gains, which is selling the stock for more than you paid for it, or through dividends.
You can trade stocks via platforms like Rakuten or KenTrade however if you are a beginner with no prior knowledge about investing, it is best to take it slow. Equity investments are subject to market volatility and liquidity risk. Equip yourself with the knowledge of stock investing and do your research before you begin as there are a lot of risks involved.
Starting your investment journey can be overwhelming if you are unsure of where to begin. However, it is an essential part of ensuring that you are better prepared for the future. The best way to jumpstart your journey is to learn all you can about investing and do sufficient research on what options are available to you.
Part of this process will involve adequate financial planning and understanding your investment risks well. Begin by setting a financial goal to ensure that you keep on track to achieving it. Additionally, this will help motivate you to learn more about managing your finances better.
Also, before you begin any investment, make sure to understand how the returns are derived. Be mindful of scams that may intend to trick you into investing your hard-earned money to make money in a short amount of time. If it looks too good to be true, it usually is.