People tend to ask; what is the best product whether it’s investment and insurance. To me, best is relative because what’s best for you might not be the best for someone else. So rather than asking what’s the best product, a better question to ask is – what’s most suitable for me?

Now what do I mean by that?

Comparing it an everyday scenario; we all know it’s good to exercise. But what do we think is the best exercise? Because there are many options; there’s cycling, swimming, kickboxing, yoga, weight training, High Intensity Interval Training (HiiT) and hiking.

They are all great – but choosing one for your fitness routine boils down to more than one factor. It also boils down to factors such as individual goal, what do you enjoy, what is accessible and ability. So let’s take an example – swimming. Swimming is a great exercise – low impact for those who might have knee issues, whole body workout and relatively low cost. But some people do not have access to a pool (and in this lockdown case – it’s inaccessible for most) or some don’t know how to swim.

Hence, swimming might be the best exercise option for some but not for others. Of course exercising and money matters are not direct comparisons but you get the gist.

So while we probably can agree that investing is good (at least I hope we do), just like exercise, there are several factors to consider on what suits us most. Besides wanting to get a good return, factors such as risk appetite, investment goals & time horizon, time investment, minimum amount required to invest, ability to exit (liquidate) investment and cost involved are also important to consider.

1. Risk appetite

We are all different, whether it’s our personality, our knowledge of investment, our experiences or even our stage of life. All that has a role to play on what level of risk we are comfortable with. While we are familiar with the term, high risk, high return – not everyone has the same appetite for risk.

Some are naturally more risk adverse while some are comfortable with investments that are riskier and volatile. Some are just taking baby steps while some have seen the ups and down of market cycles. Some are younger and can afford to take bigger risk while some of are reaching retirement and would want to be more conservative. So that level of risk return balance will vary and the investment portfolio will look different based on individuals.

Those with higher risk appetite are willing to accept higher short term movements/ volatility in their investments and take on higher risk products. But that’s not for everyone. Hence they are willing to have lower returns in order to have a less volatile and risky investment.

Your peace of mind when it comes to investing is equally important so choose something that allows you to sleep well.

2. Investment goal and time horizon

Purpose is important in deciding what to invest in. For example, someone who is looking to invest to generate regular cash flow and someone who is looking for growth to fund their retirement will have an investment portfolio that looks very different. Someone who is looking to fund their retirement which is still years away can afford to have a longer time horizon for their investment vs the one who is needing regular income.

Also someone who is looking to invest for a children’s education overseas will also need to consider the currency factor and may want to look at some form of hedging.

3. Time investment

This is not the same as time horizon which is referring to the time you are willing to stay invested. Time investment is the amount of time spent on managing the investment which is influenced by three simple factors; willingness to invest time, interest in investing and lastly availability of time

i) Willingness to invest time

This refers to how much time are you willing to spend to manage the investment which will influence whether an active or more passive style is suitable.

Think about it as getting a meal for yourself; do you outsource it or prepare the meal yourself? Outsourcing would mean eating out or in current times; getting it delivered. Ultimately both methods would get you a meal ready at the table but the time involved is different.

The most passive style would be engaging a professional to do it such as a licensed financial adviser or licensed financial planner. For those solely looking at unit trust, then unit trust consultants are also an option.

An example of active investing would be stock picking. This will require understanding of the key drivers that drives the stock, the company itself and would involve activities such as reading financial statements. For sure, some level of personal homework needs to be done.

For those who choose to invest in property, time and effort is needed for property hunting when purchasing and then subsequently looking for potential tenants or buyers. Also, in certain case, renovation is needed to increase the value of the property which also can be time consuming.

ii) Interest

Aside from time investment – my personal belief is what drives your willingness to invest time (aside from the money factor) boils down to interest. Personally, I don’t think active investing is suitable for those who do not enjoy keeping up with business trends and learning about what drives businesses.

Without interest, the reading that you have to do to understand the investment drivers would bore you to death and you will not likely keep up with it for long. Personally, I do not think there’s anything wrong with not being interested – it’s just that the active style does not suit you best.

iii) Availability of time

For some, it’s not even a matter of willingness to invest time – it’s a matter of availability of time. There are many investment courses out there nowadays that have taglines saying how you can find the 10 bagger which means stock that will grow by 10x. But what they don’t tell you is the time you need to invest to find the 10 bagger; if you find time. So for some, time is probably your biggest scarcity. For example, parents who are juggling young kids and full time jobs with no support at home, active investing might not be the easiest option.

4. Minimum amount needed to invest

Different investment types will have different minimum entry level. Hence it’s important to consider what you can afford to determine what’s suitable. Important thing to remember is you don’t have to put off investment until you have a lot of money saved up.

Let’s look at some examples of different entry points:

Directly investing in stocks and ETFs have different entry points depending on the price of the stock as well as markets/platforms you use. In Malaysia, shares are traded in sizes of 100 units/1 lot. Investing in 1 lot of a penny 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. Hence the minimum entry can be vastly different

As for investing into unit trust and roboadvisor platforms, the entry points are more accessible. For example, Stashaway states that it has no minimum deposit amount whereas most unit trust have a minimum starting amount of RM1,000. On the other side of the spectrum, property investment and even investing directly into businesses will require much larger entry points.

Ultimately, the important thing to remember, choose an investment that suits your budget and you do not have to wait till you have a big bank account to start.

5. Ability to liquidate/exit the investment

Different investment type will also have different ease to exit. This is important because it’s pointless to have paper gain but unable to exit the investment and have the cash in hand when you actually need it. Investment in unit trust, roboadvisor platforms and to a large extent stock as well as ETFs are relatively easy to liquidate. The ability to liquidate is largely reliant on the pool of market demand and supply.

Given that property investment and for some who choose to have private investments in companies have a much a smaller market size, the ease to exit these investments will definitely be more challenging.

6. Cost of investment

For different type of investments, different types of cost can come into play; ranging from low to high. Typically the cost will be in three stages so it is good to consider whether this cost will add up in the long run to commensurate with the returns:

  • Initial fees eg sales charge for unit trust, brokerage fees for purchase of stocks
  • Maintenance cost eg. ongoing management fees, repair & maintenance on property
  • Exit cost eg. capital gain tax and agent fees for disposal of property.

Depending on your own situation, as you can see, best is relative for different ones. Hence perhaps a better question to phrase is what is most suitable for you.