Category: Investments

Many investors are familiar with the concept of risk vs reward. There is risk in any investment, whether large or small. For bearing that risk, you expect a return that compensates potential losses.

In theory, the higher the risk, the more you should receive for holding the investment, and the lower the risk, the less you should receive.

High-risk investments can come in many different forms; some examples of high-risk investments include cryptocurrencies, options, forex, starting a business and venture capital. Although the potential return of these high-risk investment assets are higher, one must always be aware that they carry a higher possibility of losing money as well.

As an investor, one must always look at the big picture and decide what is your investment objective and your investment duration. Examples of common investing objectives for investment can include:

• Building a passive income stream
• Retirement planning
• Children’s tertiary education
• Purchasing a property

Before investing, remember to ask yourself three things:

1. What are you investing for?
2. Can I afford to lose this money? 
3. Is it for short term (1-3 years), medium term (5-10 years) or long term, (>10 years)? 

Different investment objectives would determine if high-risk investments are suitable for you. For example, a retiree would generally be more concerned about preserving his accumulated wealth rather than risking his capital.

Read : 5 Drawbacks Of Unit Trusts Investment That You Should Know Before Investing

He would be more focused on ensuring his accumulated wealth will be sufficient to maintain his desired lifestyle for the rest of his life rather than risk it to get higher potential returns. Thus, high-risk investments might not be suitable here.

Another example would be children’s tertiary education. When investing for children’s tertiary education, one would not want to take too much risk as any reduction in the value of the investment due to market fluctuations might mean that the child has to delay their education, or in the worst scenario, there might not be enough for them to continue their tertiary education.

Millennials As A Case Study For High-Risk Investments

As of 2021, millennials and Gen Z now make up the largest demographic in the workforce. As their disposable income increases, they would have more surplus income to invest. One observation I have made is that younger investors are more inclined towards higher risk investments.

This is probably not due to higher risk tolerance, but because they want to achieve their goals faster. For a generation used to instant gratification, waiting for one year to get 1.8% return on a fixed deposit is much too slow!

Fear of missing out (FOMO)

Millennials and Gen Z have grown up in the age of social media and one impact of that is the desire to keep up with their peers. Seeing the luxurious lifestyles of their peers may make some millennials want to take on higher risk as a method to grow their wealth. Do remember that what we see on Instagram and Facebook may not reflect reality, and taking excessive financial risk just to keep up is unwise.

Read : Why The Best Investment On Earth Is Earth Itself?

Availability of information

Millennials are digital natives and have grown up in the information age. We can now find any information we want with a quick Google search and that includes information about investing. This abundance of information can give millennials and Gen Z the confidence in having the knowledge on investing.

However, it is important to be able to filter out what is accurate and up to date information when making an investment decision as there are many websites and blogs which are keen to promote their products and investment ideas. One must differentiate knowledge from wisdom and applied wisdom will keep one grounded and clear headed when making an investment, especially when it comes to high-risk investments. 

Always remember to ask yourself, is this in line with my investment objectives and can I afford to take this risk?

Be aware of greed and fear

Greed and fear relate to an old Wall Street saying: “financial markets are driven by two powerful emotions – greed and fear.”. This applies to cryptocurrencies as well. The fundamentals of investing are to buy low and sell high, but greed and fear has caused many investors to behave in the exact opposite manner.

For example, Bitcoin has delivered returns of 224% in 2020 alone. There are also many other cryptocurrencies in the market which have given even higher returns than bitcoin last year. These sky-high returns have encouraged many investors to invest in the crypto market in hopes of getting ever more returns.

As an investor, we must always remember that returns are never guaranteed and one must always remember to not let greed blind us to that fact.

When an investment has given you the returns which you have set for yourself, it is important to have the discipline to sell or lock in your profits. In this way, you can minimise your risk and will be able to enjoy the profits.

Are High-Risk Investments Suitable For Me?

High-risk investments can be part of one’s investment portfolio as they can help grow one’s wealth. However, it is crucial to have an understanding of the existing risks involved in high-risk investments and decide if it is aligned with your investment objectives. Finally, remember not to put all your eggs into one basket to ensure you minimise risk to your capital.

Do take note that your risk profile, commitments and requirements may also change through the years and you may want to adjust your investment portfolio and exposure to high-risk investments accordingly.

There are strategies you can employ to help manage your portfolio’s exposure to risks, minimising your risks whilst still offering exposure to the potential of sizeable gains. If this is something you find difficult to undertake alone, you can speak to a financial planner or advisor to learn more.

