Showing posts with label Invest Tips. Show all posts
Showing posts with label Invest Tips. Show all posts

August 4, 2021

Is inflation the biggest threat to your portfolio?

Inflation is retail investors’ number one concern 

When asked what the biggest external risk to their investments was, retail investors globally (38%) signalled that they were most worried about inflation. This was followed by the state of the global economy (35%) and the state of domestic economies (31%). Investors in Poland (55%), the US (51%), and Germany (48%) were the most concerned about it, and globally, men (42%) saw rising inflation as more of a threat than women (34%).

They’re diversifying to spread the risk

The data indicated that retail investors are taking action to protect their portfolios from inflation and potential volatility, with traditional hedges such as real estate (22%) being popular portfolio picks. Two in five (40%) noted that precious metals such as gold presented the best commodity-buying opportunity over the next 12 months. Mostly, however, portfolios were made up of equities (62%), bonds (39%) and cash (28%). 

Interestingly, cryptoassets were included in 25% of retail investors’ portfolios. Investors aged 18-34 were the most pro-crypto, with 46% saying their portfolio contained these assets. 

Don’t underestimate the importance of community for portfolio management

To help manage their investments, retail investors used a variety of methods to help them make sound investment decisions. Personal recommendations (37%) were investors’ main sources of information, with women (43%) more likely to confide in friends or family. Men, on the other hand, preferred the media (40%) or Google (35%) as their primary source of information. Younger investors aged 18-34 were also the most likely to turn to personal recommendations, with investors aged 55+ relying on the media for guidance. Social media was also a key source for 29% of 18-34 year olds, much like online forums such as Twitter (27%).

Some investors think we’re in bubble territory…

With many major stock indices, such as the S&P 500 in the US, Dax 30 in Germany and CAC 40 in France, hitting or at near-record highs, it led to some retail investors stating they think the markets are in bubble territory. Two in five (40%) of the 6,000 investors thought this was the case, with 15% believing the markets were fairly or undervalued. A further 45% were not sure – implying continued uncertainty as the markets look to move out of a post-covid world.

…But confidence is strong and investors are optimistic about their returns

Globally over half of investors were confident about their returns – with 53% predicting their investments will get better over the coming 12 months – indicating a bullishness returning to markets. Just one in four (27%) think there will be a significant slump in share prices in the short-term, with Polish investors the most concerned (39%).  They are followed by investors in France (36%), Romania (35%), Spain and the Czech Republic (both 30%), the US (29%), the UK (26%), Italy and Australia (both 25%), Germany (22%), Denmark (17%) and the Netherlands (15%).

Looking at the results from the Beat, despite some concerns, it’s great to see strong levels of positivity returning to markets. The importance of community really shone through, as retail investors look to set up their portfolios as we move out of Covid-19’s shadow. To enable this, retail investors are currently adopting a 60:40 approach to their portfolios, and remembering key rules such as the importance of diversification and spreading risk. 


* Research conducted by Opinium from June 28th 2021 – July 21st 2021. In total, 6,000 retail investors sampled across 12 countries – 500 in each: UK, US, Germany, France, Italy, Spain, Netherlands, Denmark, Australia, Poland, Romania and the Czech Republic. Retail investors were defined as self-directed or advised and had to hold at least one investment product including shares, bonds, funds, investment ISAs or equivalent.


This communication is for information and education purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. We makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.”

The race to find climate change solutions: 3 investment opportunities

 Climate change – which can be defined as the rise in global temperatures accelerated by human-induced emissions of greenhouse gases and the resulting large-scale shifts in weather patterns – is one of the biggest challenges the world faces today. 

Over the last century, humans have had an unprecedented impact on the earth’s climate system and caused an enormous amount of change. Even worse, this change is now having worrying repercussions. Not only is it increasing the frequency and intensity of extreme weather events such as floods, storms, wildfires and droughts, but it is also affecting a wide range of natural ecosystems and accelerating the extinction of a wide range of species. It’s affecting every single country and disrupting economies and lives in the process. 

Government action to combat climate change 

In recent decades, governments around the world have acknowledged that to mitigate climate change, greenhouse gas emissions need to be reduced. With that in mind they have worked together to decarbonise the economy. 

The first agreement between countries to mandate reductions in greenhouse gas emissions was the Kyoto Protocol, which was completed in Kyoto, Japan in 1997 and came into force in 2005. This requires industrialised countries and economies in transition to limit and reduce greenhouse gas emissions in accordance with agreed individual targets. Nearly all nations have now agreed to this treaty, with the notable exception of the US. 

More recently, we have seen the Paris Agreement come into force. This is a legally-binding international treaty on climate change that aims to limit global warming to well below two degrees Celsius above pre-industrial levels. The emission goals of the Paris Agreement require all parties to reduce their carbon footprints by more than 50% by 2030 and eliminate them by 2050. This treaty was adopted by 196 parties in December 2015 at the United Nations Climate Change Conference (COP 21) in Paris.

Individual countries have also introduced carbon taxes in an effort to combat climate change. These taxes are intended to make the ‘hidden’ costs of carbon emissions more visible. Finland was the first country to introduce a carbon tax in 1990. Since then, 18 other European countries have followed. Currently, Sweden has the highest carbon tax rate. 

Additionally, we have seen major climate change campaigns from non-governmental organisations in recent years, with Race To Zero being a very good example. This is a global campaign launched by top climate change experts. Its goal is to gain support from businesses, cities, regions, and investors in order to achieve a zero-carbon recovery that prevents future threats and unlocks inclusive, sustainable growth.  

Where are greenhouse gas emissions coming from? 

It’s clear that to combat climate change, we need to rapidly reduce greenhouse gas emissions globally. However, to do this, we first need to understand where the emissions are coming from. 

The chart below provides some insight into this matter, showing the breakdown of global greenhouse gas emissions in 2016. 


From this chart, we can see that almost three-quarters of emissions come from the energy sector. Within the energy sector, transport is responsible for 16.2% of emissions and within transport, road transport (cars, trucks, lorries, motorcycles, and buses) is responsible for about 11.9% of emissions. Around 60% of road transport emissions come from passenger travel while the remaining 40% is from road freight. 

The chart also shows that almost one-fifth of global emissions are from agriculture, forestry, and land use. Here, livestock and manure are the largest contributors to emissions at 5.8% of total emissions. The reason agriculture makes such a large contribution to emissions is that animals like cows and sheep produce greenhouse gases when their digestive systems break down food. So, the production of beef and lamb tends to have a high carbon footprint. 

Overall, it’s clear from this chart that there are two main industries responsible for the majority of global greenhouse gas emissions. With governments and companies facing pressure to change their behaviours in order to stop climate change, we can expect to see plenty of disruption in these industries in the years ahead.

