Investing is Simple – Get Started!

You want Financial Freedom? Save, Invest and Start Early.

There are countless ways to getting rich here in Malaysia. For the average and majority of Malaysians, I urge you all not to get caught up in the many get-rich-quick shortcuts out there. Instead, opt for the long winding but proven path of hard work, savings and consistent diligent investing.

The crucial and key thing is to get started and get started early . It’s best to save and begin investing at an early age. You should even start saving and investing on behalf of your kids the moment they’re born to give them an edge in this dog eat dog world. And trust me, saving as little as RM100 a month for your children the day they’re born will help them start off with about RM50K in their accounts on their 18th birthday. If I had RM50K to start with, I’m sure my portfolio would be much much bigger now. Start early!

Yes, saving money isn’t fun. Investing in boring index funds and the stock market for the long term isn’t sexy. And yes, it takes years, decades even, to build wealth this way. But trust me, it’ll all be well worth your while when you realize you have enough passive income to sustain your lifestyle.

One advantage I had was learning about the importance of investing at an early age. I was fascinated with the concept of passive income during my university days and started learning how to value stocks. I read tons of books on investments and decided at an early age to embrace frugality and diligent investment. I devoured and poured through books on investing and personal finance. Every day I checked the share prices of stocks I was watching in the newspaper. I loved it!

Investing isn’t just for the Rich

Because I’ve been asked this a thousand times over, I’d like to emphasize – Investing is simple and you can start with ANY amount. The crucial part is just to GET STARTED!

I’m 28 this year with a portfolio (my Freedom Fund) of RM300,000 in stocks. I started out with just over RM10K saved up from my university days. Too many people around me have put off their finances because they claim not to know a thing about investing. The most important step for you to take is to get started. Save up, pick a stock you can understand and invest in it. It doesn’t matter if you have a million dollars or only RM1,000. Just get started.

Dividend Magic - Investing is not for the rich

Investing Analogy

Here’s an analogy on investing I love.

Let’s say you are a farmer, you buy a little baby calf for RM2,000. It eats a lot of grass and over time grows into this big, beautiful, strong cow that’s now worth RM10,000. On a nice Sunday morning, you walk your cow down to the farmer’s market in town, and you sell it for RM10,000. Boom, a RM8,000 profit (and you didn’t even have to pay for the grass). This is your capital gain. Now, the period before you sold off your cow, your cow produced milk which you consume and sold off to your neighbors. This is your dividends.

  1. Your cow – Stocks (Asset)
  2. Your milk – Dividends (Cash flow)

Investing is really that simple, and you can start with any amount of money.

Now, lets take it to another level. You could’ve kept that RM2,000 you had at the beginning in your savings account. Over 20 years based on the 3% interest rate banks are paying now, your RM2,000 is now worth RM3,612.22.

OR, you can invest RM2,000 in the stock market. The KLSE index rose from 838 to close at 1813 on 29th November 2013 from 4 years ago for a total gain of 116%. On average, the compounded annual growth (CAGR) each year is 11%. Historically the markets around the world earn about 10% per annum, so here’s how much RM2,000 might be worth over 20 years, compounded at 10% per annum – RM13,455.00. (Note, this is the simplest illustration and example I could come up with, of course, many other factors come into play when one invests.)

Now compare investing to saving. Which one of these looks like the option to build wealth? Right, investing.

Mutual Funds and their Damned Fees

You’ve probably heard of investments like mutual funds, target date funds, or index funds. You might even own some of them. All of these funds have fees (also called the expense ratio), and if you’re smart you can save money on them.

Dividend Magic - Mutual Fund & Unit Trust Fees

Mutual funds are the worst (especially in Malaysia) because they rarely beat the market and usually have the highest fees, the average in Malaysia is a whopping 3%, I’ve seen some as high as 5%. These might all seem like insignificant numbers, so why does it even matter? It matters. Here, I’ll do some calculations to show you.

Let’s say you invest RM10,000 and earn 7% over 50 years.

0.0% fee: RM10,000 grows to RM294,570
1.0% fee: RM10,000 grows to RM184,202, and you lose RM110,369 in fees
2.0% fee: RM10,000 grows to RM114,674, and you lose RM179,896 in fees
3.0% fee: RM10,000 grows to RM71,066.83, and you lose RM223,503 in fees

I cannot emphasize how fees can kill your investments. I hope the above illustration will get through to my fellow investors out there. With a 2% fee, you’re essentially losing more than 50% of your investment to fees alone. What’s even worse is that the above example assumes you’re earning a 7% return p.a., what if you’re losing money? The funds still collect the fees from you! Isn’t that outrageous?

By investing in your own portfolio of shares, it means more money for you, less for the fund houses. Also to note are low cost Index Funds from companies like Vanguard that serve to mimic the market. The day that they come to Malaysia is the day I’ll dump most if not all of my savings into them.

(I understand some of you may be mutual fund agents and investors here so if you disagree, please do provide me your reasons for it. Don’t just send me hate messages and emails.)

