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This Week’s Money Tip: 2 Paths to Start Stock Investing as a Malaysian
Disclaimer: I am not a licensed financial advisor. This article is shared with education purposes and it is not financial advice. Please always do your own due diligence before investing your money.
Most people gets stuck on how to start stock investing.
If you have done some research in Google about stock investing, you often find the information is mostly US-based. The information on how a Malaysian can start investing in stocks is limited.
When I started my investing journey, I experienced the same things as above. And I end up at one place that has the most relatable information on stock investing.
Facebook group(s).
But one thing I notice is, most of the groups only talk about investing in Bursa Malaysia.
And among these groups, most people are just bragging on their trading profits, technical analysis and stock recommendations.
They’re not a beginner-friendly place to begin with.
So where should a beginner learn about stock investing?
To be honest, I still can’t find one place that will teach you all about stock investing, especially for Malaysians.
But right now, I want to share with you on 2 paths which you can consider to start stock investing.
I know it is natural for Malaysians to invest in Bursa Malaysia. But this usually leads to Path 1, which is investing in individual stocks.
Path 1 – Invest in individual stocks
Individual stocks mean stocks that represent individual companies.
For example, the company behind MAYBANK stock is Maybank and the company behind CIMB stock is CIMB bank.
Hey! Please don’t roll your eyes on me haha!
It may sound obvious, but many stock investors forget that behind every stock is a company with a business. Instead, they treat these stocks as gambling machines and the stock market as a casino.
To obtain decent returns from individual stocks, there is certain knowledge one needs to have, such as identifying a company with growth potential, reading the company’s financial statements, and using stock investing formulas such as P/E ratio to check if a stock is undervalued or not.
Although this method sounds exhausting, it will give you a lucrative return if done right.
I wrote a comprehensive article on a skill you need to invest in individual stocks. Check it out:
Comprehensive Guide: How to Read Financial Statements as a Stock Investor
After I invested in individual stocks for some time, I found that there is another way to invest in stocks which is a lot simpler and doesn’t need the knowledge above.
Path 2 – Invest in Index Fund ETF
Introducing the Exchanged Traded Fund, short form ETF.
It is a type of stock that is similar to a unit trust, just that it can be traded in the stock market exchange.
Below is a good illustration on what is ETF:
There are many types of ETFs as well:
- Index – track stock indexes such as S&P500, NASDAQ, or KLCI index
- Commodities – track commodities prices such as gold, oil or corn.
- Industries – track specific industries such as technologies, healthcare or plantation.
- Actively Managed – customized with selection of stocks to outperform index funds.
For simplicity, I only invest in US Index fund ETF. Here are the reasons:
- Diversified – Index fund usually represents the whole stock market
- Decent return – Average annual return of S&P500 since 1982 to 2022 is at 9.82%
- Auto Rebalancing – The companies under the index will be rebalanced quarterly
Here’s the 10-years historical stock chart of the S&P500 index:
Source: Yahoo Finance
If you invested in S&P500 ETF 10 years ago, today your investment will have a 263.1% gain!
There are 2 ways we can invest in US index funds:
- Buy the ETF with a brokerage account
- Invest via a robo-advisor
Choose a brokerage account if you
- Has a large capital (> RM50k), as it will lower your fees when you buy shares in big amount
- Plan to invest in some individual stocks as well
Choose a robo-advisor if you
- Has a small capital (< RM50k)
- Prefer to have visual & charts of your investments
- Want to set up recurring deposit to your investment every month
“What about ETFs in Malaysia?”
Bursa Malaysia has ETFs as well, but I would not recommend it due to their poor historical performance.
Here’s the 10-years historical stock chart of the KLCI ETF (0820EA.KL):
Source: Yahoo Finance
If you invested in this 10 years ago, today your investment will have a 12.1% loss!
Keeping your money in the fixed deposit will earn more than that.
You may argue that we have a new government now and it may be a good time to invest now. In my opinion, our country needs at least 5 years or a decade to be “tidy up” before it will rise again.
Anyway, the decision is on you to invest in which market or stock.
Verdict
Let us summarize the 2 paths to start your stock investing journey:
- Invest in individual stocks
- Invest in index fund ETFs
Personally, I started with path 1, and moved on to path 2 until today.
There are pros and cons for each path.
Try Path 1 if you
- Have a lot of time to learn about stock investing
- Interested to learn more about business & accounting
- Prefer taking calculated risk to get a higher return (> 10%)
- Want to own individual stocks
Try Path 2 if you
- Don’t have much time to focus on stock investing
- Are okay with getting the average return of the stock market (6~10%)
- Not interested to learn about business & accounting
- Prefer simple investment and only want to invest in 1 or 2 asset
You may take both paths at the same time, but I will recommend having the majority of your investment in an index fund as its return is more decent and predictable.
Talk with you again next week.
Your Money Buddy,
Marcus
Whenever you’re ready, there are 2 ways I can help you:
1) Book a 1:1 Call Session with me if you want to pick my brain, be it finance or any topic you would like to learn from me.
2) If you’re not sure which platform to invest your money, here are 3 platforms that I personally use:
→ Rakuten Trade – The only brokerage account I’m currently using now to invest in US index funds and Malaysian stocks. Get RM30 worth of RT points if you register & unlock foreign trading with my referral link.
→ Wahed Invest – The robo-advisor I use to invest in Shariah-compliant US Stocks, mainly HLAL ETF. Get free RM10 if you register a new account with my referral code “markeo1”
→ Versa – My favorite place to save my emergency fund which offers 4% return (until June 2023). Get free RM10 if you register a new account with my referral code “AL9JZJ9H”