If you are looking for tips on how to grow the first RM10,000 or more in your savings, here are the seven smart ways you can invest and grow it. Read this article to find out.
What would you do if you had RM10,000 in your savings right now? Some may splurge it on themselves or use it for their necessities, while others may stash it away for their own investments.
Knowing how to manage that money is crucial, especially in this day and age where inflation, almost always, cuts through our money, making it harder for us to retain the value of our savings. In this article, we will explore the different ways you can invest and grow RM10,000.
Following the announcement that contributors who are financially impacted by the pandemic could withdraw up to RM10,000 of savings from their Employees Provident Fund (EPF) Account 1, we were intrigued by what a person could actually invest in with RM10,000.
Big disclaimer: we're not advocating that you withdraw RM10,000 out of your EPF savings - what more use it for investing. Times are undeniably tough for a lot of Malaysians who are struggling to make ends meet, and the government, on their part, has initiated this effort as a way to alleviate the burden of the rakyat. We believe that if there is not an immediate need for the cash, it's best to keep it in your EPF account.
But for those who have RM10,000 or more in savings and are wondering how to best utilise and grow it further, here are eight ways you can grow your wealth.
But first – setting the right mentality
It’s important to remember that regardless of whether you are using a savings account or a fixed deposit account or a one-time investment, money requires some time to grow and investors may tend to have usually unrealistic expectations for returns in a short period.
Similarly, it's important to practice diversifying your portfolio. A lack of diversity in your investments is similar to gambling. You bet on one choice and expect to get the greatest return. The diversification model is an important way to secure your wealth with balanced risk management.
All in all, there are no shortcuts to growing your wealth other than these financial steps:
1. Clear your debt - it's the first important step!
Your total assets and savings will only truly count if you have zero debt.
For example, if you have a total savings of RM10,000 and total debt of RM4,000, your savings amount is technically what you have left after paying your debt and interest rates.
Hence, prioritise clearing your debts first. This way, your savings or investment may produce a healthy net return without losing value by your debts’ interest rates.
Related: Learn how to calculate flat rate interest and reduce balance rate.
If your total debt is more than RM10,000, you don’t have to use all of that money to clear your debts. Instead, use 70%-80% to clear as much debt as possible and leverage on debt repayment tools in the market such as a debt consolidation personal loan or a 0% interest balance transfer (for credit card debt). Here is a detailed article on how to use debt repayment tools.
2. Stay protected by insuring yourself!
You never know what will happen next in life, so it's best to be prepared.
Retrenchment, disability, health issues, critical illness, and accidents can cripple your finances if you do not insure yourself properly.
With a monthly payment of RM250, you have comprehensive insurance including medical coverage of RM100,000 a year and coverage of RM100,000 in the event of death or total permanent disability.
Here is everything you need to know about life and medical insurance:
- Is There Disability Insurance in Malaysia?
- What Is The Difference Between Life Insurance and Medical Insurance?
- What Does Life Insurance Cover?
- Is life insurance a form of investment?
- Life Insurance Companies in Malaysia
- Why Should You Get Life Insurance?
- What Do You Know About Medical Cards
3. Open a private retirement fund
At some point, all of us will have to retire, the only question is when and at what age. When you do reach that point, you want to ensure that you have enough finances to keep you safe and afloat since you will no longer be employed.
So ask yourself whether you have enough savings for retirement?
Besides depending on the EPF contribution, another great way to save up for your retirement fund is the Private Retirement Scheme (PRS).
Launched in July 2012 by the Private Pension Administrator Malaysia (PPA), the central administrator of PRS, the goal of the retirement scheme is to offer Malaysian employees and the self-employed an additional avenue to save for their retirement. It also offers an opportunity for employers to make additional voluntary contributions towards the retirement savings of their employees.
4. Start saving for your children’s college fund
One of the best ways you can invest your money is through your children and their education.
Of course, other expenditures or expenses related to your child will still be considered investments but this is one of the biggest of them all.
With the cost of college continuing to rise, it would be a huge relief for your child if you could help reduce the burden of expenses off their shoulders as well as decrease their reliance on student loans.
