Part 1: The wealth building secrets of the Rich

Part 1: The wealth building secrets of the Rich

Generally, there are two main ways to be rich; business or investment. But, most of rich people maintain their wealth by investing some or most of their excess. Their secrets are investment and hedging strategy to protect their wealth for the long run.

Let’s say you have excess money every month from your salary, what should you do with it to grow your means? Is it possible to build business? Yes you can, but it would not be easy road. Other option is to do some investment to grow more money for you in the future. With the power of compounding, you might be surprised in next few years, this excess money could gain you more money and make you wealthier. It is much easier way than opening a business while being employ.

So, where should you start?

As saying goes, it is never too late to start investing. The earlier you start to invest your money and time, the wiser you’ll be managing your financial to prepare for tomorrow. Here, we do our part to research the investment alternatives in Malaysia for you to become rich. Next, do your part; spend time and money to learn more about these alternatives. We just provided on surface explanation about these investment alternatives.

  1. Fixed deposit (FD) – low risk low return

Fixed deposit is the safest and easiest form of investment. It is also the most well-known type of investment.  As it names suggest, investor needs to keep a minimum amount of money in the account until its maturity date (3years, 5years etc).  Fixed deposit is a financial instrument provided by banks and guarantees its depositor a return of 3.0 ~ 3.5% per annum for the time duration of the deposit. It is an almost zero risk on the principal amount, but highest risk on the effect of inflation since there is no adjustment for inflation.

 

  1. Investment-linked insurance – medium risk with benefits

Investment-Linked Insurance is a life or health insurance that combines investment and protection. A percent of the insurance premium goes to the insurance side and a percent goes to the investment side. This type of investment is chosen because it provides flexibility to choose your level of protection and investment. Hence, it is provided the guaranteed insurability with higher potential return over the long term.

The investment fund is managed by the insurance company and is linked to the total value of the insurance plan. It means that the unit price of investment plan would fluctuate with the movement in the unit price which depends on how the investments in the fund perform. This exposure of risk is depending on the type of investment plan. Investment linked insurance do not provide guarantee cash value unlike conventional and Endowment Insurance

  1. Amanah Saham Bumiputra (ASB)- low risk, medium return

ASB is manage by Amanah Saham Nasional Berhad, which is a wholly owned subsidiary of Permodalan Nasional Berhad (PNB). It manages PNB’s unit trust funds and educates investor about unit trust.  There are 10 unit trust products currently manages by ASNB. ANSB premier unit trust is ASB which gives the highest return to investor.

ASB is capital guaranteed with no sales charges type of Unit trust.  The capital guaranteed means that the unit price is guaranteed the same and would not fluctuate with the fund performance. Hence it is can view as a very low risk investment. So, you may not get less than what you invested. There are also no redemption charges, but investor can only invest up to 200,000 units.

  1. Unit Trust – varies based on the unit trust

Unit trust or mutual fund is a type of collective investment that allows investors with similar investment objectives to pool their funds to be invested in a portfolio of securities or other assets such as stock, bond or market instrument. Unit trusts are professional manage by unit trust manager who invest the fund’s capital to produce gains for the fund’s investor.

Main advantage is that small investors have an access to diversified or limited type of investment portfolio which could be difficult to invest in small capital or with no internal network. The disadvantages, it is not capital guarantee and involves some fees and charges. It is usually prefer by common man who is interested in investment but lacks the funds to diversify or investment knowledge and time.

 

  1. Private Retirement Scheme (PRS) – varies based on the unit trust invested

A private retirement scheme (PRS) is a voluntary long-term investment scheme designed to help individuals accumulate savings for retirement. It complements the mandatory contributions made to EPF. The funds are intended to enhance long-term returns for members. Assets of each PRS are segregated from the PRS Provider and held by independent Scheme Trustee under a trust.

The advantages of PRS are lower cost than unit trust, applicable for tax relief up to RM3000 and low switching/transfer fees between providers. The disadvantage it is not capital guarantee and it could not be withdrawn until certain circumstance or maturity date is met.

 

  1. Exchange Traded Fund (ETF) – medium risk, medium return

Exchange Traded Fund (ETF) is an index tracking funds with a common theme based on correlating index. It is designed to track performance of an Index such as KLCI. It is structured as a unit trust but trades like a stock. Thus it provided an investment diversification with lower cost that unit trust. ETF is suitable for young and novice investor which has limited fund since they can diversify and manage their investment through ETF

ETF is designed to mimic its correlating index but would never outperform index unless it is leveraged ETF. Although ETF is designed to track index, it will not exactly follow the price of index it designed to track. This is known as tracking error due to fees, taxes etc incurred by the ETF.

 

  1. Real Estate Investment Trust (REIT) – medium risk, medium return

REITs are meant for investors who would like to invest in property, especially retail lots, but do not have the capital to buy them outright as investments. REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in stock. Most REITs are traded on major stock exchanges, but there are also public non-listed and private REITs.

REITs are formed by companies that purchase and manage real estate using funds pooled from shareholders. For an example, an investor purchase Sunway REIT, which means the investor become a small owner of Sunway’s properties. All profits obtained from Sunway properties are distributed back in the form of dividend payouts. The distribution of dividend could be up to 90% of the profit. Furthermore, the REIT’s unit price is also fluctuated based on the fund performance. Hence, REITs provide investors with diversification and long-term capital appreciation.

There are other investment alternatives should be known to most people. In the next part, there are more alternatives which is better but complex. Stay tuned for the next post.

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