30 Nov - 7 min read
Whether you’ve just graduated, are about to start your first job, or just figuring out how to take on adult responsibilities in your twenties – money can be quite an overwhelming topic. You’re told many things, including to save before you spend, allocate 20% of your income to pay off debts, and even start investing.
Coupled with technical terms and an overload of numbers and percentages, investing may seem scary at first but it is one of the key steps towards financial freedom and security.
If you’re contemplating to start investing in your twenties, here are a few tips to help you on your long-term investment journey.
Those in their twenties have two of the most important elements of investing in their hands – time and the power of compound interest.
To best explain these elements, we have 25-year old Janice*, who aims to be a millionaire once she reaches her ideal retirement age of 65 years.
If Janice were to only start investing at 45 with a 7% compounded annual return, she would need to fork out RM2,000 a month for 20 years to reach her goal.
But if she had started in her twenties, she would’ve only needed to save RM400 a month at the same 7% p.a to retire as a millionaire. Five times less each month because she has twice as much time!
A general rule of thumb would be to invest 10% to 15% of your income. You’re not required to have a large sum of money to start investing – the most important thing is to just start.
Moreover, there are many available online investment platforms where you can easily invest with a few hundred ringgits, such as EZInvest, where you can start investing from just RM500 a month. Open to all HSBC customers, EZInvest is an accessible and secure unit trust investment platform on the HSBC Mobile Banking app.
Before you start investing, do make sure that you’ve already secured an emergency fund of 3 to 6 months worth of expenses and protected yourself with insurance coverage. This is to ensure that you’ll be able to weather the unexpected such as an injury, illness, or job loss which can put a strain on your finances.
Fixed deposits or more commonly known as “FD” is a type of investment where there’s a fixed rate of interest. They are a popular investment vehicle that’s generally regarded as safe and grants high interest over a period of time.
Although, high interest can also be translated to “low returns” as interest rates offered by most fixed deposit accounts do not perform well against inflation, especially in recent years.
The graph below shows that the rate of inflation has been above fixed deposit rates since 2018.
There’s no harm in allocating some funds into fixed deposits but to beat inflation, one must consider investing in higher-return assets, targeting over 5% return per annum.
Do note that to achieve higher return assets comes with higher risks.
The most successful investors did not know everything about investing on their first day, week, or month. A typical investment journey is a long one and usually filled with patience, time, and not to mention, volatility.
As a beginner, it’s important to take time to learn the ins and outs of investing, acquire new knowledge, and learn which investment strategy works for you.
Another option would be to let an expert investment manager do it for you, through investment options such as unit trust funds. These funds are managed by expert fund managers who specialise in equity analysis and investment management. Other options include robo-advisors or online investment platforms such as EZInvest.
Once you’ve started and learned the essential know-how, products, and strategies, you can go beyond expert-managed products to self-managed investments such as purchasing stocks, bonds, or other assets.
One of the first things to understand about investing is that there is always a certain level of risk, which mainly stems from market performance.
Determining your risk appetite before investing can help you invest according to how much risk you can take. Risk appetites can be categorised into 4 types; Conservative, Balanced, Aggressive, and High Risk.
Your age is a key element to establishing your risk appetite. Generally, the younger you are, the more risk you can take because you’re able to weather through the ups and downs of the market to achieve long-term returns.
A universal rule of thumb to follow is the Rule of 100. This formula helps to determine your ideal allocation into riskier assets.
Another element to think about is your investment time horizon, or what you’re investing for.
If you’re investing to accumulate funds to deposit on a home or get married in the next year or two, then you would have a relatively short time horizon. Whereas, investing for retirement or an education fund for your growing children necessitates a longer time horizon.
A shorter time horizon limits your risk appetite as you won’t have the time to recover if the market descends, meaning you would have to invest in lower-risk assets.
Shariah-compliant funds are based on Islamic principles and do include high-risk and low-risk investments. Shariah-compliant investments do not involve interests (“riba”), uncertainty (“gharar”), and gambling (“maysir”), and the overall business is deemed halal.
Moreover, Shariah-compliant unit trusts allow investors to invest through a diversified approach and can provide liquidity as these units are easily bought and sold.
It is also a misconception that Shariah-compliant investments are only for Muslims, but the truth is that anyone can invest in them. With EZInvest, you also have access to Shairah-compliant Unit Trust funds.
Diversifying your investments is the act of not putting all your eggs in just one basket, which could lead to a huge loss if the market were to crash.
By definition, diversification is an investment strategy that includes a variety of investments within a portfolio. By spreading your investments across different asset classes and types of investments such as cash, equity, bonds, commodities, and property, you will be able to reduce the overall risk of your portfolio, protect your investment capital, and yield stable returns.
Investing regularly beats trying to time the market 95% of the time. Whether you’re choosing to invest monthly or quarterly, your time in the market is more likely to yield significant returns than timing the market and suffering a loss.
If you do have a lump sum of money to invest, consider investing it in portions instead. You could divide the money into 4 parts and invest it over the next 4 months. This can protect you from unexpected market fluctuations during the incoming week or month.
If you’re looking for an ideal platform to start investing in unit trust funds, consider investing with EZInvest.
EZInvest offers investors a simple and easy way to invest in unit trust funds from as low as RM500.
Investors can choose from carefully selected unit trust funds available that are diversified across local, Asia, and global markets, and are also catered to investors of different risk appetites.
Through the EZInvest platform, investors can easily get a 24/7 updated view of their portfolio performance and conveniently buy or sell with just a tap. The app also requires multi-layer verification to ensure that your financial information is protected and secured.
*The contents of this article do not constitute financial advice. Readers should conduct their own research before making a financial decision. The material has not been reviewed by the Securities Commission Malaysia (SC).
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