“How do I invest if I do not know much about investing?”
This is a difficult question to answer as, ideally, one should first devote time and energy to learning about investing before getting into it. Return on investment (ROI) often improves over time as one accumulates knowledge, wisdom and experience.
Assume an investor intends to build a sizable retirement fund so they can retire comfortably at age 60, and yet does not have the interest or time to learn about investing. What options are available that do not incur any fees, and yet guarantee returns that are not subject to market volatility?
Here are three suggestions:
- Fixed-price unit trusts such as Amanah Saham Malaysia (ASM) or Amanah Saham Bumiputera (ASB);
- Early settlement of consumption debt such as a home mortgage or hire-purchase loan;
- Voluntary contribution into your Employee Provident Fund (EPF).
Fixed deposits are not included as they can be considered “rainy-day funds” and not investments. Meanwhile, ASM or ASB are subject to fund availability and are not accessible to all.
So, really, you are left with two options.
EPF, with an average annual dividend yield of 6.11% between 2011 and last year, provides greater ROI compared with the amount you would save on interest should you settle a mortgage or hire-purchase loan early. This makes it a viable and risk-free option for long-term yields.
Keep in mind, however, two things if you intend to contribute voluntarily to EPF. Firstly, the maximum amount one can contribute is RM60,000 a year.
Secondly, you would agree not to touch this money for other investments or purchases until you reach age 55, as the money is primarily used to build a sizable retirement fund.
With EPF you will not earn higher returns quickly; but you will not incur capital losses, do not have to pay any charges or fees, and are spared the hassle of managing an investment portfolio.
It is therefore suitable for those who are not fully into investing but are aware of its importance in the long run.
This article first appeared in KCLau.com.
Ian Tai is a financial content writer, dividend investor, and author of over 450 articles on finance featured in KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore. He is a regular host and presenter of a weekly financial webinar in KCLau.com.