It is the lost of purchasing power of money. We may heard the elder generation said their bucks worth much more in the past, but the value of money has been depreciated over the time. So, what can we do to get rid of inflation? Yes, we should starts INVESTING. Investing can help you increase the value of your money through market exposure and achieve your financial goal. At least, it can preserve your dime from inflation which eating up your money.
However, alot of people has mingled certain terminology. Let us look into it.
Gambling-- it is an activity you expect to get huge return in a very short period, but it is hardly to estimate the risk inside it. I can certainly say the chance of success is 50/50. Thats why we can't find any fellow who can get rich by gambling through doing it consistently.
Speculation-- It is an activity to purchase any types of investment vehicles which expect to gain huge return without taking into consideration of the risk behind it. Therefore, they do not look for margin of safety. Maybe you are lucky enough to beat the market once or twice, but you can't do it consistently.
Investing-- It is an activity to put certain amount of capital at risk which can be estimated. We can hardly see people get rich by investing in just one day or short period. It took a long time to bear the fruit of investing.Thus, investing is the safest step to build a great wealth through ringgit averaging cost method.
Before talking about investment, we should get a life insurance policy first. At least, a medical card and cover 36 critical illness. Because we wouldn't know what will happen tomorrow. IMHO, insurance policy is to guarantee your life from risk and secure your dependent if you are the only breadwinner in the house. Therefore, those investment rider plan can totally be avoided.
When should we starts investing? The earlier the better, it does not matter how much money u got, as long as u have few hundred bucks in hand.
Before starts in investing. We should understand the types of investment vehicles. Every types of investment do bear certain amount of estimated risk. It is all depends on your own risk appetite. The golden rule is the higher the risk, the higher the return.
Fixed deposit/ CFD
This type of investment is the safest investment which is guaranteed by PIDM. An individual deposit account is secured by the Bank Negara up to rm250k. Therefore, the return is very minimal (roughly 2-4% depends on economy), it is suitable for those who has large sum of capital but are risk averse to the investment outcome.
Unit trust/ Mutual fund
For those who has long investment horizon and wish to achieve great wealth. This is the good platform if you don't have investment knowledge and expertise.(fund manager usually can get access to insider information which is not available to individual investor). There are alot of investment house and fund to be chosen in the market. They will invest on behalf of you in the investment platform and earn certain percentage of fund management fee from their client . There are 2 types of fund most prominently available in the market. They are bond fund and equity fund. For youngster, I would recommend starts investing in equity fund because equity fund will certainly perform better than bond fund in the long run through compound interest.
IMHO, there are few funds I would recommend for public mutual, such as public ittikal fund and public aggresive fund. Besides, we can also look into PNB fixed price fund such as AS1M and ASM. However, these fund is not always available and has quota.Therefore, you must grab the fund as fast as possible if government release new units. The fund can guarantee a minimal return of 6% annually, far better than fixed deposit. If you are a lucky bumiputera, ASB is the best choice since the quota limit is rm200k for each individual and generate at least 7% dividend without taking account of bonus. Besides, PNB fund are tax free investment vehicles. Therefore, it is very good choice for those who hit the personal income tax threshold limit and want to own a peace of mind investment scheme.
Shares
If you think that you can beat unit trust return through investing by yourself or you got insider information (illegalised by Security commission) Then, just go ahead by exposing yourself to the irrational market. I would recommend you to set aside 20% of your portfolio asset to start investing in the irrational market when you are young (but not speculative purpose). It is very challenging to watch your security made capital gain or loss every month. Owning the shares means we are having a stake of the company, you are the shareholders. Therefore, you can attend their General Meeting to discuss the company's issue. Besides, you can get dividend if the company has excess distributable profit. Therefore, it is better than unit trust if you manage your portfolio in the correct way because you can save the management fee and the realised capital gain is 100% not taxable.
Bonds
Besides shares, we can think of corporate bond or government bond (but not junk bond). The bond is a listed security. However, it is not popular in Malaysia since its return is close to FD. However, convertible bond is one of my favourite, you can convert the bond to certain amount of share in the future upon maturity or let the offer lapse. It is interesting if the company did well, you can earn a huge return by converting the security. hehe
Real Estate Investment Trust (REIT)
Now, comes to my favourite. Thinking of property? Property will certainly appreciate if you invest it long enough, because size of population will only getting bigger and the demand for shelter will be increasing. Nowadays, you need not to get access to the landed property to own it. It is a traded security which is listed in bursa, you can earn the return like any of the listed company through capital appreciation and dividend. However, the dividend is not tax free unless the it is single tiered.
Here are the basic investment vehicles i can think of. Hope it can get closer to your financial goal. Besides, there are other derivatives available in the market such as warrants which is more complicated. I will discuss again in my upcoming blog.
Think. Net Worth!
Nice blogs. But I think gambling cannot be considered as an "investment". Since investment is putting your money in something that can generate money for you, based on the supply and demand market, as well as the people. However, gambling is just for people to try their luck, or maybe you can say "skills" sometimes (or cheat, most of the time). So, basically, I think gambling is just for those who wanna try their luck, instead of making money. Else, we can actually define gambling as a game for rich people. Since they are wealthy enough, they may use money as the tool for playing this kind of game in order to increase the entertainment excitement.
ReplyDeleteYa, thats why i didnt include gambling as part of my consideration. My main aim is investing. Because some of my friends misunderstood the concept of investment as gambling. Thanks for your comment. I will keep it up.
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