The opportunity to invest in green companies 

With climate change being such an important issue, companies all over the world are racing to develop innovative solutions that can help decarbonise the global economy. Right now, a tidal wave of investment from the private sector is flowing into cutting-edge technological solutions that enhance sustainability, from renewable energy technology to plant-based meat. This is creating lucrative opportunities for private investors. The companies finding genuine solutions to climate change are generating strong investment returns. 

Those interested in investing in climate change solutions may want to consider some of Portfolios. Three portfolios that contain exposure to companies developing sustainable solutions include: 

The RenewableEnergy Portfolio

The RenewableEnergy Portfolio allocates capital to companies that are striving to develop more sustainable energy solutions. It provides exposure to leading renewable energy companies that use clean sources of energy such as solar, wind, and hydrogen, as well as companies developing the technologies behind the systems used for renewable energy production.

The global renewable energy market looks set for strong growth in the years ahead due to the fact that the carbon footprint of solar, wind, and hydrogen power is many times lower than that of fossil fuel power. By 2025, the market is forecast to be worth around $1.5 trillion, up from $928 billion in 2017.2 The industry is expected to grow the fastest in the Asia Pacific region, however, there are likely to be opportunities globally. 

The Driverless Portfolio

Driverless Portfolio provides exposure to companies developing autonomous vehicles and electric vehicles (EVs). With this portfolio, investors can gain exposure to the businesses that are helping the automotive industry become more sustainable.  

Both electric vehicles and autonomous vehicles will help fight climate change in the years ahead. Electric vehicles produce zero direct emissions. This means that they can significantly improve air quality in urban areas. If the whole road transport sector went electric, we could potentially reduce global emissions by nearly 12%. 

Because there is so much focus on sustainability right now, the electric vehicle market is growing rapidly. Last year, global EV sales rose by 43%3 to 3.2 million, despite the fact that overall car sales declined by 16% due to the coronavirus pandemic. 

Looking ahead, we can expect the market for electric cars, buses, trucks, and other vehicles to continue growing at a rapid clip. One reason for this is that governments across the world are ramping up the pressure on automakers to stop producing traditional combustion-engine vehicles. Norway, for example, plans to phase-out sales of fossil-fuel vehicles by 2025. Meanwhile, Japan’s government has decided that all new vehicles must be hybrids or fully electric by the mid-2030s.  

Autonomous vehicles will also play a role in combating climate change. As driverless technology becomes mainstream, we are likely to see companies offer ‘mobility as a service.’ This is likely to dramatically change the car ownership model and have a profound impact on urban efficiency. This, in turn, will reduce emissions significantly.  

The FoodTech Portfolio

The FoodTech Portfolio allocates capital to companies that are helping to transform the food industry and make it more sustainable. It provides exposure to companies engaged in food innovation (i.e. plant-based meat), farming innovation (growing more with less), waste reduction, and supply-chain innovation.  

In a quest to produce more food for the rising global population, the food industry has often disregarded the environment in the past. Today, food production is pushing the world to its natural limits. Mass meat production, for example, is one of the main causes of climate change. To protect the environment for future generations, food production needs to become far more sustainable. Many companies are working on innovative solutions at present.   

In conclusion, all of these Portfolios have an eco-friendly bias. All three offer investors the chance to position their portfolios to benefit from the long-term growth of companies developing sustainable solutions that will help the world reduce emissions and fight climate change. 

August 3, 2021

3 Investment Lessons from Olympics

 The Olympics is where the world’s best athletes compete for gold medals for their countries. We can see so many superhuman actions which non-athletes (like us) can’t do.  

There is a lot of lessons from the Olympics that can be applied to us when it comes to finance and investment. 


1. Set a goal

If we ask every one of them whether they have a goal, surely they do. It’s not an easy task to stay disciplined, training every single day. What drives them? Their goal. It’s common for athletes to train for years prior to joining the Olympic team. They need to plan ahead to ensure that they are in their best form when competing, so that they can achieve their goal. 

Likewise, saving and investing are also not easy. Especially when there are too many sales going around (7/7, 6/6, 5/5… temptations). Setting a savings goal like a home deposit or retirement fund will help you to plan ahead and train you to consistently save money.


2. Start early

It takes years of hard work to be the best. The earlier you start, the more time you have to practice and sharpen your skills. For example, the world’s best swimmer, Michael Phelps started swimming at the age of 8. At 15 years old, he became the youngest man on U.S. Olympic swim team at the 2000 Sydney Olympics. 

Same goes for investing – the earlier we start, the better it will be! The sooner we start with savings and investing, the more time we will have to reap the benefit of compounding. Sikit-sikit, lama-lama jadi bukit.


3. Plan ahead

An Olympian does not just magically appear out of thin air. Behind the athletes’ successes are years of dedicated hard work and a lot of planning and strategizing involved. 

Likewise, investing success doesn’t happen overnight. Remember, investing is not a ‘get-rich-quick’ scheme. It always requires patience (lots of them) and dedicated planning to accomplish great things. Among others, athletes train to build stamina and strength. Let’s strive to build knowledge in our investing journey.

Analogies to better understand investing

 Investing can be scary for those who are new to it, including getting your head around the many concepts used when discussing financial markets. 

But don’t worry — getting across the basics is much easier than it may first appear. Here are some super simple analogies that can help you get across some key investing terms.


Don’t put all your eggs in one basket 

When you physically put all the eggs you have in one basket, you are then at risk of dropping the basket, losing everything. Alternatively, you should put some eggs in one basket and some in another. Meaning, diversify your investment. Do not just invest in one asset. Imagine you put all your hard-earned money in Bitcoin, then the next day the price crash… 


Snowball effect 

Compound interest is another concept that can be a bit challenging to understand. It’s usually explained as interest that’s calculated on the initial principal amount, including all of the accumulated interest of previous periods of a deposit or loan. 

If you don’t want to get confused by what it means, it might help to think about compound interest as being like a snowball rolling down a ski field — it builds and builds as it rolls. 

Here’s how it works. Imagine you have $100 with an annual interest of 10% compound interest. Your interest at the end of Year 1 will be $10 but the overall value is $110. The next year the interest will be $11 and you have $121 in your bank account. We can keep going: 

End of Year 3: $121 + $12 = $133; $12 yearly interest earned

End of Year 4: $133 + $13 = $146; $13 yearly interest earned

End of Year 5: $146 + $15 = $161; $15 yearly interest earned 

As you can see, with compound interest the total amount quickly gathers momentum, just like a snowball rolling down a hill. 


Growing a plant 

From the snow to the garden, when it comes to the concept of  Money cost averaging, it can be helpful to think about it like growing a plant. 

An investment strategy, Money cost averaging involves making regular investments over time, for example, $100 every month, regardless of market conditions. This strategy can be smart because the short-term moves of the market, which can be volatile, are less important using this strategy given it’s based on a regular investment plan. 

Like the regular care you need to give a plant to make it grow, consistent MOney cost averaging can be an effective way to make your investment reach its full potential. 


Collecting seashells 

Want to understand why some news can impact the stock market? It’s all about perception. And, although it may not seem like it at first glance, it’s a bit like collecting seashells at the beach. 