A financial planner offers a variety of services associated with wealth management, covering a large spectrum of services, from wealth generation, wealth protection, to wealth distribution and can serve as a professional in guiding one in investing their money.

About the Author

Nicholas Wong is a licensed financial planner of IPP Financial Planning Group that specialises in advising professionals and millennials to achieve their financial goals. He can be contacted at nicholas.wong@ipp.com.my

The Securities Commission Malaysia (SC) today launched the Sustainable and Responsible Investment linked (SRI-linked) Sukuk Framework (Framework) to facilitate fundraising by companies in addressing sustainability concerns such as climate change or social agenda, with features that relate to the issuer’s sustainability performance commitments.

With the accelerated shift towards developing a climate-resilient future, high-emitting industries are at a high risk of being phased out. The SRI-linked sukuk will enable companies in these as well as other industries to transition into a low-carbon or net zero economy. As at December 31, 2021, the global sustainable bonds outstanding exceeded USD1 trillion with sustainability-linked bonds making up USD118.8 billion [1].

The Framework is an extension of the initiatives under the SRI Roadmap that was introduced in 2019 to broaden SRI products offerings. More significantly, this initiative reflects the SC’s commitment to expand the reach of the Islamic Capital Market (ICM) to the broader stakeholders of the economy and build an enabling ICM ecosystem for the sustainability agenda.

The SC recognises that there are significant opportunities for the market to attract a more diverse issuer and investor base and undertake a wide range of sustainable projects.

The SC Chairman Dato’ Seri Dr. Awang Adek Hussin said, “The SRI-linked Sukuk Framework will encourage greater mobilisation of private sector and issuers’ financing towards sustainable development and meet the increasing global demand for sustainable financing. This is in line with the initiatives outlined in the Capital Market Masterplan 3 to reinforce Malaysia’s value proposition as the regional centre for Shariah-compliant SRI.”

Under the Framework, the proceeds raised can be utilised for general purpose, subject to the issuer committing to future improvements for sustainability outcomes within a predefined timeline, which will be monitored using key performance indicators (KPIs).

The financial characteristic or structure of the SRI-linked sukuk may be varied based on the success or performance of the issuer in meeting its KPIs and sustainability goals.

The Framework also provides greater transparency for investors by requiring issuers to appoint an external reviewer before issuance and an independent verifier postissuance to assess compliance with the framework and issuer’s sustainability performance which can be tracked by investors.

Further details of the requirements for the SRI-linked sukuk are set out in the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework and the Guidelines on Issuance of Corporate Bonds and Sukuk to Retail Investors, which can be downloaded here.

[1] Source: Sustainable Debt Global State of the Market 2021, Climate Bond Initiative

About the Securities Commission Malaysia

The Securities Commission Malaysia (SC), a statutory body reporting to the Minister of Finance, was
established under the Securities Commission Act 1993. It is the sole regulatory agency for the regulation
and development of capital markets. The SC has direct responsibility for supervising and monitoring
the activities of market institutions, including the exchanges and clearing houses, and regulating all
persons licensed under the Capital Markets and Services Act 2007. More information about the SC is
available on its website at www.sc.com.my. Follow the SC on twitter at @SecComMy for more updates.

I still remember a business owner who asked my team to create his portfolio to make sure he would have enough money for his retirement. We advised that he could earn solid returns from a diversified global portfolio based on his financial profile.

He was assured that part of the strategy drawn up for him would spin out a good amount of cash on a regular basis. I convinced him to “buy” some sleeping pills and take a slightly higher level of volatility to achieve better capital growth.

A week after the meeting, he came back and said he was no longer interested in my portfolio because he had found a much better opportunity elsewhere. He said that a financial salesperson had explained to him that he could make more profit with lesser risk if he took another investment product.

All That Glitters Is Not Gold

A few years later, the same business owner revealed to me that the investment he had bought into performed terribly. It turned out to be more volatile than he had thought. It is no consolation to realize that he, along with others who had also bought into that product without taking a balanced look at all the facts, will suffer.

Remember all those expensive, slickly produced advertisements boasting market beating ratings and top quartiles? Contrary to what nearly everyone believes, you do not make money buying an investment just because it “looks good” on the surface.

Yeah, everyone is going to get rich washing Mercedes, and BMWs. How about slogans like “You can become a millionaire in three years”, “You can turn your financial dreams into reality”, “Amazing, fabulous, unbelievable strategies for building massive wealth”, “You can invest with the world’s blue chip funds with as little as…,” and so on?

