If you want to accumulate your wealth and achieve financial freedom, you must learn to invest on top of saving money. That being said, there are so many investment types and products to choose from! So how does one start? Which investment type is the BEST for you? You’re in luck, we’re here to help. Let’s take a look at the characteristics and risks of the 5 most popular investments in Malaysia.
If you’re learning to invest, you need to have a basic understanding of the various intricacies that surround it, and then choose the best one for you!
5. Real Estate
First up on our list of most popular investments are fixed deposits (FD). When the bank and the depositor both re-deposit, the term and interest rate are agreed in advance, and the principal and interest are withdrawn after maturity, or the deposit is renewed.
Of course, the longer you store your FD, the higher the interest rate you will receive. For the interest rate, you can compare the fixed deposit interest rates of various banks first, and then choose the bank that is most worthy of depositing FD.
Benefits of investing in time deposits:
- Risk-free : Fixed deposits are protected by the Malaysian Deposit Insurance Agency (PIDM). If the bank fails, PIDM will pay compensation.
- Cultivates a sense of saving : Users cannot easily use the money of fixed deposits, otherwise they will not be able to get interest, which effectively controls your desire to consume.
- Quick withdrawal of deposits : When you need money urgently, you can withdraw deposits at any time, but there will be no interest or only a small amount of interest.
Disadvantages of investing in fixed deposits:
- Lower returns : The return on time fixed deposits are lower than the inflation rate.
When it comes to stocks, everyone’s impression is that it is profitable, but the risk is too high. In most cases, this is true. Stocks are a type of investment that potentially comes with both high returns and high risks.
The profit or loss of stocks mainly depends on the performance of the company’s business operations. If you invest in company A’s stock, it means that you own a part of company A. If company A’s outstanding performance may cause the stock price to rise, you will also benefit from income and have the opportunity to receive dividend income. However, the stock market is muddled with uncertainty.
Take the big Malone Composite Index FTSE (KLSE Index), for example; in August 1998, the stock market declined by 24.77 percent and once again, in 2008, the stock market plummeted 15.22%.
As a result, most people love and hate stocks at the same time. If you want to invest in stocks, you may want to hire professionals to analyse for you so as not to cause severe losses.
The benefits of investing in stocks:
- High return on investment: With the development of the stock company, investors will receive dividends.
- Strong liquidity: Investors can buy at any time and sell at any time when they need funds.
Disadvantages of investing in stocks:
- High risk: When stocks fall sharply, they are likely to be locked up, which is extremely risky.
- Requires certain level of investment ability and knowledge: Must have the professional knowledge of technical indicator analysis to analyze the trend of the stock market, blindly following the trend or buying blindly may lead to losses. You can also ask professionals to do analysis for you and provide professional investment advice.
- Uncertainty in business operations: If there is a misjudgment within the company, serious business problems will occur, which will cause investors to lose money.
Funds are roughly divided into stock funds and currency funds. Equity funds are very similar to stocks in some respects. Fund managers combine a pile of stocks and then sell them to investors in small parts.
In other words, if you invest in a fund, you are buying part of a pile of stocks. Let’s take a closer look at one of the most popular investments in Malaysia:
The stock fund will be divided into:
- Active funds: Actively managed funds, does not deliberately make indexed investments and aim to exceed market benchmarks. After the fund manager has raised all funds, he invests in his favourite stocks, bonds, etc., in the hope of obtaining funds that exceed market benchmarks.
- Passive funds: Does not actively seek out the performance of the market but tries to replicate the performance of the index. Since passive funds select specific indexes as tracking objects, they are usually referred to as index funds.
In addition, passive funds are also divided into two types:
- Fully Replication Index Funds: all assets are invested in the constituent stocks of the index being tracked, and the market index is wholly tracked.
- Enhanced-Index Fund (EIF): On the basis of fully tracking the index, appropriate adjustments are made according to the specific market conditions to obtain returns that exceed the tracking index.
As for currency funds, they are more stable than stock funds and have lower risks. It is a kind of trust fund that mainly invests in short-term bank deposits, bank time deposit certificates, commercial papers, corporate bonds, and other investment tools.
In terms of interest, the currency fund will change with the market interest, so the interest is calculated daily. Investors will get high returns with high market interest, but the average annual returns are above 3%.