At the beach, there are shells of many different colours and there’s no reason that one type of shell should be more valued by beachgoers than other types. But what if everyone starts collecting purple shells, and no one considers the other colours? 

In that case, the value of the purple shells is likely to go up, despite nothing intrinsically having changed about the shells themselves — it’s all about how they’re perceived. 

So, when it comes to the stock market, remember that moves in prices are often about market anticipation and perception, rather than changes in the underlying companies themselves.

US economy entering inflationary growth, Non-US economies entering disinflationary growth

 It’s been well over a year since the markets bottomed out due to COVID-related economic activity in March 2020. Throughout 2020, central banks lowered interest rates and pumped cash into the economy in an attempt to keep economies afloat as global supply chains were disrupted and unemployment skyrocketed. And now, we’re seeing signs of a promising recovery. 

Right now, economies are growing more than they were a year ago. However, we are also seeing in the US that inflation is accelerating. In non-US economies, growth continues to rebound strongly with lower inflationary pressure.

Always paying attention to the relationship between growth and inflation because inflation-adjusted growth is the ultimate driver of returns in the medium and long term. With those macroeconomic signals, our system then determines the best asset allocation for our clients’ portfolios.

Now that we’re seeing clear signals of inflationary growth in the US and disinflationary growth in non-US economies, our system has signalled to update our portfolios’ asset allocation accordingly. We call this update “reoptimisation”.

First, understanding economic regimes

A changing economic regime can seem abstract, especially if we try to describe it only by putting numbers behind it. So, before we dive into the current state of the economy and the changes we’ve made to portfolios, we wanted to take a quick step back and explain what we mean by a “new economic environment”. 

An economic regime is defined by the rate of change of inflation and the rate of change of growth. Below is a simplified way to visualise the 4 economic regimes. As macroeconomic indicators signal where the economy is, our system will decide the best asset allocation for that particular economic environment.

Over the last year, we’ve been in an All-Weather strategy, as there was too much uncertainty in the economy. In other words, the data wasn’t pushing far enough into any particular quadrant. So, our system prepared our clients’ investments to be ready for whatever direction inflation and growth took. 

Now that you have an idea of how economic regimes work and why we consider them, it’s time to dive into what’s been happening in the economy:

The US is entering an inflationary growth environment

COVID-19 caused severe disruptions to the global economy and employment rates. In response, central banks and governments around the world swiftly deployed monetary stimulus on an unprecedented scale in 2020.  

Those measures have been working: After more than a year of contracting economies, inflation-adjusted (real) growth has rebounded strongly around the world. 

In the US, real growth rebounded from -13.48% YoY in April 2020 to +12.54% YoY in April 2021. However, the recent acceleration in US inflation has led real growth to quickly decline to 9.73% YoY in May 2021 (the latest data available at the time of writing). US real growth could continue to drop if inflation momentum persists. 

It’s important to note that 12.54% and 9.73% YoY growth are abnormally high. They’re this high because the figures are compared to the figures one year ago in April and May 2020 when we saw strong declines. The influence the reference point has on the comparison is called the base effect. These high growth figures simply indicate that we’re bouncing back: even while inflation is growing, it seems persistent.

All of this means that the US economy has just headed into an inflationary growth regime. 

Inflationary growth doesn’t tend to last (the US economy has experienced only several short-lived episodes of inflationary growth since 1990), but we could stay in this regime as long as it takes to vaccinate people, reopen borders, and restore supply chains. 

Even though we’re optimistic that things will go back to normal soon, we don’t base our investment decisions on optimism: we only base our investment decisions on the data we can see. 

And because there's no way to know whether this economic environment will last months or years, we’ve reoptimised our clients’ portfolios to insure them against the effects of inflation. After all, the key to success in an inflationary growth regime is to embed effective inflation insurance in portfolios.

In an inflationary growth environment, portfolio managers can’t rely on what has worked in recent years

Each economic environment has different risk factors at play. And an inflationary growth regime requires a different toolset - a different asset allocation - than what has been used in recent history. 

The last time the US experienced a sustained period of inflationary growth was between January 1983 and August 1988. So, portfolio managers and investors alike can’t look at recent history, but rather much further back, for insight on how to manage their investments in this economic environment.

That means that portfolio managers who haven’t been managing portfolios since at least 1983 need to adjust their past investment approaches to create effective portfolio insurance against inflation. 

Ex-US economies are entering a disinflationary growth environment

While inflation is outpacing growth in the US, growth is outpacing inflation in the global ex-US economy. Compared to the US, global inflation is rising, but is rising at a significantly slower rate than it is in the US in absolute terms. 

At the global ex-US level, real growth has recovered from a low of -6.6% YoY in April 2020 to a high of +12.4% YoY in April 2021. From April 2021 to May 2021, global ex-US real growth has declined slightly to 11.5% YoY. Inflation’s effect on real growth in global ex-US economies is relatively benign compared to its effect on real growth in the US. This is because inflation is coming off a low base in the US.

Maintained (or increased) exposure to China Tech 

China’s economy is growing again. And, it has a 5-year tech timeline that includes the development of semiconductors, servers, cloud computing, and 5G networks. This long-term view makes China’s recent antitrust measures a mere blip on the country’s clear trajectory to becoming a global tech superpower. Over the next decade, China will continue to invest heavily in technological innovations.

Our investment algorithm is designed to invest in asset classes with substantial growth potential over the medium and long term, and so most of our portfolios’ allocation to China Tech has stayed the same or has even increased. If China Tech underperforms in the short term, investors should see being able to invest at low prices as an opportunity. 

Broader protection against inflation

We’ve maintained our portfolios’ previous level of protection against the dilution of fiat money with Gold. But now, we’ve also broadened our inflation-protection assets beyond just Gold. 

Specifically, we’ve increased our allocation to assets that can both seize the growth opportunities in the new economic regime and maintain inflation protection. For US assets, we’re making new equity allocations to Consumer Staples and Energy. We’re also making new allocations to US REITs. Internationally, we slightly increased our allocations to Emerging Market bonds, and made new equity allocations to commodity-exporting countries, such as Australia. 

Debunking "High Risk, High Return"

 Is 6% annual returns high or low? It depends!

How much risk was taken to deliver that 6% in returns? If you’re comparing returns of different investment products, you should be looking at how much risk it took to achieve those returns. We all know the saying, “High Risk, High Returns”, but how true is it?

The short answer is: in the long-term, on average, riskier investments will probably give higher returns. The key words in that sentence are “long-term” and “average”. In the short term, riskier investments are more likely to give lower returns and experience more losses.

Here, I’m going to focus on how to understand risk and holistically interpret returns. 

Understanding risk

In investing, risk is often measured by volatility. A more volatile investment is riskier than a less volatile investment. Volatility can be observed by the daily or weekly swings in price; the larger swings in price, the greater the volatility.