Life is not all sunshine and lollipops. There will always be financial salespeople with sketchy reputation or those who will put their own interests before their clients. They are usually well spoken and persistent and like to target the most naive and least informed investors.

I have no desire to offend anyone. Speaking from my experiences, it is commonly believed that those working in the sales department of bigger institutions are compensated well because they make money for investors. Yet, some of their clients are getting worn down. Some are still losing money or making very little money after so many years.

Taking Advantage

I have seen investors saddled with unnecessary charges and lengthy lock-up periods. It is good for the seller but not the poor investor buying it. Some of these investors have absolutely no idea how badly they are being ripped off. Anyone with eyes and a brain knows what I mean.

So, you have been told not to worry just because your investment is being managed by the captain who has been dealing with multi millions or billions for a long time. Well, so what? Someone used to share with me that some fund managers should not be allowed to run a grocery store, let alone operate a billion-dollar investment vehicle.

Sorry to throw up at your party. There are some fund managers with poorer track records and far less skill but are managing far more money. Yet, some other great managers slip under the public’s radar because of the lack of publicity.

In my work, I love to find managers who have some limited capacity, so the big boys cannot compete against them. It is about sustainably higher returns for investors, not scale. Big is not beautiful here.

Many of you out there have been scammed, in one way or another, at some stage. Beware of financial schemes or money games guaranteeing anything from a few percent to double-digit returns within a few weeks or months. Financial scams are so popular because they take advantage of people’s fear, greed and ignorance.

The whole idea behind a scheme is that they do not want you to understand anything. Anyone can make any story out of thin air which is absolute nonsense. The fraudster allays your fears and provokes your greed, they entrap you by befriending you, and they say the investment is riskless then they talk about returns.

Betraying Your Trust

Some of the victims are professional business people because they are intelligent, they think they should understand what they are being told, so they go along with it. The people who sell them are often someone whom they know for a long time.

Fraudsters and operators of financial scams sometimes target business groups in order to find their victims. In some cases, members have innocently encouraged each other to put money into such schemes. Run like hell if someone is pressuring you to make a decision at any financial events.

Most of the modern schemes are versions of old frauds, first committed more than 100 years ago. They are known as Ponzi Schemes after a 19th century fraudster named Charles Ponzi who was offering a 50% return on investment in just 45 days.

Fraudster draws victims in by honouring the agreed interest for the first few installments, then drawing more and more money from them as they start to believe they are on to a sure thing. It is like “robbing Peter to pay Paul” as the fraudster pays the initial interest payments with the investments from other victims who have fallen for the scheme.

Always open your eyes. If you leave your head in the sand and ignore it, you are only going to be victimised.

About the Author

YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at yhwong@satoriconsultancy.com.

Hi, I am new to stock investing. Should I invest for capital gains or dividend yields?

There is no right or wrong answer to this question. It is possible to build yourself a sizable portfolio regardless of your own preference between the two. With that said, however, after communicating with our pool of readers at Bursaking.com.my and KCLau.com, I think, it is better for you to focus on investing for dividend yields if you are a complete beginner.

Here’s why:

1. Dividends are More Predictable

Dividend income is more predictable than estimating capital gains. After all, dividends are cash whereas capital gains are merely paper gains and are subject to changes on a daily basis. Your investment returns would not be “yo-yoed” based on the ups and downs of the stock market.

Instead, you’ll enjoy the certainty of income flowing into your bank account on a periodic basis if you choose to invest for dividends.

2. Dividends Pay Your Fixed Bills

This leads to Reason #2. Regular dividends pay your fixed bills which include your rent, mortgage, car loan, utility bills, Astro, insurance and grocery. Even if you had the above covered, it is nice to have a nice “makan” out, movies, dating, wall climbing, or a ‘Cuti-Cuti Malaysia’ trip paid for with dividends.

3. Dividends Build Your Confidence

Often, investors see their first dividend income flowing into their bank accounts within three to six months after making their stock purchases. Subsequently, based on the stock purchased, they would receive dividends either on a quarterly, semi-annually or annual basis.

Imagine, being a new investor and starting to earn cash returns every three months from your portfolio, you would probably feel good regardless how the price of your stock is moving. Even if the stock falls in price, you would continue to receive cash returns from it. At least, the stock will be “good for something”, and it will incentivise you to keep it over the long-run.