Hacking inflation

Dividend Magic - Inflation

People love to get really worked up about inflation. Here’s what I think about it.

The best savings accounts earn about 1-3%. These accounts are great to stash money for an emergency, or to save a down payment for a house. The best Fixed Deposits (which you can only get if you deposit about RM10,000 and above for a few years) usually earn just less than 4%.

With Malaysia’s official inflation rate averaging roughly 3% (we all know it is much higher, I reckon its close to 4.5%), keeping money in a savings account or FD are both bad for building wealth because they don’t even keep up with inflation.

However, I always recommend keeping roughly 6 months of your take home pay in FDs as your emergency fund. The rest should be invested.

Going from RM0 to RM1,000,000

I want to show you something. Assume you’re 25 right now, and by age 50 you want RM1 million. To accomplish this goal, assisted by a conservative 7% return p.a., you need to save and invest just RM1,235.24 a month. Think about what happens when you increase this amount as you progress in your career. RM1 million isn’t a far fetched dream, it’s actually very much attainable and we should in fact aim higher.

The key takeaway from all this? If you really want to build wealth, you need to start investing right now. The longer you put it off the harder it becomes. And for you people whose time is not on your side, you should start investing too, it is never too late. More importantly instill this lesson in your children and future generations.

GET STARTED!

If you find the above makes sense and you’re ready to start investing, I suggest taking a look at – A Guide to Stock Investment in Malaysia

If you’re interested in the stocks I invest in, you may find a full list of them in my portfolio – The Freedom Fund.

Again, be sure to read up and understand the company you’re planning to invest in. Keep it simple and consistent, and invest for the long term. Remember, start early and start now.

“The best time to plant a tree was 20 years ago. The second best time is now.” 

I’ll see you in 30 years.

Dividend Magic - Invest - "The best time to plant a tree was 20 years ago. The second best time is now."

 

24 thoughts on “Investing is Simple – Get Started!

  1. Hi Leigh,

    I have been an avid reader of your blog and I must say I have learnt lots from your blog. This might sound like an unrelated comment to this post, but for personal research purposes, are you able to share what is your initial cash investment amount (excluding capital gains and dividends)? Understand that your portfolio currently stands close to RM400k; and i’m assuming you have been depositing cash consistently over the years?

    Thanks!

    • Hey Kelvin,

      Thanks for writing in!

      Yup very close to RM400K. With my shabby and inconsistent record keeping, I think it’s in the region of +/- RM310K. IRR is about 11% as of April 2017.
      Hope this helped! Let me know how that research goes.

  2. Hi,

    Your blog is really good! Thanks for sharing your investing experience. I don’t quite understand how you work out the mutual fund fee, for 7% return p.a for 50 years, 10,000 capital, 3% fee, it should turn out to be 10000 X 0.97 X 1.07^50 = 285733. Now I have a monthly saving of RM200 for mutual fund investment, I am thinking to cancel it and invest in stock market instead after reading your blog. Thanks in advance!

    • Hey mst,

      Thanks for writing in.
      Your calculation is simple interest my friend, mine is compounded annually.

      Yea I’d suggest you invest in shares over mutual funds any time. Provided you’re willing to do the necessary initial research and also subsequent follow ups. It won’t take up too much of your time.
      Hope to hear more from you about your investments my man.

  3. Hello, wonderful blog you have going here. Thank you for sharing. Buying shares doesn’t seem so daunting after reading your articles. Similar to other readers above, I’ve also invested in unit trust with EPF money for a sum of about 70K. I stopped a few months ago because their high fee was really bugging me. I’m interested to learn more about dividend stocks (which was how I found your website in the first place). Now my question is, should I sell off the unit trust investment and return the money to EPF keep them? I invested in these about two years ago. I also invested 3K in unit trusts for my children. Should I sell these off and quickly invest in shares as well? My question is the shares I buy won’t be on their names (for saving purpose)? Thank you for reading.

    • Hey Yoges,

      Thanks for writing in my friend.

      I won’t really give you advice on how to handle your UT investments. However, if it were me in your shoes, I’d just let EPF handle my money. They have much better fund managers than any unit trusts here.
      As for the second portion of your question. In your position, I’d most definitely sell the UTs and invest in shares. Fees add up my friend.
      Also, you can always transfer the shares to their CDS account when they turn 18.

      Hope this helped!

  4. Hi dividend magic,

    I have invested quite a bit in mutual funds (fundsupermart) and after reading your blog, I’d like to start learning more about the stocks and actually investing in them. But I’m in a dilemma. Should I sell off all my mutual funds then invest in stocks? What would you suggest?

    • Hey Jennifer,

      I won’t tell you what to do because there’s no right and wrong answer. However, if I were in your position, I’d definitely sell it all off and invest in stocks.
      Firstly because I am confident in my ability to pick stocks and I’m investing for the long term in good quality stocks. Secondly, I don’t wana pay fund managers to do what I can do better. With mutual funds, you are basically starting off your investing at a loss. You lose that % to service charges and management fees.

      So, that’s my take. Hope it helps!