Between July 2017 and July 2018, Bitcoin had a week where a $100,000 USD investment would have become $170,000 USD by end of the week ($70,000 USD gain), and also a week where a $100,000 USD investment would have become $62,000 USD by end of the week, with a $38,000 USD loss. Obviously, this is an incredibly risky investment. On the other end of the spectrum, in its best week, Short Term US Government Bonds has turned a $100,000 USD investment in $100,500 USD ($500 USD gain) and in the worst week of the last 12 months has turned a $100,000 USD investment in $99,600 USD ($400 USD loss).

Bitcoin had 8x the volatility of the equity market, and equities showed 12x the volatility of short-term government bonds.

Understanding volatility

A common way to compare the risk of different investment options and make volatility a more tangible measure is to look at Value at Risk (VaR). VaR refers to the probability that an investor can expect to lose a given percentage of his or her investments in a given year. VaR is expressed as a percentage that refers to the probability of losing a given percentage of an investment. So, a 99%-VaR indicates that an investor has a 99% chance of not losing the given percentage of his or her investments, and an 80%-VaR indicates that an investor has an 80% chance of not losing the given percentage of his or her investments. Now that we understand that the %-VaR refers to the probability of losing a percent of your money, we then need to understand how much money you would expect to lose in that probable event. 

VaR makes it easy to compare the riskiness of different portfolios or individual asset classes. For example, the STI index has a 99%-VaR of 44%, and therefore an investment in the STI ETF carries a 1% probability of losing 44% of the money in a given year; bonds are less risky, and in fact, investing in a basket of investment grade corporate bonds carries a 1% probability of losing 19% of the money in a given year.

Measuring risk

There are many different ways and different ratios that professional investors look at, including Sharpe Ratio and Sortino Ratio. One effective and simple ratio is “Reward to Risk”, or the relationship between average annual returns and annualised daily volatility: an investment giving 5% returns with a 5% volatility has a Reward to Risk ratio of 1.0, which makes its risk-adjusted returns better than an investment giving 8% returns with 20% volatility (Reward to Risk = 8/20 = 0.4).

The following table summarises average yearly returns and Reward to Risk ratio of a few asset classes between July 2012 and January 2018, ranked by “Reward to Risk” ratio.

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Reward to Risk Comparison

Over the last 15 years, US equities have provided better risk-adjusted returns than Singaporean and Asian equities, and bonds have performed well. So while the 7.6% returns per annum of the STI are good average returns over 15 years, it is important to note that similar or higher returns could have been achieved taking lower risk.

In short, don’t take unnecessary risk

In investing, you cannot talk about returns without talking about risk, and you should never invest in a product based on its historical and projected returns, without having first learnt about its volatility and overall risk. Make sure you do your homework before deciding on an investment product. 

With investment, your capital is at risk.

How to Manage Bitcoin in Your Portfolio

 It’s important to diversify your portfolio. And we don’t mean just having diversification within a given investment portfolio; you should have diversity across all of your assets. Depending on your risk preferences and personal objectives, that might mean you have property, angel investing, passive income, crypto… Yup, we said it. Cryptocurrency. 

There’s no getting around the fact that crypto is becoming an increasingly popular security. Some cryptocurrencies, such as bitcoin, are becoming more structured and more popular. 

Although we currently don’t offer exposure to cryptocurrency in any of our portfolios, we aren’t going to tell you that you shouldn’t have cryptocurrency in your name… or, in this case, should we say, in your wallet. 

Bitcoin is the most usable and widely accepted cryptocurrency, but its primary use cases are still uncertain. We aren’t suggesting you should definitely buy bitcoin, but if you decide you want it, here are a few things we suggest you do to manage it in your personal portfolio:

Be comfortable with walking away from most of your principal 

When an asset doesn’t have a history of being a reliable store of value, we have to consider them high-risk. A ‘high-risk’ asset doesn’t inherently mean that it will give you a higher return; rather, it means that the chance of your higher return is at the expense of a higher chance of you losing a larger portion of your investment. 

Most cryptocurrencies are utility tokens. This means they aren’t backed by anything. Instead, their value relies primarily on the network effect (i.e. how many users are using it and how active the users are). This core feature makes them inherently volatile. And this volatility is further magnified by the fact that there are thousands of cryptocurrencies out there competing for active usage.

Think of it this way: If you were to invest in an early-stage company that has a great idea but no proven business model, you might still want to invest in it if you believe in it, but you also know that you’re taking a risk that the investment might not bring you any returns, and might even lose you some money. It’s ok to take some risks when you can afford the loss.

Which brings us to our next point...

Don’t have more than 5% of your net worth in crypto

Whether all of your crypto allocation is bitcoin, or you have other cryptocurrencies as well, your overall crypto allocation shouldn’t exceed 5% of your net worth. This 5% threshold stands if you’re open to taking on more risk. Just as with any investment, you need to check with your own risk preferences and do your own research. If you’re considering buying bitcoin or other cryptocurrencies,  If you’re more risk-averse, consider making your target crypto allocation of your net worth no more than, say, 2% or 3%. Now, this is assuming that the remaining 95% to 98% of your assets are well-diversified across other asset classes as well. You should have the rest of your portfolio diversified, too. 

Remember to rebalance

What happens if bitcoin’s price skyrockets and you find yourself with 10% of your net worth in bitcoin? Just as you should do with any asset in your overall portfolio, sell off some of the earnings to rebalance your asset allocation by putting that money in other investments to make sure you stick to your target asset allocation across your entire portfolio. The reason you do this is to avoid concentration risk, which is the potential for a given investment to compromise your portfolio’s well-being. 

Regardless of whether you invest in bitcoin, you should check all of your assets quarterly or half-yearly to make sure that your portfolio’s target asset allocation hasn’t gone off balance.

Don’t borrow money to invest

Borrowing money to invest, commonly referred to as leverage, is a double-edged sword because while it can magnify returns, it also can magnify losses. 

Using bitcoin as an actual example, the cryptocurrency has an annualised volatility of 56.6% as of 17 November 2020. This means, under normal market conditions, one can expect the bitcoin price to move up or down on average by 3% on any given day (= 56.6% / sqrt(365)). Suppose bitcoin goes through 3 consecutive days of losses; in this case, it’s quite reasonable to expect a drawdown of 9% (= 3 * 3%). An investor who uses 10x leverage to buy bitcoin would see 90% of his or her capital wiped out in this 3-day losing streak (= 9% * 10 = 90%). 

Diversifying your overall asset allocation is about increasing your opportunity for returns, but also about spreading out your risk. While diversifying your assets can further strengthen your portfolio's defenses, doing so with leverage only weakens your portfolio’s defenses.

