In a time when our monthly salaries are barely enough to buy an affordable house, people are turning to investments to supplement their income. But where to start? There are many types of investments in Malaysia, but each have their pros and cons, risks and stability. Take a look at each of them, and decide for yourself which one suits your investment appetite and portfolio:
Cash and fixed interest investments
Cash investments are the most common form of investment in Malaysia, covering products such as bank savings accounts and fixed deposits. They provide easy access to your money when you need it, and there is no chance you could lose any capital – so they are very secure. However, while they do offer security, they usually provide very little income and no capital growth. Actually, they can be quite risky in the long-term because inflation erodes the value of your investments.
For most investors, cash and fixed interest products are suitable for use as a transaction account, keeping cash in hand for short-term expenses and emergencies, and short-term savings where they cannot afford any risk to their capital.
Shares (also known as equities or stocks) represent ownership in a company. When you buy a share, you become a part-owner in the company and become entitled to share in its future value and profits. Shares in a company offer growth to investors in two key ways: As the overall value of the company increases, the value of the shares also increases, and you can earn dividends when the company chooses to pay part of its profits to shareholders as income payment
Shares have the potential to generate very high returns. However, they also have the potential to fall in value if the company’s performance drops. They are generally suitable for investors who want to build a nest egg for medium and long-term financial goals Have a longer investment time-frame. Ideally, it is also for investors who are comfortable with some volatility in their investment value over the short-term, in exchange for higher returns in the long-term (in terms of dividend income and capital gain).
Unit trust funds
In a unit trust, money from hundreds of individual investors are pooled together to buy a large number of different assets. Professional fund managers decide what percentage of the fund should be invested in each asset class, and also which countries, industries and companies have the best prospects for good returns.
Each investor then receives ‘units’ in the fund, with each unit representing a mix of all the underlying assets such as shares, bonds and fixed deposits. They are an ideal option for people who are new to investing; happy to outsource the selection of investments to professional managers; having small initial amount to invest; and seeking investment diversification to minimise risk.
Property / Real Estate
Property is one asset class that most Malaysians are familiar with. Property investment offers value to investors in two ways:
- Increase in capital value over time as house and land prices rise
- Earn rental income from tenants.
Like shares, property prices go up and down and have periods of sustained high returns and sustained low returns, so property is generally only suitable as a long-term investment. One of the most important factors to consider when buying property is its location.
Property is generally suitable for investors who have no requirement for ‘emergency’ access to their money It involves a long-term investment time-frame, as well as investors who have the ability to meet mortgage repayments if interest rates rise or if the property is not being rented.
When you buy a government or corporate bond, you are ‘lending’ your money for a certain period at a predetermined interest rate. In return, you receive a steady income stream through regular interest payments.
Real Estate Investment Trust (REIT)
REITs are similar to a unit trust except that the investments are in property and real estate. The profits from such investments are passed on to investors in the form of dividends.