How would I invest if I do not know much about investing? 

That is a tough one to answer. This is because it is ideal for all of us to first learn about investing before getting into it. Often, the return on investment (ROI) will improve over time as the investor accumulates knowledge, wisdom, and as well as experiences from investing. 

For instance, as a stock investor, I did not enjoy much returns, in both dividends and capital appreciation, from my first few stocks that I invested. But over time, as I continue to study, reflect and soul-search, I began to achieve greater ROI as the stocks that I subsequently invested into are better in fundamental qualities. 

So, in short, we need three things to attain greater ROI in investing: 

1. Education 

2. Experiences 

3. Excess Cash 

This leads us to the following questions:

What if I’m not willing to learn and become better in investing? 

What if I’m just too busy with my work where I’m most productive if I just focus on my work alone? 

How then should I invest? 

Where do I start? 

So, in this write-up, I’ll share 1 thing that I might consider doing if I do not know how to invest, do not want to learn about it or have any time to study about it. 

What am I Investing for?

First, I believe it is important to set the right context on the word – ‘investing’ as different people have different beliefs about it and therefore, invest differently. 

Here, I would say investing is about having a plan, a bridge that will link us from where we are financially today to where we want to be financially tomorrow, as safely as possible. So, in this context, let us say, I intend to build myself a sizable retirement fund so that I choose to retire comfortably at 60, the retirement age mandated in Malaysia. 

In addition, I am assuming the below:

1. I do not have the interest or time to learn about investing. 

2. I do not wish to incur any fees like sales charges and management fees. 

3. I like capital guaranteed instruments as I do not like market volatility. 

So, What Should I do? 

Well basically, I will limit my choices down to just three as follows: 

1. Fixed-Price Unit Trust such as ASM (I’m not qualified for ASB). 

2. Early settlement of consumption debt such as home mortgage and car loan. 

3. Voluntary contribution into my EPF account. 

Here, I did not include fixed deposit (FDs) into the list as I view FDs as ‘rainy day funds’, and not as investments. I would say, it is prudent for us to have set aside at least 12 months worth of living expenses into FDs. 

ASM is subject to its fund availability and thus, is not opened to all at all times. 

So, if I want something that is readily accessible at all times, I am left with just 2 options: early debt settlement (if I have any) or EPF contribution. 

Of which, I will prefer to contribute to my own EPF account voluntarily. 

This is because its dividend yield is higher than the effective interest rates that I could save from early settlement of my mortgage or car loan. In 2011-2020, the average dividend yield declared by EPF is 6.11% a year.

How does EPF Generate Returns for its Contributors? 

Based on its annual report 2019 (its latest), EPF increased its investment assets, from RM 469.0 billion in 2011 to RM 924.8 billion in 2019.

Of which, its key assets include: 

1. Malaysian Government Securities and Equivalent (RM 253.5 billion) 

2. Loans and Bonds (RM 200.7 billion) 

3. Equities (RM 360.4 billion) 

4. Money Market Instruments (RM 62.8 billion) 

5. Real Estate and Infrastructure (RM 47.4 billion)

Hence, it allows EPF to generate interests, dividends and rental income from its investment assets. It increased its net income from RM 22.3 million in 2010 to a total of RM 47.2 million in 2019 and thus, allowing EPF to declare and pay out a string of dividends to its contributors.

How to Make Voluntary EPF Contribution? 

There are three things I need to know before I make my contribution. 

First, the maximum amount I can contribute is limited to RM 60,000 per year. In other words, the amount I can choose to contribute ranges between RM 0 to as much as RM 60,000 a year. 

Second, I would agree to not touch this money, after contributing it into my EPF account, until I hit 55 years old. The money contributed is solely used to build a sizable retirement fund so that I can choose to retire comfortably when I hit 55. So, it is a long-term investment. 

Third, I need to accept the future dividends paid out by EPF and forgo my rights to use the money to pursue other investments or stuff in life. 

What about yourself? 

So, if you like to find out more details on how you could contribute to your own EPF account voluntarily, you may click the links below: 

Link: Voluntary Contributions to EPF account

Download: Form KWSP 6A(1) 

What if I Want Higher Returns than the EPF? 

Well, that is the hard part. 

Often, the issue with the above is not so much about EPF’s dividend yield. But, I think the problem lies with one wanting higher returns faster. First, the above is written in the context of one who wants to: 

1. Incur no capital loss from his investment. 

2. Compounds his dividends over a long period of time. 

3. Not pay sales charges, management and trustee fees for an investment. 

4. Invest hassle-free without being active in managing his investment portfolio. 

So, if you want higher returns faster, could you: 

1. Take on market volatility and possibly incur capital losses? 

2. Spend time learning how to invest or to find and manage your investments?

3. Pay transaction fees, sales charges, management and trustee fees. 

So here, I am not saying that the EPF is the greatest investment on planet earth but I would say that it is definitely suitable for some individuals. I believe that it is important for any individual to first understand what you would wish to build up in your finances before getting into any investment. 

All in all, if you are not into investing but you are fully aware of its importance, I would say voluntary contribution to EPF could be considered as an ideal option. But, if you wish to achieve higher returns, then, I would say it is prudent to first focus your time, energy, and money onto learning about investing, before really getting into it, be it stocks, real estates, unit trust, P2P, cryptocurrencies, and so and on forth. 

How about yourself? 

How would you invest if you do not know much about investing? 

Please leave your comments below: 

Ian Tai
Ian Tai

Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with Co-Founded, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

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