Pros & Cons List of 5 Popular Investments in Malaysia

In this article, I’m going to give you a condensed but concise pros/cons list of five of the most popular investments in Malaysia:

• fixed deposits
• mutual funds/unit trust/ETFs
• stocks
• gold, and
• properties.

Why these five? Simple – because the overwhelming majority of us will start our investing journey with one of them first. Eventually, you need to know the tried-and-tested strategies that work well with each type of investment, so learn them all here in this one article.

Let’s get right into it.

#1 – Fixed Deposit

What it is: Agree to let bank keep your money for x time. After a few months to a few years, they return back the money to you plus a bit of interest/dividend, which is your profit.

Pros:

• Easy to get. Many banks offer it.
• Easy to compare rates. Many financial comparison platforms list rates from different banks. Use them, it saves a lot of time
• Super super safe. Your initial capital is guaranteed.
• Set-and-forget system. Pretty passive

Cons:

• Small return on investment. Depending on the OPR, you’re lucky to get 4.x% ROI. Usually it’s 2-3.x%. That’s barely keeping up with the inflation rate.
• Your money is locked away for the duration. Cannot use for up to 5 years.
• There are penalties if you do need to take out the money before the term is up.

Strategies:

• Better to use cash management platform instead. Same concept as FD except no lock-in, aka you can take the money out whenever you want with no penalties.
• Be realistic. Don’t chase the highest rates offered if you’re not sure if you can spare the high minimum amount needed. Don’t lock it away for years unless you have a healthy-sized emergency funds socked somewhere else
• It’s not a bad strategy to open a new fixed deposit every month/every 3 months/ every 6 months. Over time, you’ll always have FDs expiring every so often

Related articles:

• 6 Best Savings Accounts in Malaysia to Put Your Emergency Funds

#2 – Mutual funds/Unit trust/ETFs

Note: Mutual funds, unit trusts and ETFs are not technically the same things, but similar enough that I grouped them together

What it is: Instead of buying one asset at a time (stocks, properties, precious metals etc), you get to buy it as a ‘package’. Ie, buying the S&P 500 means you’re buying a small portion of the top 500 companies in the US stocks market, at once.

Pros:

• It’s like instant diversification in your investment portfolio. Your mutual funds/Unit trust might have a mix of: stocks (of different markets), properties, precious metals, currencies and more
• So. Many. Options. To. Choose. From. There are probably hundreds of different Mutual funds, unit trusts and ETFs that you can buy
• Different products have different risk levels, so they suit different risk profiles. You can choose based on its risk level. The higher the risk, the higher the potential income.
• Some mutual funds and unit trusts have tax benefits too. When filing taxes, don’t forget to deduct amounts contributed to EPF, PRS*, SSPN** and investment-linked insurance products. Yes those are considered a type of mutual funds and unit trusts too
• An investment in Tabung Haji specifically lets you queue up for haji

*PRS = Private Retirement Scheme. Kinda like secondary, but optional EPF

**SSPN = education-earmarked funds for your kids

Cons:

• So. Many. Options. To. Choose. From.
• Some are only available for some people: ASB for Bumi folks, Tabung Haji for Muslims, some unit trusts for high net worth individuals
• You really have to check the fees offered by some financial institutions. Some can get pretty high (5% sales fees is HIGH, there are lots of low-fee options nowadays).
• Except for some, many people forget that the ROI for most unit trusts by fund management companies is not guaranteed. As such, many people investing in high-risk growth funds especially have lost money, especially if they couldn’t take the bear market and withdraw funds

Strategies:

• If you’re Bumi, take advantage of the ASB loan if you can commit to the monthly payments.
• You can also do Hibah ASNB – if anything happens to you, the funds will go directly to anyone you want, instead of distributed through faraid
• Generally speaking, roboadvisory platforms (which include ETFs) have much lower fees than unit trusts. It’s 1% (or even less than) vs up to 6% sales fee. No brainer to choose roboadvisors tbh
• Do take advantage of the mutual funds/unit trusts that can give you tax benefits
• You can take out a portion of your EPF money to invest in other unit trusts, or to buy property (whether you should is another matter. Personally I vote no, I don’t want to kacau my retirement money)
• Tabung Haji and some platforms like Wahed Invest help you to calculate and pay zakat
• You can buy PRS funds with zero sales charge
• You can diversify into US market and buy S&P 500 easily from MIDF Invest. And they even have Shariah version!
• Automate monthly contributions to your preferred mutual funds/unit trust/ETF and it’s as passive as it can get

Related articles:

• 5 Reasons You Should NOT Take ASB Loan
• Ultimate Comparison Between 8 Robo Advisor in Malaysia
• The Exact Steps to Do Hibah Amanah ASNB – Estate Planning for ASNB Investors
• All You Need to Know About Buying Unit Trust Through EPF i-Invest
• 4 Places to Get PRS in Malaysia with ZERO Sales Charge
• MIDF Invest Review: Buy US Stocks and ETFs from Malaysia Directly, Securely and Cheaply
• How to Buy ETFs in Malaysia Easily and SAFELY
• Explaining Every ETF You Can Invest and Trade on Bursa Malaysia

