Making your money works for you

reiccs :


Imagine we got so many type of passive income investment vehicles and many Malaysians still stick to the old Fix Deposit (FD) . Way back a few years ago, you cannot imagine, I have a friend and a relative who prefer to put their money only in normal savings deposit generating about only 1~2% interest at that time. I asked, " Why don't put your money in the FD ? You know what they answer ? " Is too troublesome lah ". "What  if I need the money urgently for some emergencies ?" These was their response . Really financial illiterate and ignorance, I realise they don't even know that taking out FD is exactly the same as normal savings. I asked them, every month also you got emergencies ah ? Then they keep quiet. I spend some time convincing them to put it into FD, imagine I got nothing to gain for but as his relative/friend, I think is my responsibilties to educate them. Then, I didn't even bother to explain on those unit trust, bonds, stocks which makes them more difficult to accept as there is some risk on their capital.


Below is an article which from NST (Sept 11, 2011)which is a good explanation of various simple investment vehicle . You see, they mention REITS also ....


ACTIVE incomes are those generated through physical work, for example, salary for an employee or profits for a business owner. But to achieve financial freedom, not only you must work for money, your money must work for you as well.

Passive incomes are those generated without having to work physically, for example, interest, rental or dividend.
Previously, people put most of their savings into fixed deposits to enjoy interest income. But with the current global financial crisis, more governments and central banks are maintaining low rates to sustain their flagging economies, making returns on fixed deposits less attractive.
In Table 1, the average local six-month fixed deposit interest rate is 3.109 per cent, while the one-year rate is 3.218 per cent. As fixed deposits are no longer an attractive choice to generate passive income, many are considering alternatives. Here are four to consider.

Money market funds

Money market basically means low-risk, short-term debt instruments. So, money market funds are unit trusts that invest in money market investments.

Compared to other types of funds such as equity and commodity, money market funds are considered lower risk and the “safest” type of unit trusts. These funds invest in short-term debt of banks, companies and governments such as commercial papers, repurchase agreements, treasury bills and ringgit deposits with local financial institutions.

Money market funds also offer a high level of liquidity to investors. Many use such funds to park short-term cash while waiting for better investment opportunities. Sometimes, these funds serve as a practical means to set aside money that one may need to use soon.

So, money market funds are suitable for investors concerned about capital preservation and liquidity.

Since these funds are also invested in fixed deposits by banks, they are susceptible to low interest rates. But the fund managers could invest in short-term bonds to generate higher returns.

What are the risks of investing in money market funds? Like most unit trust funds, investors will face the risks of poor management, inflation and non-guaranteed returns.

What is the expected rate of returns? Based on Morningstar as at Aug 5, the annual average return on all funds under the money market fund category is 3.47 per cent.

Bond funds

A bond is legal evidence of a debt, normally the result of a money loan. When you buy a bond, you are effectively lending your money to the issuer of the bond. The bond issuer agrees to make periodic interest payments and repay you the original capital in full on a certain date.

So, bond funds are unit trust funds that invest in bond instruments such as government bonds of developed countries, investment-grade bonds, high-yield bonds and emerging market bonds.

Like money market funds, bond funds are fixed income funds, which are generally less risky than equity or commodity funds.

Compared to direct bond investing, investors of a bond fund don’t receive bond interest and principal upon its maturity. Instead, bond funds issue dividends (quarterly, semi-annually or annually). This is because bond funds invest in different bond issues and the coupon payments and maturity dates are not fixed.

This means investors are given the flexibility to invest in bonds without being locked in until the maturity date.

The benefits of investing in bond funds are regular income, stability, portfolio diversification and professional management. But not all bond funds have the same risk and return profile, which is normally determined by the underlying bonds held.

For example, bonds issued by governments of developed countries are considered the least risky, while high-yield and emerging market bonds are most risky. But the returns on riskier bonds are potentially higher than those of “safer” bonds. Based on Morningstar as at Aug 5, the annual average return on all funds under the bond fund category is 4.83 per cent.

There are many opportunities for high investment-grade bonds. If you’re keen on generating a higher passive income than fixed deposits, consider bond funds that invest in good corporate bonds.

High-dividend stocks

Shares on the Kuala Lumpur Composite Index have an average dividend yield of 3.8 per cent (Source: Bloomberg, iFast compilations, as at Aug 22) and some stocks offer dividend yields as high as 8 per cent. If you want investment income and have a stomach for volatility, take advantage of the current low valuations after the recent market crash. Invest in blue-chip stocks that offer good dividends.

If you are more risk averse, invest in dividend unit trust funds. Such funds invest in stocks which offer attractive dividend yields and make regular dividend payments. You don’t have to worry about which stocks to choose and just rely on the fund manager’s expertise.

While investing in dividend funds is less risky than directly investing in the stock market on your own, these funds belong to the equity asset class and their prices fluctuate according to market sentiment.

Real estate investment trusts

Have you ever wished to own a significant landmark property in the Klang Valley? With real estate investment trusts (REITs), you can be a proud “owner” of a shopping mall, hospital or office tower and earn rental income.

A REIT is a trust that buys and manages real estate assets using the combined investment of many investors. In Malaysia, it is listed on Bursa Malaysia, like any other shares.

So, REITs offer good flexibility because you can buy and sell them easily in the stock market. But like shares, there’s the risk of price volatility.

With REITs, you can easily own a diversified portfolio of properties. Unlike conventional properties, a large capital is not needed. You can invest in different types of properties in various locations using REITs with the same amount of money to buy only one physical property.

You also enjoy recurring rental income from investing in REITs. The rental rate depends on demand for the property. So, it’s wise to choose REITs that not only own well-managed buildings, but also properties in good locations. Remember, the mantra for property investment is location, location, location. The same applies when investing in REITs.

The current average yield for Malaysian REITs as at Aug 22 is 6.83 per cent.