Malaysian interest rates are currently at a historical low, and are expected to stay that way for the foreseeable future. Bank Negara Malaysia lowered interest rates from 2.50% p.a. in March 2020 to 1.75% p.a. in July 2020 where it has remained. For the more risk-averse among us, low-risk avenues for preserving and growing the value of our money is shrinking. That old faithful, the fixed deposit, is no longer a viable option for protecting our wealth from the effects of inflation.

Meanwhile, the share market has been on fire. After hitting 11-year lows in March 2020, the KLCI rose from below 1300 points to end the year at 1627.21 points on 31 December 2020, around the same time interest rates began their decline. Certain sectors, such as the rubber glove sector performed even better. You probably had friends, aunties and uncles boasting about the killing they made on glove stocks. More recently, cryptocurrencies like Bitcoin have been in the news as prices shot up sky high. But the glove stocks and Bitcoin prices eventually crashed, causing big losses to those who bought at the peak.

It’s normal to want to jump on the current hot investment bandwagon when everyone else seems to be making easy money. However, this is the very last thing you should do as you are making irrational decisions due to the fear of missing out or FOMO. In this situation, you need to slow down to speed up. Take a deep breath, take a step back and take time to lay out an investment strategy that will fulfil all your financial goals while letting you sleep soundly every night. All without having to learn to read a stock chart. Here’s how.


Investing beyond FOMO

Before you make any investments, it is best to know what type of investment is most suitable for you. If you had previously been investing in fixed deposits, you’re likely to be risk-averse, and should not be investing in the latest hot tips, which are very high-risk, even speculative, investments. Instead of calling your remisier or logging on to your trading account, make an appointment with your RHB Relationship Manager for a consultation on an investment strategy that best suits you.

Define your investment goals

First, you will need to identify your investment goals. What do you want to achieve with your money? Do you plan to send your child to a prestigious university or sail around the world after retirement? Maybe you want to buy your dream home. Now is the time to dream.

Next, you need to identify your starting point. What life stage are you at now? Are you young (under 40), at your peak (between 40-50), or mature (older than 50)? People in different life stages have different needs and are in different financial positions, therefore requiring different investment strategies. Young people are still building up savings and assets, and may have short-term, medium-term and long-term investment goals such as buying a car, funding their children’s education and a luxurious retirement, respectively. They prioritise capital appreciation over consistent income from their investments. Older people may already have a nest egg and are looking to create an income stream to support their retirement, prioritising income over capital gains.

Identify your risk appetite

Your investment strategy will be guided by your risk profile, which is formed by both internal and external factors. What is your risk appetite? Will you be able to tolerate a 10% decline in your portfolio? How about a 20% decline or 30%? The higher your tolerance, the higher your risk appetite.

However, even if you have a higher risk appetite, the actual amount of risk you should take depends on your investment horizon. That’s why younger people can afford to take more risks with their retirement investments in the hopes of enjoying higher returns. Older people can’t adopt high-risk strategies as the investment horizon to retirement is short. They can’t afford to have their stock portfolio decimated by a market crash right when they need it to fund their retirement.

Deciding on your investment strategy

Once you know your current position, your end goal and your risk profile, your Relationship Manager can help you to create an investment strategy that will determine your portfolio allocation between fixed-income and equity investments. Your investment strategy will also determine the types of stocks and bonds that you invest in.

Lower risk strategies would mean higher allocations to fixed-income investments. It would also mean a conservative equity investment strategy, such as investing in the broad-based market, dividend stocks, blue-chip equities and maybe value investing.

Higher risk strategies will see a higher allocation to equities and maybe even foreign exchange and commodities. Your equity portfolio would take a higher risk approach to stock investment such as single-country funds, single-sector funds, growth stocks or small-cap stocks.

If this is confusing, don’t worry, you can consult your Relationship Manager who will be able to recommend an asset allocation strategy based on RHB’s range of Model Portfolios, which caters to different risk profiles. You can further refine your portfolio as you learn more about different types of investments.

Which stock should I buy for my portfolio?

If you are new to stock investment, there is no need to worry about what to buy for your equity portfolio. You can pursue an investment strategy that does not require you to pick stocks. Invest in unit trusts as they allow you to buy a basket of stocks easily and affordably. Buying a basket of stocks further reduces your investment risk as you don’t have all your eggs in one basket.

There are many different types of funds, with global or regional funds being the most well-diversified equity funds. It allows you to invest in a basket of stocks globally or in certain regions such as Europe, the Asia Pacific and ASEAN. A good fund manager tends to outperform the broad index in long run.

If you are able to take more risk, you may diversify into funds that focus on a single country such as China, India, Indonesia, Japan, etc. Besides single-country funds, you can consider single-sector funds (technology, health care, REITs, gold, commodities, infrastructure, etc.) or single strategy funds (dividend, growth, small-cap, etc.)