4. Dividend Investing is Less Risky

Here is a definition of a good stock investment. It is one where the stock has excellent fundamental qualities, and its price is attractively undervalued. In other words, the stock must be good and cheap. Often, stocks which are consistent in their dividend payouts possess great fundamental qualities.

These include having a resilient business model, excellent management team, a healthy balance sheet and a proven track record of growing profits consistently. As such, you would minimise your risk or chances of making poor investment decisions if you just stick to stocks that have the qualities above.

5. Dividends Build Your Portfolio

Earlier, we had mentioned that you could use dividends to pay for your expenses. But, what if you are currently making tons of money and do not need to rely on dividends to fund your current lifestyle? Is dividend investing still suitable for you?

The answer is Yes. This is because you could reinvest your dividend income into another dividend stock or stocks that you prefer, thus, allowing you to further expand your portfolio in the future.

Over time, you may not need to save money to invest, but use your dividends to fund your future investment. It works like a cycle where you use profits to generate more profits.

6. Why Not Capital Gains?

Does it mean that investing for capital gains is not good? Nope. Investing for capital gains is good if you are a more sophisticated investor. Being a skilled investor, your chances of achieving capital gains will be higher than one who is unskilled.

In most cases, people who are into capital gains without any sort of skills are often gamblers and speculators in the stock market. They are often thrill-seekers who see the stock market as a legalised casino.

They are not necessarily profit-driven, and this differs from the mindset of stock investors who are very profit-driven.

7. Dividend Investing is Investing with Clarity

How do you tell the difference between an investor and a speculator? It is quite easy. First, if a person tells us that he is investing for capital gains, we ask him: “How much capital gains are you expecting?” If his reply is: “I don’t know” and often, that is quite a standard reply, I would classify him as a speculator.

This is because true investors have already calculated their expected returns before buying into a stock or any investment. For example, if you ask a dividend guy what he is investing for, his reply would usually be: “I’m expecting to make at least 5% ─ 6% from this stock investment.”

Definitely, he is investing with clarity and with purpose, and not so much into luck, rumours, tips, or comments.

8. Dividend Investing is Simple

Dividend investing helps new investors to make stock investment decisions easier, faster and better. These decisions are mostly based on facts and figures, logic, and common sense. Thus, if you know how to do some simple maths, you can become successful in dividend investing.

Here’s a quick way to determine whether a stock is undervalued or overpriced. First, the reason why people invest in stocks is to earn more than banks’ Fixed Deposits of around 3%. Hence, any stock with dividend yields below 3% is overpriced.

However, if the dividend yield of a stock is 5% and above, investors may look into it as it is considered to be undervalued at its current price. Thus, dividend investing is a simple system which promotes one to “Buy Low, Hold for Dividends, and Sell High”.

Formula:

Dividend Yield = (Dividends per Share / Current Stock Price) x 100%

9. Dividend Investing is Investing for Capital Gains

What? Am I serious? Yes. Investing for dividends is investing for capital gains. Why? Because stocks with consistent dividend payouts are in demand by a larger pool of investors. They include EPF, KWSP, Tabung Haji, insurers and mutual funds, particularly income funds.

These institutions have billions and are still receiving billions for investment purposes. In this time when the markets are uncertain and volatile, these large institutional investors may be adopting a defensive stance to their portfolio as they are expected to perform and deliver returns to their stakeholders.

It may explain why dividend stocks tend to achieve sustainable capital appreciation over the long-term.

About the author

This article is co-written by KCLau and Ian Tai.

KCLau is a financial educator. He had published 6 books and co-created a dozen online financial courses. You can download his popular Money Tips e-book packed with 44 money hacks absolutely free, here: http://kclau.com/lp

Ian Tai is the founder of Bursaking.com.my, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia.

Based on the 12-months Google Trends searches, recession is a very hot topic in the market. The search peaked in mid-June 2022, but has been showing some decline lately.

This could be the result of the recent market shift where the equities market have shown signs of recovery just several days before the end of June, whereas the commodities market showing broader declines. The decline in commodities market potentially signaling the inflation’s peak, and that is a good sign for the equities market.

But one needs to also understand that the diminishing demand for commodities also tell us the economic activities is slowing down as well.

1. US Equity Drawdowns And Recoveries

The S&P 500 index has entered bearish territory but has surfaced from that territory on 24th June 2022. Referring to the above chart, the declines or the drawdowns of the US equity is not as bad as it was in the 1957-1959 and not as devastating as it was during the start of the pandemic in 2020. The recovery made during the post-pandemic years was swift and strong, recording a 142% gain. It shows how resilient the US equity market back then when faced with crisis and uncertainty.

