Earlier this month, Bank Negara Malaysia (BNM) announced a cut in the Overnight Policy Rate by 25 basis points to 2.50%, the third cut in 12 months since May 2019.
While a downward revision on mortgage rates is great, having Fixed Deposit (FD) rates revised to below 3.0% per annum is not.
A month ago, the Employees Provident Fund (EPF) declared a 5.45% dividend rate for 2019, a dip from 6.15% in 2018 and the lowest in five years.
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 depressed with property overhangs and falling value of properties, especially if they are newly completed.
Against this backdrop, many realise the need to invest to achieve greater gains for their money today. But where should you put your money? Stocks, real estate, unit trust, P2P lending, robo-advisors or gold?
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 tomorrow.
1. Identify your investment plan
To do this, you have to identify the following first:
- Who you are
- What you do
- Where you intend to be financially tomorrow
2. Create an investment game plan
This will be based on the following:
The maximum loan tenure is either 35 years or at the very most when one hits 70 years old, whichever comes first.
This would have an impact on a person’s monthly mortgage repayments – the younger you are the less your monthly mortgage repayment will be.
Therefore, real estate as a better investment for the young as opposed to those who are older.
2. Financial status
This is about your financial strength, which includes having knowledge of how much you have and your income sources, expenses, assets, and liabilities.
Typically, a fixed income earner would invest differently from one who is self-employed and from another who is a retiree. Hence, this leads to the next point.
For instance, a young employee would have a stable income but not lots of capital. He may build his portfolio periodically by investing a portion of his income on a regular basis.
Meanwhile, a self-employed individual could potentially generate faster and greater growth in income. But he may experience huge fluctuations in his monthly income.
In his case, he could opt for one of the following:
- Reinvest his profits 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 monthly cash flows.
On the other hand, 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 can.
Question 1: “Are stocks good investments?”
Answer: “Are you a good stock investor?”
Question 2: “Is this the right time to get into real estate?”
Answer: “Are you a good property investor?”
You can either make or lose money from investing in stocks, real estate, unit trusts, P2P lending, businesses, bonds, gold…etc.
The key thing is not about what asset, which market, where, and when you invest. It is “you”, the investor, who is critical to your own investment success.
For instance, let’s say you are interested in stocks. The question is, “How do you tell a good stock for investment from a bad one?’
If you have investment skills, you would have better answers to this question as compared to someone just trying their luck.
It is the skills that make investors rich and the rest blinded by fear and greed.
Question 1: “What if I’m a novice investor? What do you recommend?”
Answer: “Would you like to learn how to invest?”
Question 2: “What if I’m not interested to learn or don’t have the time to learn?”
Answer: “Then, it’s best you not invest.”
If you invest without the right skills, you’re at a disadvantage over others who do.
It is risky for you to invest in stocks if you don’t have the financial literacy and stock valuation skills needed to select good stocks.
5. Set Key Performance Indexes (KPI)
Building wealth is best done systematically, by having small achievable goals, specific action plans and KPIs to measure your progress.
For instance, if you now struggle to save money from your pay cheque, you may begin with a small goal of saving 5-10% of your monthly income.
Your action plan is to set aside that amount from your monthly pay. Your KPI will be to measure how frequently you achieve this goal.
Likewise, if you are a novice investor, set a timeframe of three to six months to learn an investment skill like value investing.
If you are ready to invest, set a target to make 5% in dividend yields per annum from your stock portfolio. Then measure your success.
5 things you can do to start investing today
- Prepare your own financial statement.
- Discover where you want to be financially in the next three, five and 10 years.
- Build a buffer of 12 months’ worth of living expenses.
- Learn an investment skill in the next six-12 months.
- Set an investment game plan with an action plan and KPIs.
This article was published in kclau.com
Ian Tai is the founder of DividenVault.com, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks that pay ever-growing dividends year after year.