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Dollar-cost average into BTC, too

Just the way investing each month into the stock market minimises your risk exposure by preventing over-exposure to any single market condition, investing a little bit each month into bitcoin can prevent you from over-exposing your money to the inevitable swings of bitcoin. As of writing, bitcoin saw a low of less than $4,000 USD in March 2020, and also neared its historical high of nearly $19,800 USD. Given that it’s a utility token, it’s impossible to know if the severe drop will keep dropping or if the spike will keep spiking. So don’t pile 5% of your net worth into bitcoin in one single deposit. Instead, dollar-cost average each month. 

Keep your time horizon in mind

Given that bitcoin is a volatile security, it's important not to put money into it that you intend to spend anytime soon. In other words, this bitcoin is the one of the last places you want to put your emergency fund or your funds earmarked for downpayment for that flat next year. 

As always, invest intentionally

Diversifying your assets is important so that you can bring in more returns from more places. It takes the pressure off of one investment. Investing in different assets can be a great way to learn about a new space or industry. As with any investment, do your research to make sure you understand what you’re invested in. And when you understand what you’re invested in, be sure you’re taking the right steps so that you’re investing responsibly. 

The Difference Between Trading and Investing

 The pandemic created the perfect storm for a new wave of retail investors: people suddenly had more time to spare at home, free brokerage accounts bloomed, and markets swung. Many people got their first taste of trading or investing - and others couldn’t help but wonder if they were missing out on the latest crypto or meme stock highs.

That’s when we noticed that the terms “investing” and “trading” started getting used almost interchangeably. But trading isn’t the same as investing. Knowing the difference can help you make informed decisions about your long-term financial plan.

The mindsets behind trading and investing are different

Both investing and trading involve putting money into an asset to make a profit, such as a stock, bond, ETF, or cryptocurrency. Trading is a form of investing, but what sets it apart from other types of investing is how a trader specifically aims to generate wealth: by actively buying and selling assets.

So if you trade, you’re investing. But if you invest, you’re not necessarily trading. Here’s an example. You could buy and hold a stock for 30 years and profit from its long-term gains. Or you could buy Bitcoin and hope to sell it at a profit over the next few days. Although the buy-and-hold strategy and the buy-low-sell-high tactic both technically describe investing, the former has a long-term mindset, and the latter evokes a short-term mindset.

In general, traders are motivated to beat average market returns. To achieve this goal, they may buy an asset and hold it for a few hours, days, or even years while analysing its rise or fall in value. If a trader makes a significant loss on an investment, they might prefer to sell the investment to hedge against further losses instead of riding out its price fluctuations over the long term.

In comparison, long-term investors generally aren’t motivated to “beat the market” with a handful of winning assets. Instead, their primary goal is to build long-term wealth safely and reliably by capturing the market's overall returns over time. This mentality leads them to buy and hold investments over years or even decades, reinvesting their gains and staying invested during short-term market volatility. Keeping a highly diversified portfolio also helps investors manage risk by reducing volatility from any single asset. 

Trading and investing carry different levels of risk

All investing entails a certain degree of risk. So consider how much risk you should take when deciding how to invest; this could depend on your life circumstances, your financial goals’ timelines, and your risk appetite. 

In general, investing regularly into a diversified portfolio over the long term is less risky than if you were to bet your savings on just a few highly volatile stocks to make a short-term gain. If an unexpected event were to cause those few stocks to crash, you could lose a significant portion of your savings. 

That’s why you shouldn’t rely solely on trading to build your net worth. Before trading, make sure you’re already putting aside enough money towards your short-term needs, emergency fund, and retirement. But, if you’re on track with your needs and have extra cash, then you can consider allocating a portion of your wealth to some trades you think are really worth it.

Whether you’re investing or trading, make sure you understand the risk you’re getting yourself and your money into. Most simply, risk is how much of your capital you could possibly lose. Risk can be calculated by Value-at-Risk (VaR), which tells you how much you could lose within a year with what percentage of confidence. It’s easier to calculate this with long-term, diversified portfolios. 

With trading, it’s harder to calculate how much you could lose, so the safest way to do that is to assume that you could lose all of your trading inputs (even though you aim to break even or make a profit).

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Trading and investing require different amounts of effort 

Compared to long-term investing, trading requires much more effort for it to be effective. You’d need to analyse each asset before trading, through research and maybe some guesswork. Despite the additional effort, trading still comes with more risk than other types of investing because it’s harder to accurately predict how a certain asset will perform. That begs the question, is trading still worth its prospective returns?

Consider the fact that even professional traders struggle to achieve this goal: according to the S&P Indices Versus Active Funds, as of December 2020, only 25% of active fund managers in the US managed to beat the S&P 500 Index in the last 5 years. That means that for most amateur investors, investing regularly into a diversified index is more likely to yield consistent, long-term returns.

If you were to trade frequently, you’d also need to understand whether the trading fees and tax implications would make financial sense, how much capital you could afford to lose, and how much marginal gain you’d be willing to trade on (should you sell when you make 0.1% or 10% on an asset?). 

Before trading, make sure you consider how much effort it requires and whether it makes sense for you. For many people with day jobs and who aren't professional traders, trading isn't a sustainable way to build long-term wealth.

Trading and investing aren’t mutually exclusive

There can absolutely be room for both trading and long-term investing in a financial plan, as long as you know the different roles they play in your plan: investing is most suitable for long-term wealth creation, and trading is an activity that may or may not reap profits in the near or long term. 

If you have extra money that allows you to trade after saving and investing, and trading interests you, do it! It can be a great way to stay informed on business and macro trends. Just don't bet your retirement on it.

What is the Base Effect?

 It’s common to compare data from two periods to understand how a company or the economy is doing over time.

Some common comparisons are “Year-Over-Year”, “Quarter-Over-Quarter”, and “Month-Over-Month”. Each respective measure simply compares one moment in time to the year, quarter, or month before.

These measures simply tell us the rate of change from one period to the next. They're commonly accepted, but are rarely true apples-to-apples comparisons. In other words, it’s impossible to make a truly perfect comparison between two points in time because there are so many external factors influencing asset prices, economic indicators, and whatever else you’re looking to understand. With that said, we can accept that things will never be perfect comparisons, as a general comparison is better than none at all.

If one of the periods we're using as a reference point for comparison were affected by an extreme condition, it would significantly affect the rate of change. So, looking at the rate of change without considering the context would give us a misleading story.

The way the reference point influences the comparison is known as the base effect.

Let’s look at a few examples.

Suppose the usual price of a luxury hotel room was $1000 per night as of February 2020. But as the pandemic worsened in March 2020, fewer people were willing or able to travel and spend money. This impact forced the hotel to slash their prices in half, to $500 per night.

Then one year later, consumers start to spend again, and the hotel increases its room rate to $900 per night. This rate represents a YoY difference of +80%! If you don't consider the pandemic's impact, you'd assume that the hotel was doing very well. But in fact, the increase is only extreme because we're comparing the hotel room price from March 2020 to March 2021. If you were to compare the price from February 2020 to March 2021, you'd see that it had only decreased by 10%.

