Here is a condensed list of the pros and cons of five of the most popular investments in Malaysia. Also detailed are tried-and-tested strategies that work well with each type of investment.
1. Fixed Deposit
Pros:
• Easy to obtain. Many banks offer it.
• Easy to compare rates. Many financial comparison platforms list rates from different banks.
• Super super safe. Your initial capital is guaranteed.
• Set-and-forget system with makes it pretty passive.
Cons:
• Small return on investment. You’re lucky to get 4.x% return-on-investment (ROI). Usually it’s 2-3.x%. That’s barely keeping up with the inflation rate.
• Your money is locked away for the duration so this means you cannot use it for up to five years.
• There are penalties if you do need to take out the money before the term is up.
Strategies:
• Don’t chase the highest rates if you’re not sure you can spare the high minimum amount needed. Don’t lock it away for years unless you have a healthy-sized emergency fund at your disposal.
• Open a new fixed deposit account every month/every three months/every six months. Over time, you’ll have fixed deposits expiring every so often.
2. Mutual funds/Unit trust
Pros:
• It’s like instant diversification in your investment portfolio. Your mutual funds/unit trust might have a mix of stocks (of different markets), properties, precious metals, currencies and more.
• There are many options.
• Suits different risk profiles. Can choose based on risk level – the higher the risk, the higher the potential income.
• Some mutual funds and unit trusts have tax benefits. When filing taxes, deduct amounts contributed to EPF, PRS*, SSPN** and investment-linked insurance products.
• An investment in Tabung Haji specifically lets you queue up for haji.
*PRS = Private Retirement Scheme.
**SSPN = education-earmarked funds for your kids.
Cons:
• It’s hard to choose from the many options available.
• Some are only available for Bumiputeras.
• Check the fees as some are very high.
• Many forget the ROI is not guaranteed. As such, many people investing in high-risk growth funds have lost money.
Strategies:
• Bumiputeras must take advantage of the ASB loan if they can commit to the monthly payments.
• If you’re non-Bumi, just get investment-linked insurance (for the insurance and tax benefits; usually higher fees) or ETFs (not technically mutual funds/unit trusts; low fees via robo-advisory platforms like Stashaway).
• Take advantage of mutual funds/unit trusts that give you tax benefits.
• Use a portion of your EPF money to invest in other unit trusts, or to buy property (whether you should, is another matter. Try not to disturb your retirement money).
• Automate monthly contributions to your preferred mutual funds/unit trust.
3. Stocks
Pros:
• Exciting for people who like to read and research. Lots of seminars to attend.
• You get to learn about the fundamentals, technicals, or both.
• As a shareholder, you get to attend AGMs and receive nice door gifts.
Cons:
• Not so much fun if you have no interest in company news and updates, and macroeconomics in general.
• You get the “what if” syndrome. What if I bought lower? What if I sold higher? What if I waited? Why didn’t I sell then?
• While many make money on the stock market, many lose too.
Strategies:
• If you like fundamental analysis, you’re suited for value investing and dividend investing strategies. Read books and attend talks.
• If you also like technical analysis, you can potentially increase your ROI with warrants trading. Read books and attend workshops.
• Except for rare events, don’t disturb your stocks after you buy them. Just hold them for the long term. Many people buy/sell too often.
• Buy when others are selling, sell when others are buying.
4. Gold
Pros:
• Historically holds value. Probably won’t go down to zero.
• It’s in physical and digital versions. Physical gold is quite fun as you can wear it and start coin collections.
• You can also temporarily pawn physical gold for emergency money, and buy it back later.
• E-gold is very practical and hard for thieves to steal.
• Buy-and-forget type of investment. Pretty passive.
Cons:
• Physical gold can be stolen.
• If it’s stolen, you might get hurt or your house might get broken into. Buy insurance.
• Muslims are obligated to pay zakat on gold (over a certain amount). Google “zakat emas” for more information.
Strategies:
• The price fluctuates. Buy a little every month to average it out.
• Remember that gold prices tend to go up when stock markets are not performing well.
• It’s probably not a good idea to make gold your only investment.
5. Properties/Land
This is not property purchase for own stay, strictly for investment purposes.
Pros:
• Big. Solid. Very satisfying to own.
• You can earn from capital appreciation (the value of the property) and rental income. The estimated annual ROI is 8% for properties in the Klang Valley.
• You can make any adjustments you want.
Cons:
• Nothing about it is cheap. You need 10-20% of the property value as downpayment. There are legal fees and stamp duties (some developers may waive this). You must pay for house insurance, furniture, renovations.
• Becoming a landlord/landlady/Airbnb owner is hard work.
• You need extra money for repairs and renovations.
• Harder to liquidate than other types of investments. It’s also not the best time to sell houses in Malaysia as there’s a housing oversupply.
Strategies:
• The holy grail is to find tenants who can pay more in rent than the monthly mortgage.
• You can outsource some work to agents (for rental) and AirBnB property management companies. It’ll cut into your profits, but save you time.
• Or you can always opt for the least-hassle one, REITs. Think of it as the mutual fund version of properties.
Last words
If you’re new to investing, your first few investments should be a combination of the these. Mix-and-match. At least 10% of your income should go to these investments, more is better.
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