About few months back, I’ve attended a course on investment. The speaker is a very sincere guy who has many years of experience in the investment industry. He mentioned 3 golden rules to follow with your money. The first rule is: INVEST YOUR MONEY IN ORDER TO GROW IT
Invest your money
We would not hesitate to grab that pretty dress or that nice designer sunglasses that cost hundreds of ringgit. And we make such type of purchases every month. But when it comes to putting aside a small amount for investment, many people are just relunctant to do it.
Having literally flushed my hard earned money for years down the drain, indulging in my gourmet coffee habit and impulse shopping, I kept asking myself why can’t I just have a little more discipline and set aside a small amount each month for investment? After all, I have no idea what happened to my money- I only know that I have spent a lot on my credit card because I could redeem quite sizable electrical items with my reward points earned from credit card purchases.
I would not have missed those money- at least if I put to investment, even though if it loses money, I still have something rather than having nothing after buying that blouse or digested the food. Nowadays, I learned my lesson the hard way.
Many people are very relunctant to invest in unit trust. The common fear is:
What if I lose all my money when all the market crash?
Of course, there is risk with every investment. Don’t put what you cannot afford to lose in investments. What I hope to achieve in this article is- if you like to splurge and shop, please, please just make a little teeny weeny sacrifice by putting aside some amount to invest.
Investing in unit trust is much safer than investing in stock market. This is because the professional fund managers takes a huge amount of funds (collected from each of you, the customers a.k.a investors) and park it into multiple good companies. If you spend RM4000 buying shares from the stock market, first, you get only limited lots. And as you have witnessed, in this economy crisis, even companies that are perceived to be strong had filed for bankcrupcy. If you put all your money in stocks, you can kiss your money goodbye, literally.
But if you use it to buy unit trust (also referred to bonds, mutual funds), the RM4000 that you took out is placed together with other investors. If you buy property unit trust, ie investments that targets property growth, you get to be a player even with limited capital (what type of property can we buy with just RM1000?)- so the profit will be scaled and given accordingly. If the fund made back 100%, you get back RM1000 for every RM1000 invested. Whereas the guy who invested RM100000 gets back another RM100000. You get back what you give. Fair?
By the way, in case you do not know, EPF- where your retirement funds are placed in- literally invests heavily in all the blue chip companies in the Kuala Lumpur Stock Exchange. If not, where do you think that your dividend payments came from? The 4.5% paid to you is same rate as inflation. But sometimes, investing on our own may yield higher returns. Actually if EPF invests holds a majority of share in many blue chip companies, their yield is much higher than 4.5%. Hmm…. makes me wonder what happened to the rest of the profit.
When the market crash or economy suffers, then leave your funds there. We all know that every 10 years or so, the economy tends to head downward- and historical data always showed us that the economy recovers. And due to inflation, the stocks price for most companies will go up higher than before. So if you have bought unit trust 10 years ago, you would still likely be able to make a profit.
To illustrate, I will use the example given by the speaker:
- In 1996/97, Maybank share cost about RM2.10.
- In 2002, the price gone up to about RM12.
- Imagine, if in 1997, you have bought 5 lots of Maybank share and sold it off in 2002, how much will you be making? More than 500%
- Now in 2009 during the economy downturn, Maybank share is now about RM6 to RM7. This economy downturn is worst than the one in 1996 but do you see Maybank share going down to lower than RM2.10?
Fund managers are in for one thing only: to make money. So the fund managers will try to identify a series of such companies- well, there may be a temporarily setback due to the crisis but nevertheless, when the market recovers, the stock prices will slowly move up.
The question is, do you have enough holding power to wait for the price of your pooled investment to go up? This is because unit trust investment is for long term, friend. It is not a short term quick money making machine- you’ve got to have staying power. Else, there is no point.
And always consult a qualified agent or financial planner and ensure you read the prospectus carefully before investing. There are many different types of fund profiles- some aggressive- but can potentially yield higher returns. Some are investing on safer markets- but give lower potential yield.
But whatever you do, please don’t be like most people- just park all your money into fixed deposits. FD pays interest about 2% per annum. That’s very low- inflation is 4.5%- it’s even higher if you stay in the city. Remember the days when our parents can buy a bowl of curry mee for 20sen in 1960s? How much are you paying for a bowl of curry mee now? That’s inflation, my friend. Your hard earned savings will not be worth much if you do not plan your savings taking into account of inflation. If you buy property, the price goes up because of capital appreciation and inflation- but the money lying snugly in your bank account will not.
If you still don’t get what I am trying to say, please consult a financial planner. I would suggest you see a few different people, learn about different investment schemes before making a decision.