Here’s another example:

The YoY growth rate for US industrial production from April 2020 to April 2021 was 17.6%. The US economy was not actually growing that fast - this high growth rate was derived from the fact that April 2020 was the economic bottom of the COVID crash.

If, instead, we compare April 2021 to January 2020 - when things were “normal” just 3 months before April 2020 - we see that the growth rate is actually closer to -2.1%. Growth rates don’t normally fluctuate that much in a short period of time. But the reason for such a stark difference is not that we're measuring a longer period of time (i.e.15 months instead of 12), but rather because the economy is recovering from a major nosedive.

Comparing any period to an outlier will skew the interpretation of the data, and that could lead to making misinformed decisions. Although measures such as YoY can identify trends, it’s crucial to also consider outliers that would affect the points of comparison.

This goes to show that figures we see shouldn’t be taken at face value; we have to ask ourselves what other information and context we need to adjust for the base effect and make well-informed decisions.

Dollar-Cost Averaging: Are you doing it right?

 Buy low, sell high, right? It’s not that easy. Trying to time the market properly requires one to spend a lot of time knowing the market, and reading market and economic trends, and even then, only 5% (1 in 20!) of professional portfolio managers who try to buy or sell at the “right time” outperform their benchmarks.

Enter, dollar-cost averaging. It’s a simple method of investing the same amount of money each week, month, quarter, or interval of your choice, whether you’re investing with a portfolio manager or on your own.

Dollar-cost averaging is meant to prevent investors from over-investing at the “wrong time” in a given security or set of securities (e.g. stocks or bonds). Given that correctly timing the market is considered nearly impossible (luck aside), the goal of dollar-cost averaging is to not bother trying to time the market. History tells us that through dollar-cost averaging over the long term, the times you buy low and buy high all average out so that you are ultimately buying nearer to fair value of the same security while simultaneously getting the most out of your cash by putting it in the market.

It sounds good, but is dollar-cost averaging an investing strategy you should always use? Well, it depends.

When it comes to dollar-cost averaging, some people strongly advocate for it no matter what, while some people say you never should do it, and others are somewhere in the middle.

We don’t think the question is as simple as whether or not someone should deploy a dollar-cost averaging strategy. It’s about what the best thing to do for your personal financial situation is. Let's unpack what you should consider when you’re figuring out whether dollar-cost averaging is a strategy you should adopt for yourself.

Lump sum investments

Those who don’t advocate for dollar-cost averaging usually warn that a lump sum sitting on the sidelines of the stock market is missing out on potential gains. Studies by Vanguard even show that the value you’re missing out on by not being in the market is greater than the risk of buying overpriced stocks all at once.

What’s missing in this line of thinking is the consideration of the risk you are willing to take by investing the entire amount at once. Investing a lump sum implicitly means to “time the market”. What if your timing is wrong? A good way to address the risk portion of this thinking is looking at how much of your net worth that lump sum accounts for.

Are you expecting a RM25,000 bonus, or have you recently received a RM100,000 inheritance? What percentage of your net worth does this amount account for? 10%? 100%? If this new cash inflow accounts for a small portion of your net worth, say, 10%, then the risk of buying into the market with that entire amount is less risky than if it accounts for most of your net worth.

Let’s see this concept in action.

Let's say your RM25,000 bonus from last year accounts for your entire net worth, and you invested it on 26 January 2018, right before the January 29 market correction. In this case, you’d have lost about 10% of that investment when the markets went down. And that’s 10% of your net worth! But, if that bonus accounted for only 20% of your net worth (not 100%), that 10% loss (or RM2,500 loss) is only a 2% loss of your net worth. A 2% loss hurts much less than a 10% loss.

If you don’t have any or many other invested or investable assets to your name, then you should reduce your risk by applying a dollar-cost averaging strategy to your lump sum of cash.

One more thing you need to ask yourself is when you need to use the money. If you’re nearing retirement, for example, you can’t take as much risk with your retirement portfolio compared to someone who has 30 years until she retires. So, we’d recommend dollar-cost averaging to minimise your portfolio’s exposure to risk when investing a lump sum.

Monthly investing plans

Where dollar-cost averaging can be of best use, regardless of your net worth, is when you’re investing part of your monthly income. This way, you’re investing fresh cash flow instead of letting it sit idly in your savings account waiting to be invested for months or even years. A long-term investing strategy that involves investing some of your monthly salary means that you’ll be buying securities sometimes at a high price, and sometimes a low one. In other words, don’t save up a portion of your monthly income to invest it later on. Put the money to work immediately, as long as you’re disciplined enough to invest every single month. A monthly standing instruction to an investment account can make it easy for you not to forget to invest.

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So, when should you use dollar-cost averaging in your investment strategy?

First, make sure you're investing your monthly savings, and then don’t even ask yourself whether the markets are undervalued or overvalued. Don’t try to time the market, but rather focus on maximising the time your money spends invested. 

For lump sums, the answer is not as easy. Whether it’s the cash savings you’ve accumulated and finally want to invest, or a new lump sum you’ve come into, assess the total value of your invested and investable assets to determine how much that additional amount is of your net worth. If it’s under 25% of your net worth, we’d generally say that you can invest it at once, or in a few weeks. But if it’s the majority of your net worth, consider a risk mitigation strategy, such as dollar-cost averaging over several months, that protects you from entering the market at an inopportune time.

You Shouldn't Worry About Short-term Volatility

 Markets react in unpredictable ways to company-specific news, geopolitical events, and more. These reactions lead to inevitable market ups and downs, yet reading into these short-sighted swings as anything more than natural only distracts investors from long-term investment plans. 

The short-term ups and downs are all part of earning value through investing. It's not a secret that the markets will always go up in the long term, and the fact that they always go up is exactly why it’s crucial that you keep your emotions out of investing, and that you stick to your plan.

There will be times that you log in and see your investments doing well, but this doesn’t mean you can abandon your monthly investment plan and put more money in! You’ll be buying high, and then you’ll see inflated losses later on. 

And when you log in and see your investments not doing as well as you’d like at that given time, that's also not the time to get nervous and abandon your monthly investment plan just because you fear that you’re losing too much money. It’s in times such as these that it’s cheap to buy. 

Keeping your head down and sticking to your plan even despite market volatility really does pay off. Not convinced? Let’s zoom in to a short-term period of 6 months in the S&P 500. 

It doesn't take an economics degree to see that the market averages upward in the long term even despite having short-term volatility along the way. This is why you need to stick to your investment plan to catch and ride that wave. In other words, don’t make emotional decisions. 

So, whenever you experience a sudden increase or sudden decrease, remember to think about the big picture, and don’t get too excited, or too upset. 

If you're still feeling uneasy, then chances are that you've selected a risk level that is beyond your comfort level. Our investment framework takes a long-term view on maximising your returns while simultaneously minimising your risk in a given economic regime. In doing so, it inherently can withstand the natural ups and downs by experiencing less drastic drawdowns than other investment solutions that put your money at risk in an attempt to earn more. And, if your objective is to take high risk to earn high returns, remember that that approach is only reliable in long-term investments.