5. Increase your mortgage payments
Similar to how it's important to clear off any existing debt that you may have, i.e. loan payment, credit card, car loans and more, settling your mortgage faster would take you a step closer to financial freedom. Finishing it off faster also means you will have to deal with less interest.
A little goes a long way too: just by increasing your monthly payment to RM200, you could help save thousands of Ringgit over the life of the loan, and you'll pay off your mortgage way earlier.
6. Savings accounts and fixed deposit accounts are good for the risk-free hunters
To make sure your money continues to grow despite inflation, keeping between 30% to 40% of your first RM10,000 in a savings or fixed deposit account may be a good idea.
Besides, most of us will need to have at least one savings account for liquidity and daily transactions such as bill payments, grocery shopping and more.
Compare the best savings accounts in Malaysia here; some of the best rates range between 2.5% and 2.8%.
With a fixed deposit account, you are not allowed to withdraw money until the term of the deposit is over. The investment term and the interest rate are fixed so you can accurately predict the returns you will get from your fixed deposit. The term for fixed deposits starts from one month to 24 months with a minimum amount of RM1,000.
Related: Find out the best-fixed deposit account in Malaysia here.
7. Investment is king - explore different instruments
Once you have covered the steps above, here comes the most interesting part to build your wealth with your RM10,000 (or what is left of it).
We'll be frank - it's quite impossible to get rich just by getting a daily paycheck. Unfortunately, many of us sign up for part-time jobs or start our own business just to make ends meet. But there's another way you can grow your money and it is one of the easiest if done right: investing.
However, not all investments are made equal. Some have higher to medium risks like bitcoin and robo-advisors, and others are more conservative like bonds or fixed deposits. The key is to diversify and know which works for you the best.
“How many millionaires do you know have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
As painful as it may sound, many of us are trapped in the same income bracket because we stay away from investing, which is an important financial element for growing your wealth.
Here are tips on investing to help you take your first steps.
a) Start with the safe options
If you can fully utilise your RM10,000 without having to worry about clearing debts and sustaining your daily finances, you can start with allocating 20% to 30% of your savings on low-risk investments such as Fixed Deposits, Real Estate Investment Trust (REITs), Exchange Traded Funds (ETFs), and Exchange Traded Bonds and Sukuk (ETBS).
- If you put your money into a fixed deposit, you can find accounts paying around 3 – 4% interest rates. It sounds crazy because of how easy it is, but it is! Make your money work harder for you by signing up for an FD now. By the way, if you didn't already know, fixed deposits in Malaysia are covered for up to RM 250,000, according to Perbadanan Insurans Deposit Malaysia, making it a low-risk investment option with steady returns. But with that said, if you want to grow your wealth exponentially, it may not work out as fast because fixed deposits still operate below inflation.
- REIT is a fund or a trust that owns and manages income-producing commercial real estate (shopping complexes, hospitals, plantations, industrial properties, hotels and office blocks).
- Generally, there are three types of ETFs: equity ETFs, fixed income ETFs, and commodity ETFs. These ETFs consist of baskets of stocks, bonds or commodities based on an index which instantly offers broad diversification and averts the risk involved in owning stock of a single company.
- ETBS are fixed income securities, also known as bonds or Sukuk, listed and traded on the stock market. ETBS are issued either by companies or governments (the issuer) to raise funds for their needs. Sukuk refers to issues that comply with Shari’ah principles.
These investment products are listed on Bursa Malaysia and they are a perfect fit for beginner investors who want to have peace of mind. Before investing in these products or the stock market, you will need to complete these five simple steps first.
Other than the investments above, you can consider investing in listed companies that offer dividends for fixed income. Several stocks reward its shareholders' dividends every quarter and it provides a stable return on top of the share price growth throughout the investment period. To know which counter (stock) to invest in, you should learn how to calculate dividend yield first. In simple words, a dividend yield is the ratio of dividend payout to the current stock price.
