Investing means you commit money in expectation of earning a return in the form of income or profit. This article is what most of us should have been reading when we turned 18 and were wondering “what is this word investing” and “how can I do it too?”
Investing is devastatingly simple. It is just the people involved in the process that makes it out to be so scary. Actually…people and greed. We’ve put together a list of some ways you can start investing your savings and have a brief discussion of how each of the investment tool works.
We’re sure everyone has heard of stocks. Stocks are basically ownership of a company – when you buy a company’s stock, you own that company, plain and simple. If the company does well, you do well, if the company goes bust, you lose most of your money. With just a few thousand ringgit, you can purchase stocks of a company for dividends or because you think it’s a good company with growth potential (of course there are other reasons like because you believe in technical analysis, but remember, our mantra is simplicity). To get started, you can approach a staff from any of the trading companies or banks in Malaysia to start an account and start trading, if you’re over 18.
Next, there are bonds. Bonds are like loans; this is a situation where you become the “bank” and “lend” money to companies in return for interest. Again, lending to a good company is vital, you can research individual company’s ratings and it’s a good way to build your capital. Within bonds, there are government bonds and there are corporate bonds. Government bonds are safe but they give very lower interest to lenders. Corporate bonds, on the other hand, increase in interest yields as the individual companies offering the bonds increase in riskiness. So companies like Malayan Banking will definitely pay less interest than YTL Corporation if both were to issue the same type of bonds.
Another way to invest your money is through mutual funds or Unit Trusts. By buying into these products you are actually hiring an expert manager to manage your money for you and buy investment products for you. These professionals usually charge a fee of 1% to 4% on your portfolio value and help you oversee your investments. Again, this is easily accessible to anyone by contacting any staff from a bank. And you can start with as little as RM100. Bear in mind that we have constantly reiterated our dislike this product and avoid it because of the management fees. We admit that there are good funds which deliver solid returns of 10-30% out there, but what are the chances you buy one of them.
A product similar to mutual funds in nature but require less management fees are ETFs. This is a product that pools investors’ money (similar to a mutual fund) and usually spends it buying index products. So, depending what ETF you buy into, the fund owns different products of that particular nature. An example would be say you think Malaysia has great growth potential, so you buy a Malaysian index fund, this fund will own many of the companies in the Malaysian stock exchange like Malayan Banking, Genting Malaysia, Axiata and Sime Darby and other companies listed in Malaysia. Another scenario could see you buying into healthcare or properties. This is good because it helps to reduce risk and diversify your investments and still give you many niche choices to invest into depending on your own gut feel.
We consider insurance another form of investment. You get a return by placing your money with a company for 25, 30 or even 50 years. And get covered for certain risks that you may face, be it illnesses or injuries. Even if you are someone who knows nothing about investment or are too lazy to research just a little bit more after reading this, an insurance agent will magically appear in your life one day and offer you a superior investment than putting your money in a bank.
I also want to talk about Certificates of Deposits. Which is putting your money in a bank, fixed deposit or otherwise. It is an investment, you’re putting your money in there, and get interest returns. Plus you enjoy the ability to withdraw that money instantaneously any time you require. Not such a bad deal actually.
There are many other forms and ways to invest your money. And a lot of it spiral into complex products that only specialized bank employees are able to understand. But one of the most common one is an option. I’ll touch on this a little but in no way do I think they are viable for beginners to fiddle with, but they do give the highest returns of up to 100% to 200% in a single day. This is because you can get a huge exposure with just a fraction of the money in your pocket. And I’ll leave this subject by saying that you could buy or sell a stock at later date without even owning that stock, which is why it is so risky.
We’ll definitely revisit this topic and the many other investment products in future. But what this website aims to do is give you a sufficient base to build your knowledge upon.
I leave you with the constant reminder that we’re pinning for you to go do extra research to find out more about investing. And making your money work for you, so you don’t have to keep working so hard.
DollarsandSense is a website that aims to help people make better financial decisions, one interesting bite-sized article at a time. Like us on Facebook to stay in touch with our latest article.
DollarsAndSense Malaysia is a website that aims to help people make better financial decisions, one interesting, bite-sized article at a time. Like us on Facebook to stay in touch with our latest articles.