Let’s talk about returns

 As you start your investing journey with us, you might be trying to understand your returns. So, we wanted to take a moment to explain a couple of things about investment returns.

Successful investing takes patience

You may recall that at the end of 2018, the S&P 500 recorded the worst 3-month return since 2011; then, at the beginning of 2019, the S&P 500 went on to record the best first quarter since 2009. These swings, though normally not so drastic, are part of being invested in the markets. We saw some clients withdraw their funds because they were nervous about the 2018 dip. But then they missed out on the huge rally only a month later! So, stay calm and be patient through the ups and downs, because the only way to confidently capture the best returns of the markets is by enduring the inevitable short-term ups and downs, and everything in between. Although the markets can look flat or volatile in the short term, history tells us that in the long term, markets naturally trend upward.

Successful investing takes consistency

Even if the media make it sound like a particular moment is a good time to invest, no one actually knows what will happen the next day, week, or month. Remember, headlines sell newspapers; they don’t give investment advice. Even though the markets naturally trend upward, a single one-time deposit is exposed to short-term market behaviour. So instead of making a one-time investment and hoping for magically high returns, invest consistently, regardless of what is happening in the markets. This way, you buy when the markets are up, and sometimes when they are down, and your portfolio can ride the market’s reliable long-term upward trajectory.

In the short term, volatility is a normal part of investing.

So, what should you do in the early stages of an investment?

Be patient.

Maintain a long-term perspective when you’re looking at your returns.

Keep in mind that in the short term, any investor (professional or amateur) could face negative or volatile returns.

Long-term investments will benefit from time in the market.

Something as simple as a monthly deposit plan, even through the good times, bad times, and uncertain times, can help reduce your portfolio’s fluctuations over the long term.

So, don’t be discouraged if the returns are not what you are hoping for in your first few months. Just remember that successful investing requires maintaining both a long-term perspective and consistent investing plan. 

July 14, 2021

Bond / Sukuk: What is it?

 What is Bon?

  • It is debt - when an investor lends to a company or government. So, bond investors are paid interest on the loan.
  • Think about this - you borrow from a bank. So, the bank paid interest.
  • Bonds have a rating, for example AAA - it indicates a company’s financial ability to pay investors.
  • Shariah -compliant bonds are called Sukuk. Sukuk make up the bulk of the Malaysian bond market.
  • As of 31 May 2021, the size of the Malaysian bond market is RM1.68 trillion - BNM Bond Info Hub.
Why do companies issue bonds / sukuk?

  • Companies issue bonds / sukuk to raise money to finance new projects, finance operations and grow businesses.
  • It is also an alternative way for companies to raise money other than getting a bank loan or issuing new shares.

Why does the government issue bonds / sukuk?

  • The government issues bonds / sukuk to raise money for national development expenditure and government working capital.
  • Malaysian Government Securities (MGS) and Government Investment Issues (GIIs), which are long -term bonds, are issued by the Malaysian government to raise money for development expenditure.
  • The Malaysian Treasury Bill (MTB) and the Malaysian Islamic Treasury Bill (MITB) are short -term bonds issued to meet the government's working capital requirements.

June 16, 2021

Working for money? Let the money work for you!

Philosophy: Invest regularly even if small

So far we have learned what investing, budgeting and savings are, and the concept of risk. Today, we will explain some concepts that can help investors manage risk and achieve their investment and savings goals more effectively.


Today's Word: BKBA

An acronym stands for Financially Independent, Early Retirement.


Ringgit Cost Averaging or “Ringgit Cost Averaging”

Philosophy is to invest small amounts regularly, even when the market is a downturn, as this can help you deal with volatile markets and is one of the keys to having a better balance in the long run. This principle is known as Ringgit Cost Averaging.

What is the meaning? For example, let's say you have RM1,000 to invest. Instead of investing all at once, you can invest RM100 every month for 10 months, even if there is a change in market value.

With RM100 per month, if the stock is priced at RM10 in the first month, you will buy 10 units. If in the second month the stock is priced at RM5, you will buy 20 units, and so on.

Eventually, you will buy more units of stock when the price is lower and fewer stocks when the price is relatively high.


Multiple Benefits - Amazing Countdown

Double interest occurs when you let the return on investment grow until you make a profit on your profits. Given enough time to grow, double benefits have the potential to reach a level where your money works to provide the bulk of your income. 

Understand the Risks

 Risk vs. Return

Is there a risk-free life? Every decision you make, whether buying a car, riding a rollercoaster, or starting a family, all have the risk of it happening unexpectedly. But to isolate yourself in a solitary room in order to avoid all the risks in daily life, you will also not get any benefit.

Yes,  we will learn about risk.


Financially, we define risk as to the likelihood for the actual return of another investment from your initial expectations. In other words, chances are you will lose money or make a little more profit than you expected.


The main rule of investing is that the higher the expected return, the higher the risk. This is known as a risk-return trade-off. A high rate of return is worth the high risk. No high returns with no risk at all. However, there are strategies that can be used to manage and reduce risk.


Today's Word: Fluctuations

The value of the investment price goes up and down. How fast it fluctuates is a measure of the risk of the asset. The higher the volatility, the higher the risk.



We often hear the phrase "don't put all the eggs in one basket." If we change it to “don’t spend all your money on one type of investment”, we’re talking about diversification.

Every asset you buy comes along with market risk - its value can go down. There is always the unexpected. Thus, by putting money on different assets, it can reduce the risk of them all falling at the same value.

On the first day, we learned about unit trusts. Investing in unit trust funds is the best and cheapest way to get diversification as they give you exposure to many companies, different sectors, and even other asset classes.


Opportunity Cost

You buy a luxury mobile phone, and with the same amount of money, you can buy another brand with similar features but at a lower price. This is the risk when you make an investment decision. Based on that experience, you realize that you can use that money elsewhere better. This is a risk that we are not aware of when saving money as cash only. Yes, saving cash can avoid some risks, but we incur huge opportunity costs when we may be able to maximize the potential of that money elsewhere.


Risk Tolerance

Your risk tolerance is how comfortable you are to take risks. This shows how much risk you are willing to take in achieving your investment goals. Understanding your risk tolerance is important. If you take too much risk and are unable to take large losses from your investment, you may face stress and make panic sales at the wrong time.


Investment Period

Investment period refers to the period of time you set to be in the investment. The term can be short-term, just a few days or months, to long-term, can span years to decades. Your EPF contribution is an example of a long-term investment.

When investors have a longer timeframe, they are able to take more risks, as the market has many years to recover in the event of a crisis. That is why there is an expression that in the long run, the market tends to go up.

On the other hand, over a shorter period of time, you may have to sell your investment during a market downturn at a low value. Therefore, short-term investments should have less risk to reduce the likelihood of such investments depreciating in the short term. For example, a 2 -month investment should be in the form of a cash investment only.