For example, company X offers 12 sen of dividend for 2020 and its stock price was RM1.20 when you bought its shares. Hence, the dividend yield of the company is 10% for that year and you would have earned 10% in the forms of dividend for this particular investment.
Related: Check out these insights shared by Dividend Magic on investing for dividends in Malaysia!
b) Be a stock investment guru
After securing low-risk and fixed-income investment, you can allocate some of your money on a stock investment that bears the higher risk and return, allocate 20% to 25% out of your RM10,000. Investing in a stock means you are investing in a company or business that you believe in.
Admittedly, the economic outlook for the country doesn't look great because of the pandemic, but that doesn't mean you should shy away from the stock market. The key is instead to identify stocks or securities that are performing well and to reap its benefits a few years down the road. But how should you choose?
There are over 500 listed stocks on Bursa Malaysia across different industries. You should always invest in a business or company that you believe in after conducting proper research from Bursa Market Place, general news, annual reports and any other sources that can provide you legitimate information about the company. Here is a full guideline on the steps to evaluate and select stocks for your investment portfolio.
c) Unit trust for the convenience seekers
In the past, unit trust was not favoured due to its hefty costs in the form of commissions and sales charges. However, many investors are opting to invest in unit trust investment on digital platforms such as Fundsupermart for its user-friendliness and cheaper rates. Through Fundsupermart, you need to fork out a minimum RM1,000 to start investing in unit trust followed by a subsequent minimum amount of RM100 every month.
Some fees may differ for funds and providers, with the common ones being sales charge and management fees. The sales charge is paid upfront and it is the commission for distributing the product, but it would differ according to the different channels of distribution (such as banks, agents, and online platforms) for the same unit trust.
The management fee is charged by the fund manager for managing investors’ monies in the unit trusts, which usually ranges from 0.5% to 2.5% (depending on the complexity of the fund). Click here to learn more about investing in unit trust online!
d) Get a taste of robo-advisors!
Most robo-advisors would recommend portfolios using passive indexing strategies optimised with some variant of the modern portfolio theory (MPT), a mathematical framework of assembling a portfolio. This method allows risk-averse investors to maximise returns based on a given level of market risk.
What's cool about robo-advisors is you get to access your investment portfolio at just the tip of your fingers.
Start by downloading the mobile application either through Google Play or the Apple Store.
Upon entering the app, the user will be asked a series of questions about their resources and financial goals, then the robo advisor will decide how to invest the client’s money.
To better understand you as an investor, these questions will usually touch on subjects like investment timeline, risk tolerance, and savings. Then the answers are run through an algorithm-based AI to determine the asset allocation and build a portfolio of diversified investments that are most aligned with the investor’s goals. Different platforms would have different methodologies but most are based on MPT.
The software can also automatically rebalance a portfolio to ensure that it remains close to the target allocation, regardless of asset performance or if the investor makes tweaks to his or her portfolio.
Regular contributions in the form of small weekly or monthly deposits are encouraged to make sure the contributions can maintain their target allocation and keep the investor on track to achieve their goals. The portfolio would also be monitored to ensure that the optimal asset class weightings are maintained.
For more information on robo-advisors, click here.
e) Gold as an investment - yay or nay?
In these turbulent economic times, investors may steer away from stocks which tend to be more volatile during a recession and opt for recession-proof ways aka “safe-haven assets” to store their cash, like Bitcoin and gold.
The good thing about gold is that it has held onto its value for a long time. Unlike the stocks and bonds that may be more volatile because they depend on the economy, gold is considered a low-risk asset because its value is tied to itself and nothing else – in a sense, there’s always returns. Gold is also a universally desired asset. If you're not so sure on whether to invest in gold, we suggest you read our article on gold that we did recently
Final important tips before you start investing
- Do not invest all of your money in just one investment.
- Build a portfolio consisting of low-, middle- and high-risk investments. Example: REITs, overseas fund unit trust, and small-cap stocks, depending on your preference.
- Always do your research before investing your money.
- Only invest in a business, stock or industry you are confident with.
There you have it. We hope you found this article insightful!
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