  5. Hi Divvy,

    Thanks for your honest and informative articles. Really learned alot from you. I hope that you could write more in depth about mutual funds. Im curious to know more because I hv a poor understanding of the share market and a lack of knowledge to start investing in shares, which is why i have been investing quite a substantial amount in mutual funds for many years. After reading ur articles, I am now doubtful of investment choice, and i realized that investing in shares is not so scary after all, and i hope to start soon. I would also appreciate it if you could explain how to calculate and compare the total return of mutual funds vs total return of stocks. Thanks.

    • Hey Judith,

      Thanks for writing in and for your kind words. Maybe you can let us know the fund house you’re investing with.
      I do have an article solely on mutual funds in the works but until then, let me attempt address your queries here. =D

      Basically, a mutual fund invests in securities, most commonly shares and bonds. A good question to ask yourself is – Is the fund manager handling my money going to do a better job than me? If not, why am I paying him so much to do it. Like I mentioned in the article, you’re sacrificing so much of your future wealth just because you decided to pay that ridiculous 3% fee. You as the investor must know exactly how many % in fees you’re paying. The majority just invest without ever finding out exactly how much they’re donating to the fund houses. So, what I want you to do is, take out that disclosure sheet / prospectus or whatever they called the document and go through it until you understand the terms of your investment.

      There are tons of research out there which shows – in the long term, mutual funds can’t even beat the market returns.

      The only form of funds I’d invest in are low cost Exchange Traded Funds like those offered by Vanguard. It’s unfortunate they’re not in Malaysia YET. They mimic the market and charge you a minuscule amount as charges. Maybe like 0.1%. Until then, I suggest divesting and making your own investment decisions via the stock market. REITs would be a good place to start, they’re stable and pay very good dividends.

      I’m not entirely sure whether mutual funds are fully transparent on their return figures. Some may have excluded your service charges. It should really be simple like for stocks:
      Total return = (Capital Gain + Dividends) – Brokerage Fees

      It’s the same for mutual funds but the fees portion is much higher.

      Hope this helped!

      • Thanks for your clear explanation. I’ve been investing in Public Mutual and the fees are 1.5% if not mistaken. Looking forward to your mutual fund article and shall be dropping by often!

  6. Hey Divvy,

    I’m loving your website! I’m turning 28 soon and suddenly realised that I need to get my finances in check.

    I’ve been investing via FSM since 4 years ago and the annualised returns is about 6% so far which I’m pretty happy with. Have also finally opened a trading account – been procrastinating for at least 2 years I’d say.

    I do have a property that is currently being rented out. I’m actually torn between topping up and paying off the loan quicker (18 years vs 12 years) or using the money to invest. Any advise on what would be a better choice?

    • Hey Sze,

      Really glad to hear you’ve finally opened your share trading account! Time to increase that 6% return.

      Is your rental able to cover all the costs of the property? If it is, just leave it be and invest your additional funds.
      If it isn’t, then I’d say the property isn’t really a good choice.

      Thanks for your kind words! Hope to hear back from you soon on your stock purchases. =)

  7. Hi, same here, I am waiting for the day ETFs comes in phone app for Malaysian. In the mean time, do you reckon to invest the RM3,000 in PRS for tax purpose? I mean, I do it for tax rebate but the long term fees-math doesn’t seems to make sense. (except for the first 1,000).

    • Hey Lyn,

      Yeah I do invest RM3K every year into PRS.
      The tax incentive acts as a ‘free’ return for me. I also invest in fixed income funds through PRS. Just to get a little exposure to the bond market.

  8. If you’re interested in the stocks I invest in, you may find a full list of them in my portfolio – The Freedom Fund……………………………really appreciate it bro. Thanks bro.

  9. Been reading your blog and appreciate your insights!

    I wholeheartedly agree that expenses will eat into your profits but I find that it’s an easy way to invest in overseas markets – you can get into asiapac and india markets from fundsupermart for example. Going through a local broker’s foreign desk can be quite expensive!

    TD Ameritrade has just opened an SG branch and you can easily invest in ETFs from there, USD10 per transaction.

    • Hey Tim,

      If you’re looking to invest overseas, TD Ameritrade would be a good place to start. I’m looking to open an account with them too but I’m put off by the exchange rate for now. Have you opened yours? Maybe you can share with us some of the steps and documents involved.

      FSM is great and all but I still think their fees are high. I do invest with FSM but only for PRS and bond funds (ages ago).

      I’ve never been a proponent of Mutual Funds especially not here in our region. Service charges and management fees will eat into my portfolio. Might as well invest them on my own.

      I’m waiting for the day huge ETFs like Vanguard come here to Malaysia. More than happy to dump 90% of my money in them then.

      Hope to hear back from you and thanks for reading man.

      • Hello Divvy,

        I came across FSM and it seems legit. I have been thinking of opening an account. However I am curious on 1 thing. Been trying to figure out, but could not come up with an answer. How does FSM makes money? This part baffles me. Probably I should direct my question at some other place, but just wondering if you do know the answer to this question

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