Thursday 8 May 2014

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Two types of safe and low risk investment you can find

Posted by Unknown at 12:23 pm
Let me try to illustrate out two types of people that should be reading this one.

FIRST PERSON, you do not like investment because is risky. You don't know what investment is out there you can earn money from. You rather save it under Fixed Deposit (FD), safe and sound. Or even worst, you prefer not to do anything and leave it in the bank!  

SECOND PERSON, you want to invest. But you still have fear of the risk. And you don't know where to start, and what kind of investment suitable for you. 

I am going to show you no-brainer guide to choosing low risk investment.

*However if you are so good at it, please ignore this post because you probably have better alternative to earn bigger chunk of cash. 

2 TYPES OF SAFE AND LOW RISK INVESTMENT
1. Mutual fund/Unit trust. 
Probably you have heard of it somewhere. This type of investment doesn't work like a single stock/share. 
Unit trust is basically controlled by fund manager who will allocate your money to invest in various sector/industry and companies. 

- WHY INVEST IN UNIT TRUST???
Because, if money is allocate to different sectors, your risk is diversify. If Company A is losing money (share price drop) your money is covered back by Company B or C which is still earning money. If you invest in this over the long-term, the chances of your unit trust rate of return is higher compare to normal stock market investment.

 - HOW DO I START?
Simple, start doing your homework. Go to Google to look for 'what is mutual fund?' to understand it better.
And then, you can look for banks who offer unit trust services. Notable one in Malaysia would be Public Mutual. They have won multiple awards for being best Malaysia Unit Trust player in the market.
Call them, they will arrange a unit trust consultant to look for you. (THEY ARE MORE THAN HAPPY TO LOOK FOR YOU! ITS AGENT'S COMMISSION)

 - WHAT SHOULD I LOOK OUT FOR UNIT TRUST?
Do take note that invest in unit trust is quite expensive. They charge you a fee of 5.5% every time you invest (you're paying fund manager to invest for you anyway). 
Which means - you invest RM 1,000. They will take RM55 as service charge.
And disadvantage is that you cannot control what they have invested. So please constantly look at your investment, if it is not earning as much within a 5 years' time. Start looking at other fund that is performing better. 

2. Exchange- Traded Fund (ETF). 
It works slightly similar to unit trust. But instead of controlled by fund manager, they track the KLCI index. Its very technical, probably you need to Google again to understand further.

- WHY INVEST IN ETF???
Here is the sexy part. ETF is cheap! Low risk, and cheap. It doesn't charged a service fee like unit trust. It only charge normal broker fee just like normal stock (broker fee ranges from 0.25% to 0.5%). And they look at index, meaning if the index has a total of 100 companies, its share price is diversify too. Its advisable to invest in it long term because in a short period of time you can't see much differences. BUT in long term, the reward is there. 
"The younger you invest the better its value is!"
 - HOW DO I START?
In order to invest in ETF, you need a broker account. The link below has a list of available service in Malaysia as well as their charges. 
The best thing, you can start investing online. If you don't know where to start...choose a broker from the list and call them up. They will arrange a broker to serve your account.

 - WHAT SHOULD I LOOK OUT FOR ETF?
There is a drawback, ETF in Malaysia is still not matured. They just started not long ago, unlike countries like US which have started ETF more than 10 years ago. So you need to really study carefully what is the potential ETF, and what index/company they are referring at. 
A better plan is to invest to developed market for example US. Although their broker fee to invest in overseas is extremely high, but, is safer and more profitable in the long run comparing to Malaysia's ETF. 
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As a conclusion, you now know where to start, so delay no further. Even if you think it is not suitable for you, but at least understand them. You never know when you may need it. 

Its better than putting your money in FD. Our Malaysia inflation rate was 3.48% as of March 2014. Do you think FD can earn you money? I don't think so, moreover FD doesn't not allow you to withdraw money out without charging you penalty or not giving back interest. So which is better? 

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