Benefits of investment funds:
- Time-saving: The fund manager will handle everything for you, including analyzing the stock market trend, and investors will save time and effort.
- Diversification of investment risks: Currency funds can effectively control and diversify investment risks and increase the return of short-term idle funds.
- Flexible funds: Stock funds can ensure the flexibility of funds and increase overall investment income.
Disadvantages of investment funds:
- High cost: Because the fund manager handles all matters for you, the price will be higher.
From a financial standpoint, gold combines the two characteristics of commodities and currency assets, it plays the role of commodity currency and effectively hedges against inflation.
When paper currency eventually depreciates due to inflation, gold becomes a tool to store value and hedge against inflation, leading to many people investing in gold to diversify investment risks.
Investing in gold is not about holding tangible gold assets or blindly chasing after one of the most popular investments, but through the gold investment accounts of some banks, gold trading funds (Gold ETFs), stocks of gold mining companies, foreign brokerages, and gold trading without the need to hold gold. Platform “Hello Gold” and gold futures (FGOLD) for gold investment.
According to the World Gold Council, gold is relatively unaffected by business cycles. Its low volatility allows it to withstand the test more than other investment commodities during the financial crisis.
Perhaps, for this reason, many people will choose to invest in gold, which is easy to store and maintain its value. However, the preservation of value depends on the cycle.
For example, if you bought gold for 36.56 US dollars in 1970, and the price of gold rose to 664.30 US dollars in 1980, it increased by 1717% in 10 years, and the average annual growth rate was 30%. Then you would think that gold is a tool of value preservation. Conversely, if you bought gold at US$664.30 in 1980, but the price of gold fell 61% year after year to US$256.69 in 1999, you would feel a loss.
However, if you buy gold while the price of gold is falling in 1999 until the price of gold rises to $1,79.86 in 2020, your average annual return is 9.2%. Due to these reasons, gold is indeed one of the most popular investments.
Looking at all, although gold has low volatility, it will still have a loss. If you want to get investment income, you need to look at long-term investments and buy at the right time.
Benefits of investing in gold:
- Not affected by business cycles, low volatility
- Effective hedge against inflation
- When the economic situation is unstable, there is storage value
Disadvantages of investing in gold:
- Uncertainty: There will be sudden ups and downs, and you need to find the right time to invest.
A list showcasing the most popular investments in Malaysia isn’t complete without real estate. Real estate value will increase year by year due to population growth and limited land resources. Therefore, many people believe that the price of real estate will only rise but not fall, making it the best, most stable and value-preserving investment type.
The increase in house prices in Malaysia from 1998 to 2020 is 529%, with an average annual return of 5.7%. In terms of housing prices, although they are not as high as those in Asian cities such as Hong Kong, Singapore, and Tokyo, in terms of housing price growth, Malaysia’s housing prices are among the top 10 in the world and the highest in Asia.
Even so, it may be because of pressure put on by parents or the government’s stimulus measures. The real estate industry and the data released by economic experts have made many young Malaysians opt for a house as their first investment goal. As a result, Malaysia’s homeownership has increased significantly.
In addition to buying a house for self-occupation, capable people will also buy an additional house for investment, such as renting. After they rent out the house, they will earn rental income every month, which can also be used as an auxiliary for house maintenance costs.
As mentioned above, real estate will increase in value over time, so if you sell the property many years later, the price will be higher than the price you bought, and there will be additional income.
Benefits of investing in real estate:
- Substantial assets: After the house is purchased, it belongs to you.
- Passive income generator: If you rent out the house, you will earn rental income.
- Property appreciation: When you sell a property, the price will be higher than when you bought the house, thereby gaining additional income.
Disadvantages of investing in real estate:
- May face the risk of not finding a tenant.
Research on these Investments First!
No matter what kind of product you are investing in, you must do your homework and analyse all the risks before making a wise investment decision. It isn’t worth knowing about the most popular investments if you blindly follow the trend and invest, no matter how small the investment risk is, your investment will fail.
If you are not sure whether the real estate information you know is correct, you can ask professionals to analyze and provide suggestions for you, and IQI is your best choice of international real estate agency platform.
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