Earlier on I wrote about some of the criterias to consider when choosing a suitable investment option. To recap, I mentioned that aside from returns, other factors to consider are risk, investment goals and time horizon, time investment to manage the investment, minimum amount to invest, cost of investment and also ease of liquidation (how easy is it to sell).

In this article, we will look at how these criterias stack up for the more common investment types so you can assess what suits you best. My personal belief is there’s no best investment only what is most suited for you.

Of course, the list is not comprehensive as investment options can be wide ranging but since this is a beginner’s guide, I believe in keeping it simple. Having too many options would be too perplexing and can lead to inaction.

For this article, I will focus on stocks, unit trust, bonds, ETFs and roboadvisors. I have excluded property due to its higher cost of entry and personally I have mixed feelings about about property as an investment in the current Malaysia market but that’s for another article. I’m not well versed about crypto so I would not write on that but I will recommend some sources to read up on that.

What is an investment

Firstly, let’s understand what is an investment. Investopedia defines investment as an asset or item that is purchased with the hope that it will generate income or appreciate in value at some point in the future. With that in mind, many things can be considered as an investment; whether it’s by different asset classes or different mechanism that pulls together the different assets to form a type of investment product. Yes, in reality, anything that increases in value is an investment so even toys such as Lego is in reality an investment.

Secondly it’s important to understand investments are made up of different types of asset class and each asset class has a different type of risk, return and serves a different investment time horizon. The common asset classes are as below:

Asset Class

1. Cash

  • This is straightforward and ranges from bank accounts, high interest savings accounts, term deposits and money market funds.
  • Used to protect wealth and diversify a portfolio
  • Average return: ~<2% per year
  • Risk: very low risk of losing money
  • Time horizon: short term, 0–3 years

2. Fixed income or Bonds

  • In simple terms, this a loan you make to a company or government.
  • Instead of borrowing from the bank, the company/ government decides to raise funds from investors and how investors make money is via repayment plus interest.
  • Includes government bonds, corporate bonds and accessible for investors via direct bonds, exchange traded bonds or bond funds
  • Average return: ~3–5% per year
  • Risk: Low to moderate risk of losing money
  • Time frame: short term, 1–3 years

3. Property

  • This can be investment in residential, commercial property or even land.
  • Used to earn a regular income in the form of rent and offer capital growth.
  • Average return: Honestly not sure what’s the number here as it the property market in Malaysia of late has been quite lacklustre
  • Risk: Medium to high
  • Time frame: long term, at least 5 years

4. Shares/ Equity/ Stocks

  • It’s really buying a small % in a company that is listed on the stock exchange.
  • Can offer growth and for certain stocks, income otherwise known as dividends
  • Average Return: It can go from losses to multiple times depending what you pick. Just to give an idea, in Malaysia, over the last 10 years, KLSE index has been flat while the US S&P 500 Index has grown 15% on an annualised basis
  • Risk: I would put this as medium to high as different companies, in different industries play a role in the risk level
  • Time frame: Long term, at least 3-5 years

Alternative

  • Includes P2P financing, cryptocurrencies, ownership in private companies and other investments that don’t fall into the investment classes above.
  • Most aim to provide capital growth
  • Most alternative assets are high risk.
  • Returns differ depending on the type of alternative investment

The common investment options such as unit trust, ETF and robadvisor are made up of different asset classes and hence have wide ranging of risk, return and time horizon to suit different investment goals and personalities.

Hopefully at the end of the article, it will give you an indication of what might be suitable for you and to help you kickstart your investment journey. I’ll also add on links where you can read up more.

1. Stocks (share or equities)

Probably one of the most common terms we associate with investment.

I have touched on the return, risk and time horizon in the table above. So let’s look at some other considerations here as well.

Time Investment: High. If you are already pretty well versed in understanding what drives stock performance, stock picking and research will be much faster compared to someone who is just starting out. Otherwise, it does take time to learn. And there is also time investment required after purchasing a stock as it’s important to monitor the company performance as well as industry drivers.

Minimum Amount Needed to Invest: Low to high. In Malaysia, shares are traded in sizes of 100 units/1 lot so for example investing in 1 lot of a stock which is $0.50 would require an investment of RM50 whereas buying blue chip stocks such as Nestle which is at a price of RM133 would mean that 1 lot is equivalent to RM13,300.

Ability to liquidate: Relatively easy unless you are asking for too high price or having a very illiquid (which means that demand and supply are relatively low) stock. Transactions should be settled T+2 which means 2 business days after transaction

Cost of investment: Relatively low which is from transaction cost such as commission rates

How to get started in Malaysia: Sign up for a stockbroking account. You can do compare and start at imoney. I personally have a Rakuten account which is dormant. Personally I use TD Ameritrade for active investment abroad.

2. Bonds/ Fixed income

To invest in direct bonds, the entry level is steep which is usually six digit and would lack diversification. Most would invest in bonds via bond funds. Hence for the below, I would be referencing to bond funds rather than individual bonds.

Time Investment: Low to moderate as the credit rating from credit agency would help your decision and bond funds are professionally managed.

Minimum Amount Needed to Invest: As low as RM1,000 for bond funds

Ability to liquidate: Easy

Cost of investment: Relatively low as sales charge is usually 0% so the fees are mainly annual management fee which is ~1% and trustee fee which is less than 1%

How to get started in Malaysia: Buy bond funds on a platform such as Fundsupermart or eUnittrust

3. Unit Trust (or mutual funds)

Unit trust or mutual funds is a basket of different investments together which is usually made up of different bonds and stocks of different companies to form a type of investment product. This basket of investments is then managed by a fund manager.