There are generally fewer varieties of bond funds compared to equity funds. Investors who do not want to take a lot of risks should focus on local bond funds because there are no geographical or currency risks. However, investors who wish access to different markets may consider global or Asia-Pacific bond funds. Other bond funds that offer niche strategies such as high yield bond funds, emerging market bond funds or single-country bond funds, come with higher risks.

If you want the fund manager to allocate the broad asset classes in your portfolio, it is advisable to have some mixed-asset funds, which are funds that invest in both equities and bonds, in your portfolio. For example a local, Asia-Pacific or global mixed-asset fund (including but not limited to balanced funds or multi-asset funds).

If you have a higher investment risk profile, you would want to allocate more of your portfolio into regional, sectoral or thematic funds that can provide you higher growth over the long term. RHB has identified long-term growth stories in the technology sector, the Environmental, Social and Governance (ESG) theme and the China market.

Technology is a multi-year growth story supported by rising demand from a growing global middle class and the rise of Generation Z. The pandemic also contributed to growth in the technology sector by accelerating the adoption of disruptive technologies such as automation, e-commerce and artificial intelligence. Although we think of US companies such as Google or Apple when we think of tech stocks, Asia is home to tech giants such as TSMC, one of the largest semiconductor companies in the world and Tencent, the biggest gaming company in the world. Yet, Asian tech stock valuations are more reasonable compared to US tech stocks despite comparable growth prospects. As such, investors keen on tech can consider the RHB Pacific Technology Fund, which invests specifically in Asian tech stocks.

Another long-term growth story is sustainability, which recently gained traction as governments around the world began committing to sustainability goals. For governments, businesses and investors alike, the United Nations’ Sustainability Development Goals (SDGs) provides a clear roadmap to address 3 major sustainability crises - climate change, health and empowerment, by 2030. It is projected that a USD90 trillion investment will be required to achieve these goals, providing a wealth of investment opportunities. For those who want to do good while doing well, the RHB Sustainable Global Thematic Fund identifies and invests in opportunities in areas such as clean energy, sustainable transportation, medical innovation, financial security and inclusion and sustainable infrastructure.

Lastly, China continues to be a growth story despite a bumpy ride at the stock market this year. The Chinese economy has rebounded strongly after lockdown to be the only major economy in the world to grow in 2020. Growth is expected to continue into 2022 on the back of a global recovery in world economies and continued good management of the pandemic via one of the highest vaccination rates in the world. China is also expected to benefit from an easing of tension in the US-China Trade War under the Biden administration and the worst is expected to be over in the China tech crackdown after a record fine on the Alibaba Group and a revamp of the ANT Group.

Investors with higher risk profiles can participate in the China growth story via the RHB Big Cap China Enterprise Fund, while those with lower risk profiles can invest in fixed-income investments via the RHB China Bond Fund. China bonds offer the additional advantage of higher yields, lower volatility and lower default rates compared to other bonds in the region.

If these funds are not right for you, there are more than 100 unit trusts funds to choose from at RHB. Talk to your Relationship Manager, who will be able to identify unit trust funds that will suit your needs.

When is the right time to buy?

Before you make your first investment in your equity portfolio, you may worry about the timing of your investment. What if you bought at a peak and your investment lost its value? This is not an issue if you are investing for the long term as equities should trend up in the long run despite short-term volatility.

One way to not worry about market timing is by dollar-cost-averaging or investing a fixed amount monthly. This is an especially effective strategy to use with unit trust investments. By making a fixed monthly investment, there is no need to worry about timing the market as the cost of your regular monthly investments will average themselves out. To make the investment process even easier, automate your monthly investments with RHB. Alternatively, you may stagger out your investments by breaking them into a few tranches and investing on a periodic basis such as a quarterly or even yearly basis.

Get started on your investment journey

We hope that this gives you insight into the world of investing beyond the fixed deposit. Our Relationship Managers are always ready to assist with any of your queries on investments. In addition, MERGE by RHB provides a wealth of market insights to help you stay abreast of the new opportunities in the market. Do check-in for insightful articles on how to make your money work harder for you. Or, pick the brains of our financial experts by tuning in to our podcast and the Money Chat programme. We look forward to supporting you on this lifelong investment journey.




Disclaimer:
Investors are advised to read and understand the contents of the relevant Prospectus / Master Prospectus / Information Memorandum / Replacement Master Prospectus and its relevant supplement prospectus (if any) for the Funds, all of which have been registered with Securities Commission (“SC”) Malaysia before investing in any Fund. The SC’s approval and authorisation of the registration of the Master Prospectus / Information Memorandum / Replacement Master Prospectus should not be taken to indicate that the SC has recommended or endorsed the funds. Copies of the Prospectuses are available at all authorized distributors of RHB Bank. Any issue of units to which the Prospectuses relate to will only be made on receipt of an application form referred to in and accompanying copy of the Prospectuses. If in any doubt, consult your banker, lawyer, stockbroker or an independent financial adviser. Investors should consider the fees and charges involved. Past performance is not necessary indicative of future performance. Investors should not that prices of units and income distributions payable, if any, may go down, as well as up.
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