Earlier this month, Bank Negara Malaysia (BNM) has announced a cut in OPR by 25 basis points to 2.50%, the third cut in 12 months since May 2019. While I am delighted to be notified of a downward revision on my mortgage rates, I am not too happy to have my FD rates revised to below 3.0% per annum. But anyway, I suppose the good has outweighed the bad as I have more mortgages than FDs.
Just a month ago, the Employees Provident Fund (EPF) had declared as much as 5.45% in dividend rate for 2019, a dip from 6.15% in 2018 and the lowest in five years. The rate may be disappointing but acceptable, considering that we are in uncertain times with prolonged US-China trade tensions, a change in leadership in our government and COVID-19.
It is a time of fear and pessimism. This sentiment has been reflected in the local stock market with the KLCI reaching 1,438 index points, the lowest in five years. Real estate remains rather depressed with property overhangs and falling value of properties, especially if they are newly completed. All in all, 2020 has already been an action-packed year filled with bad news, drama, and uncertainties.
Considering a fall in FD and EPF dividend rates, many begin to realise a need for investing to achieve greater gains for their money today. Where should I put my money today? Is it into stocks, real estate, unit trust, P2P lending, robo-advisors or gold?
So, what is my answer? Where are the best places to invest today?
Short answer – I don’t know and it is not because I don’t have a clue on what or how I should be investing to increase wealth sustainably today. Rather, if you’re to take a step back to reflect, you’ll find that most people are responding either by buying or selling an investment based on latest news. Often, these decisions are made based on emotions like fear and greed over logic and rationale.
In essence, they are not investing but speculating. It stems from a belief that an investor is one who knows how to profit from an investment by predicting what might possibly happen in various markets in the future, which is a flawed one.
For me, investing is more than just knowing what to buy, how much to buy, and when to buy or sell an investment. It involves having a plan to transport you via a series of investment vehicles from where you stand financially today to where you want to be financially in the future.
So, if you ask me, ‘What should I be investing into today?’
My answer is, ‘What is your investment plan?’
I understand that many could find this answer, as sincere as it is, disappointing. This is because I believe the answers most people would want to hear would be as follows:
– You should buy x Bank stocks today as its price has fallen to RM x.
– You should invest in a property which is below its market valuation.
– You should try out robo-advisors like Stashaway or Mytheo.
– You should get into P2P lending activities … etc.
But, I felt that I would be doing a disservice to people if I dish out such quick fix investment answers without knowing who you are, what you do and where you intend to be financially in the future. How would I know that my answers would be suitable for you personally?
‘Okay, how do I create an investment game plan for myself?’
While there are no one-size-fits-all kind of answer to this, I suppose an effective investment game plan would have the following elements considered. They are as follows:
1. Age
Simply put, a 30-year old would invest differently from a 50-year old. There are many factors to it. Here, I would highlight just one of them and it is one’s ability to obtain a mortgage to finance the purchase of a residential property.
In Malaysia, the maximum loan tenure is set to be either: 35 years or at most to one hitting 70 years old, whichever comes first. This would have an impact on a person’s monthly mortgage repayments.
For instance, let’s say we have two property buyers: Chong and Chang. Chong is 30 years old and Chang is 50 years old. Both of them are considering a property priced at RM 500,000 for investment. Let’s assume, both Chong and Chang plan to finance their property purchase with a mortgage of RM 350,000, where their mortgage rate is at 4% per annum.
Chong is 30 years old and thus, qualifies for a 35-year mortgage. The amount of mortgage repayment Chong would be paying is RM 1,550 a month. Meanwhile, Chang is 50 years old and would only be entitled for a 20-year mortgage for the maximum loan tenure is set at 70 years old. Thus, Chang’s mortgage repayment is RM 2,120 a month, which is RM 570 a month more than Chong’s.
Therefore, if you are young, there is an option for you to consider real estate as an investment for it is more affordable compared to elderly people.
2. Financial Status
This involves an understanding of your financial strength, which includes having knowledge of how much and the sources of your income, expenses, assets, and liabilities. Typically, a fixed income earner would invest differently from another who is self-employed and from another who is a retiree. Hence, this leads us to our next point, which is –
3. Objectives
For instance, a young employee would have stable income but he may not have lots of capital to start with. He may build his portfolio periodically by investing a portion of his income on a regular basis.
Meanwhile, a self-employed or a businessman could potentially generate faster and greater growth in income. But also, he may experience huge fluctuations in his monthly income. In his case, he could opt for one of the following:
- Reinvest his profits back into expanding his business for income growth.
- Build a reserve fund as a pre-emptive move against tough times.
- Invest for recurring cash flow in order to stabilise his monthly cash flows.
Whereas, a retiree would possess tons of capital but may receive lesser income on a monthly basis. In his case, he may be content if he is able to receive higher yields than current FD rates for his retirement funds. More importantly, his goal is to prolong his capital for as long as he possibly could.
4. Skills
Question: ‘Are stocks good investments?’
My answer: ‘Are you a good stock investor?’
Question: ‘Is this the right time to get into real estate?’
My answer: ‘Are you a good property investor?’
Today, you can either make or lose money from investing into anything – stocks, real estate, unit trust, P2P lending, businesses, bonds, gold … etc. The key thing is not about what asset, which market, where, and when you should invest into them. It is you, the investor who is critical to your own investment success.
For instance, let’s say you are interested in stocks. My question is – ‘How do you tell a good stock for investment from a bad one?’ If you have investment skills, I am confident that you would have better answers to this question as compared to others who are just simply trying their luck. It is the skills that make investors rich and the rest blinded by fear and greed.
Question: ‘What if I’m a novice investor? What do you recommend?’
My answer: ‘Would you like to learn how to invest?’
Question: ‘What if I’m not interested to learn or have time to learn about it?’
My answer: ‘Then, it’s best not for you to invest.’
Why? This is because if you invest without skills, you are at a disadvantage over others who have investment skills in your choice of investments. For instance, it is risky for you to invest in stocks if you don’t possess the skills needed to select good stocks for investments from bad ones, which are financial literacy skill and stock valuation skill. It is the same with real estate and business where it is a lot helpful if you or your team have the necessary skills to make them work.
In short, the money in any investments lies in skills.
5. Key Performance Index (KPI)
Building wealth is best if it is done systematically, having small achievable goals, specific action plans and KPI to measure your progress. For instance, if you now struggle to save money from your paycheck, you may begin with a small goal of saving 5-10% of your monthly income. Your plan of action would be to set aside that amount after receiving your monthly pay and not spend it. Your KPI will be to measure how frequent you are in achieving your small goal.
Likewise, if you are a novice investor, you can set a timeframe of 3-6 months for yourself to learn an investment skill. Let’s take the skill of interpreting financials of a company as an example. In the 3-6 months, you set a target to read a book on value investing. That is a good goal to have as it progresses you to become a better stock investor.
Of course, if you are ready to invest, maybe, you can set a target to make about 5% in dividend yields per annum from your stock portfolio. Your game plan is to acquire 10 dividend stocks in a year. Then, after 12 months, you would measure how you fare personally in your journey as a stock investor.
The example of setting KPIs could vary based on one’s journey as an investor.
5 Things You Can Do to Start Investing Today …
So, where and how do you start investing?
Here, I’ll offer a simple to-do-list so that you can immediately work on it so that it increases your chance of becoming better as an investor.
- Prepare your own financial statement.
- Discover where you want to be financially in the next 3, 5, or 10 years.
- Build a buffer amounting to 12 months worth of living expenses.
- Learn an investment skill for the next 6-12 months.
- Set an investment game plan with an action plan and KPIs.