There are different types of unit trust and they can differentiate by some of the below categories:

i) By investment type. For example; there are bond funds which I have mentioned above, equity funds and there are also funds that mix both together typically referred to balanced funds. For those who want exposure to property investment there is also the option of REIT (real estate investment trust)

ii) By geography. For example, you will find some funds focused on certain regions or countries such as China, US, Malaysia or Asia region

iii) By sector type. Most funds are a blend of sectors but there are also funds that focus on certain sectors such technology funds, REIT (real estate investment trust) funds or healthcare funds

Returns and risk for unit trust can range widely. One of the reason is due to asset classes. For example, money market funds which has cash as an asset class will have low risk and low return while equity funds will behave more like a stock.

However, there is another reason for the varying range of performance which I attribute it to how well it’s managed. In Malaysia alone, I think there are easily over 500 of funds but many of them underperform despite being professionally managed (yes you could lose money) but there are some who have delivered quite decent historical annualised returns of 6% and above.

Time Investment: Low to Moderate as it’s managed by a professional. The time needed would be initially in selecting the right fund to start off and of course reviewing it periodically to ensure that it’s still performing and whether you need to switch due to market changes.

Minimum Amount Needed to Invest: As low as RM1,000

Ability to liquidate: Easy. Usually around 4 – 5 business days.

Cost of investment: The main cost is usually the sales charge which will can be 0 – 5% depending on the fund and also how you purchase it. Unit trust agents will typically charge a commission that is higher if you DIY. There is also annual management funds which is ~1% and trustee fee which is less than 1%.

How to get started in Malaysia: Buy from platforms such as Fundsupermart or eUnittrust. These platforms have also introduced managed funds offering where you can purchase a portfolio of multiple funds preselected for you; so it’s a basket of funds. Alternatively reach out to a unit trust agent or licensed financial planner.

To learn more:

Fundsupermart has quite a good write up here

4. Exchange traded funds (ETF)

ETFs are also a basket of multiple investments but unlike a unit trust fund, it is not actively managed by a fund manager and hence a lower fee.

Instead ETFs tracks a certain benchmark whether it’s an stock index, sector or commodity. So it could track an index such as the top 500 companies in US or the tech sector. The options for ETF listed on KLSE are somewhat limited. Hence, the more common approach to get exposure to more options on ETF in Malaysia is via roboadvisors.

The returns and risk here are also some what wide ranging too, similar to unit trust as it depends what the ETF is tracking. If you pick a well diversified enough ETF, then I would say the ETF is more moderate in terms or risk but pick an ETF which is exposed to a single sector, that could be riskier.

Time Investment: I would put this as moderate if you are completely new and you would need to understand what goes on behind the ETFs and each index, sector or asset class behave. But it’s definitely less time consuming than individual stock picking.

Minimum Amount Needed to Invest: Relatively low and similar to stock, it’s based on 100 lots in Malaysia.

Ability to liquidate: Relatively easy. It is similar to a stock and around T+2

Cost of investment: Relatively low which is the transaction per trade which is charged by your broker and the management fees which is usually lower than 1%.

How to get started in Malaysia: Similar to stocks, sign up for a stockbroking account. If you want to access international ETFs, there’s the option of global trading account. Alternatively, you can access ETFs via roboadvisors which is the last investment option I will touch on.

To learn more, I have linked a few good reference articles.

1. iMoney

2. Bursa FAQ on ETF

3. Nomoneylah’s ETF guide

5. Roboadvisors

This has become increasingly popular of late in Malaysia with the entrance of new players in town since 2018 such as Stashaway, Wahed and MyTHEO. A roboadvisor is not an asset class per se but rather a platform that uses algorithm to create your investment portfolio based on your goals and risk appetite. So think of it as a digitalised financial advisor.

The underlying investment of each roboadvisor as well as investing methodology will vary and you can read more in the links below. Typically roboadvisors will invest in ETFs and unit trusts.

Time Investment: The lowest of the lot. The advantage of roboadvisors and also the popularity of it is due to the no brainer effort involved and to rely on the technology behind the platforms to choose what works for you.

Minimum Amount Needed to Invest: Also the lowest of the lot. You can start with less than RM1,000.

Ability to liquidate: Easy.

Cost of investment: Low. No sales charge and management fees that is below 1%.

How to get started in Malaysia: Just sign up on any of the roboadvisor platforms after you decide what you prefer. https://www.imoney.my/articles/robo-advisor-comparison

To learn more and make comparisons:

MyPF’s comparison

So what’s the takeaway?

I have covered the most accessible investment options and hopefully it helped you understand better on what might best suit you. I have always said that there is no best investment but more importantly it’s what suits you best and also enables you to go to sleep.

Personally, it took me time to figure out what suits me too. Now I have a mixed bag of investment myself with my hands in all the investment above except for bond as I’m looking for more growth. I have active investment in stockpicking as well as a more lazy style of investment in roboadvisor.

Naturally stockpicking has garnered me the highest return but it takes me more time. And there has been times when it does not look as great because it is definitely more volatile. But because I’m personally interested, it’s time I’m willing to invest and also risk I’m willing to take.

The reason why I still have my passive investment style which is the form of my recurring investment into unit trust and roboadvisor is because it helps me create a habit. Does it give me the highest return? Not really, but I don’t need the highest return to reach my goal and I know my “enough” number. So as long as it’s helping me to reach my goal, I’m satisfied.

So what’s next? I think the important thing is get started and invest what you have and can afford to lose (not what you do not have). Investing is not a gamble. Start small, start scared but most important is to start. You will learn and gain your confidence as you start. No one starts as an expert.

Of course, there is always the option to get professional help such as a licensed financial planner (like myself, shamelessly throwing a plug here) to give you a headstart. DIY works perfectly well too, there’s no shortage of resources. But if you want to explore, then feel free to reach to me for a free consult by clicking on the contact me. So happy investing!