The timing of this investment can be more important than risk tolerance when making which investment choices you should make. Especially when the term of the investment is very short or very long.

Savings (and Investments) for Emergencies

 "Prepare for a rainy day."

 Now that you understand the basics of finance, you are ready to move on to the next level - create a budget and start saving.

You will realize when you start saving, even a little, but continuously, your savings will be able to increase over time without you realizing it!


Today’s Word: Emergency Fund

Money saved for emergencies that may occur at any time. For example, during the COVID-19 pandemic.


Remember these 3 numbers - 50/30/20

Principles that are easy to practice:

  • Your needs (50%).
  • Will (30%).
  • Savings and investments (20%).

This number is not necessarily fixed. Still, it provides a strong foundation for building healthy financial habits to help you achieve your goals. For example, when a crisis occurs and money for necessities expenses is limited, you may need to reduce the portion of money for temporary savings.


Improve your budget

If you look at the overview of your budget in general, you will immediately see that there are several types of withdrawals from your salary like this:

  1. Investment / emergency fund.
  2. Requirements that cannot be changed.
  3. Controllable requirements.
  4. Not a necessity.

The key is to generate a budget by finding alternatives and options for shopping.

For example:

Many Malaysians forget that basic house bills such as internet and telephone can all be exchanged. By switching to a cheaper one, you can easily save hundreds of your annual expenses!

Buy in bulk. You may look like a crazy person for a while, but this can really save you money on spending.

Try to pay early or on time - some service providers will provide a deduction for timely payment and avoid late charge penalties (example: Annual charges for insurance are sometimes cheaper than monthly).

Understand the Basics of Investing

 Where can I put my money?

 For starters, we’ll learn some basic types of investing - knowing the right place option for you to put your money.

What is an investment?

In everyday life, we always think of investing as using time or effort for something that will provide benefits in the long run, such as education. From a financial perspective, we are more focused on investing money, with the expectation of generating long-term profits from that investment.

The profit generated from an investment is known as the return on investment.

Return on Investment = (Net Profit / Investment Cost) x 100


Investment for empowerment

The long-term benefit of investing is that it allows you to achieve the lifestyle you desire. For most investors, increasing savings and investments is not to get rich quick or have a private jet, but is to strengthen their finances and the freedom to choose the lifestyle they want.


Today's Word: "Compounding Return" or Double Interest

The process that occurs when you let the profits from your original investment be reinvested until you reap the benefits of your profits. This causes the investment to rise higher, generated from the profit earned from the original investment and its accumulated return.


Types of investments:


One well-known type of investment is stocks. Simply put, when you buy a stock, you have a small ownership stake in a company.

You may also have heard of stocks called equities.

Since you own part of the company, you are also entitled to a portion of the company’s income. A company that makes a profit, allows it to pay dividends. This is a way to distribute the company’s income to its shareholders. Usually, companies give most of their income in the form of dividends.

You can buy shares through a stock exchange, which is basically a large auction house, where buyers and sellers list the requested sale price, and when agreed, they transfer ownership of the shares. In Malaysia, this is Bursa Malaysia.


Unit Trusts

Unit Trusts are a form of cumulative investment scheme that allows investors with similar investment objectives, to pool their money together to invest.

The fund manager then invests the accumulated money in a portfolio that includes various asset classes such as cash, bonds, stocks, real estate, and commodities.

Fund ownership is divided into units. When the value of a fund increases or decreases, the value of each unit also increases or decreases. The number of units held depends on the amount of money invested and the purchase price per unit at the time of investment.

One of the advantages of investing in unit trust funds is that at low cost, they give you exposure to many different companies, diversify your investments, and are managed by certified fund managers. We will discuss more the importance of diversity in this series later.



Cash is what you keep in your bank account. It is a very low risk but the return is also very low in terms of investment.

When we talk about cash as an investment, we are familiar with Fixed Deposit accounts. It is a bank account where you cannot touch your cash for some time and you will receive a set profit rate.

The advantage of saving money in cash is that you will definitely get your money back when you need it. Still, it comes with a very low cost of return on investment - probably lower than today’s challenging cost of living increases.


Real estate

Unlike other investments before, a real estate is a physical object that you can see and touch. Demand for selling and buying real estate is the main cause of price fluctuations. There are many factors that influence real estate demand, but the location is among the main factors.

Real estate investing is well understood by many. In Malaysia and most parts of the world, there is a belief that property prices are forever rising. However, this may not be 100% true as no properties are traded every day and the price estimates are also less clear.

The disadvantage of real estate investing is the high cost of entry and exit, and chances are you will lose out in the short and medium-term if your interest payments are more than the income you earn from renting. Real estate is also difficult to liquidate the asset, meaning that selling a property takes a long time.

EURO 2020: What football teaches us about money and investing


Euro 2020 had just begun last weekend. Now all football fans enjoy watching and discussing what is happening surrounding EURO 2020. But how can we relate football to money and investing?



One of the key decisions a manager has to make is to pick only 26 players out of hundreds to be in the Euro tournament team.

This is where the manager does his ‘budgeting’. Having his strategy and formation in mind, he picks players that should be enough to cover all areas (goalkeeper, defender, midfielder and forward) for the first team and also substitution.

For example, the formation is 4-4-2. So the team needs at least 3 goalkeepers, 8 defenders, 8 midfielders and 4 forwards. Others shall be chosen for special traits he wants, such as a midfielder that good in marking or freekicks.

Same as managing our own money, we do budgeting for all our expenses. This is to make sure we spend within our means and at the same time, can have a balanced lifestyle – necessity, savings, entertainment etc. The 50/30/20 rule is a good guideline for your budget allocation. 



Go deeper into the forward’s list, we don’t want all of them to have the same type of play and skills. If a striker with speed can’t give us a goal, we go to plan B – substitute him with a good header striker that can be dangerous when we have corner or freekicks.

If we are talking about diversification in investment, we can relate this to “don’t put all your money in one investment.” Because every asset’s value that you buy comes with the market risk – could drop.

There is always an unexpected event. So, by spreading the money into an investment portfolio across different assets, it can reduce the risk that all of them will fall in value at the same time.


Emergency Fund

A winning team not only has many superstar players but excellent depth on their squad. Good players on the bench can help during tough times. For example, when trailing goals, we can bring on one more striker to help more on attacking.

With this analogy of the good bench players, we need an emergency fund to prepare for the unexpected financial surprises that may appear in life. Example: COVID-19 pandemic.


Opportunity Cost

Did you watch Euro 2020: Croatia’s first match versus England? Croatia lost 1-0.

But could they do better to prevent the defeat? Yes, they should have a proper center forward that can link up attacking play with the good players like Perisic and Modric.

With this, let say they could have 1 goal, which leads to a draw and get 1 point in the group. This 1 point is the opportunity cost that they missed when they went for the non-proper center forward.

This is the risk that when you make an investment decision, and with the benefit of experience, you realise you could have done better elsewhere.