#3 – Stocks

What it is: Stocks represent your (small) ‘ownership’ over a part of a company

Pros:

• Super fun for people who like to read and do research. Lots of publications and seminars you can attend.
• You get to choose to learn about the fundamentals, the technicals, or both.
• Lots of strategies. You can do dividend investing, you can do warrants, you can do IPO, you can do value investing, lots of options
• As a shareholder, you get to attend AGMs and get nice doorgifts

Cons:

• Not so much fun if you have no interest in company news and updates, and macroeconomics in general
• You get the ‘what if’ syndrome. What if bought lower? What if sell higher? What if I waited? Why didn’t I sell then?
• A lot of survivorship bias. While lots of people made money on the stock market, don’t forget lots of people have lost money there, too

Strategies:

• If you like fundamental analysis, you’re suited for value investing and dividend investing strategies. Read those books and attend those talks
• If you also like technical analysis, you can potentially increase your ROI with warrants trading. Read those books and attend those workshops
• If you’re a long-term holder, except for rare events, don’t disturb your stocks after you buy them. Just hold them for the long term. Many people itchy fingers like to buy/sell too often.
• Buy when others are selling, sell when others are buying

Related articles:

• DividendMagic Taught Me How to Read Financial Statements and Buy Stocks
• 7 BEST Articles to Read Before You Jump into Stocks Investing in Malaysia

#4 – Gold

What it is: The yellow-coloured metal

Pros:

• Historically holds value. Probably won’t go down to zero
• You can get them in physical and digital versions. Physical gold is quite fun because you can wear gold jewellery and start coin collections and pretend you’re a pirate
• You can also temporarily pawn physical gold to use as emergency money, and buy it back when you can
• But on the other hand e-gold is very practical and hard for thieves to steal
• Buy-and-forget type of investment. Pretty passive

Cons:

• Physical gold can be stolen
• And if it gets stolen, you might get hurt or your house might get broken into. Buy insurance.
• Muslims are obligated to pay zakat on gold (over a certain amount)

Strategies:

• The price fluctuates. Buy a little bit every month to average it out
• Remember that gold prices tend to go up when the stock markets are not performing well (this theory doesn’t hold well lately)
• It’s probably not a good idea to make gold your only investment. Many experts advise limiting gold to max 5-15% of investment portfolio

Related articles:

• The Beginner’s Guide to Buying Gold in Malaysia

#5 – Properties/Land

*Note: this is strictly for investment purposes, not property purchase for own stay

Pros:

• Big. Solid. Very satisfying to own.
• You can earn from capital appreciation (the value of the property) AND rental income. The estimated annual ROI is 8% for properties in Klang Valley (depends on location ofc).
• You can make any adjustments you want. Anything. Put in a fireplace even though you live in tropical Malaysia? Why not YOU OWN IT WHAT.

Cons:

• Nothing about it is cheap. You need 10-20% of the property value as downpayment. You need to pay legal fees and stamp duties (some developers may waive this). You need to buy house insurance. That’s not including furniture, installing fixtures, renovations. So many things to pay for.
• Becoming a landlord/landlady/Airbnb owner is no joke. It’s hard work.
• You always need to have extra money for repairs and more renovations.
• Much harder to liquidate (turn back to cash) than other types of investments. It’s also not the best time to sell houses in Malaysia right now, there’s a housing oversupply.

Strategies:

• The holy grail is to find tenants that can pay more in rent than the monthly mortgage. Not impossible, but definitely not easy
• You can outsource some work to agents (for rental) and AirBnB property management company (for AirBnB). It’ll cut into some profit, but it’ll save you a lot of time
• Or you can always opt for the least-hassle one, REITs. Think of it as the mutual fund version of properties.

Related articles:

• 5 Things I Learned About REITs in Malaysia (From a Bursa Malaysia-Sponsored Workshop)

Last words

This concludes pros, cons and strategies of five of the most popular investments in Malaysia: fixed deposits, mutual funds/unit trust, stocks, gold and properties/land.

If you’re completely new in this investing thing, your first few investments would probably be one of the 5 investments mentioned in this article. You could mix-and-match them, or simply stick to mutual funds/unit trust/ETFs, that’s actually fine too.

As for how much you should allocate to your investments each month, you can use the 50/30/20 budgeting rule and set aside at least 20% of your income to go to these investments. More is better.

How about other investments and strategies? Consider that ‘play money’, money that you can afford to lose. You can try out other less popular (and riskier) investments like cryptocurrencies, p2p lending, forex, equity crowdfunding and the rest later.

Do you agree or disagree with my analysis? What else would you add? Share them in the comments! Let’s help each other make good investment decisions.