But the question is, will it be the same this time when there’s higher inflation, supply chain crisis and geopolitical tensions? To have a simple answer to those questions, we can refer to the Average VIX index – an index that tell us on the market’s fears.

2. Fear Index (VIX)

Referring to the Average VIX chart above, we can see how the fear index is closing in to the recent market drawdowns that knocks down many businesses & industries globally. Year 2022 (YTD) is the fifth year where the average VIX reading was among the highest since 1990. And during this time the equity market showed potential signs of recovery from market bottom with the lowest VIX reading compared with the other highest VIX reading in history.

Will this be the sign of hope most of us look for? The unit trusts market have been hit hard recently, with almost no hope for decent returns to fight against inflation.

3. Presidential Election Cycle

We need to take several other factors into consideration in order to clear from the market fog or market noise. First we need to understand what market cycle we are currently in. Most will point out that we are in the VUCA (Volatility, Uncertainty, Complexity, Ambiguity) market. But if we look more closely by studying the market cycles, we are currently in the “Mid-Term Presidential” which affects the US markets and the global markets in general.

Based on the historical market cycle patterns, the Mid-Term Presidential cycle is very volatile, with indecisive market movements. We have experienced this indecisive market direction since the start of the year. The market direction could give us some hope of positive gain but it quickly fades away. June normally is the weaker month for the equities market and may spill over to other equities markets outside the US.

Market recovery could potentially happen towards the end of the Mid-Term Presidential cycles and continue its ascend move during the Pre-Election Presidential cycles as depicted from the chart above.

Past studies since 1990 also shows that Bursa Malaysia’s market direction has a positive correlation with the market movement in the US. Therefore, we can also use Dow Jones market movement as the benchmark on Bursa’s potential market direction.

4. Equity Fund Flows

The second factor that we need to observe is the equity fund flows during market corrections. An interesting data provided by EPFR, Haver and Deutsche Bank Asset Allocation depicts that the fund flow into the equity market has been positive and robust this year.

We might be asking what may be the positive reasons behind that move? It could be from contrarian beliefs. Normally the contrarian will move in the opposite direction of the market direction or beliefs. AAII (The American Association of Individual Investors) is the best source for the contrarian market studies and beliefs.

5. No More Bears?

Based on the recent data and chart of AAII provided by Bloomberg, the bearish sentiment reading has hit an all-time high since the 2008 Global Financial Crisis (GFC). Normally with the bearish sentiment reading hitting this high of a level, it will tend to bounce back down and signal a market bottom. Or in layman’s terms, the start of market recovery.

6. Solid Corporate Earnings

Next we can refer to corporate earnings, which could be the third data to support potential market recovery from recession. Data from JP Morgan below shows just how resilient the corporate earnings during major market correction. All major equity indices from Europe, Japan and the US show positive corporate earnings despite experiencing heavy market drawdowns.

7. China’s Comeback

The Chinese market on the other hand is also showing recovery after facing lockdown in all major
cities. It has disrupted the global supply chains to date, but with the new economic stimulus
package unveiled recently by President Xi Jinping could potentially boost supply chain recovery
and help in the global economic growth over the years.

A chart provided by Bespoke provided a key fact that the market recovery has happened in China
through the KWEB (KraneShares China Internet ETF). KWEB has outperformed the SPY (S&P
500 ETF) by a considerable margin (-11.9% vs. -20.8%). Since late May, KWEB has gained
29.7% compared to a decline of 4.5% for SPY.

Will recession just briefly come to us in 2022? Is it time to start shopping in the equity markets?

With all the facts from the previous data and charts, we can approach the equity markets carefully without rushing to buy any stocks that’s making any bounce from the bottom. Listen to the music that the market is playing. We will start to add more stocks buying when the markets continue to make new highs or progressively moving higher from the market drawdowns.

8. Attractive Share Price

A quick look into the 5 largest stocks in the S&P 500 as depicted by the chart above, none have any forward P/Es above where they were in 2020. However, to date all of them still have a positive EPS for next year, again showing resilient in negative market environments.

Some of them have even shown a decent bounce from their 2020 lows, particularly Amazon and Meta Platforms (FB) depicted by the chart below. All other stocks are able to sustain above the lows at the start of 2021.

About the Author:

Mukhriz Mangsor, ACSI, CFTe, MSTA, FPPP has nearly two decades of experience in financial investment and trading. His clients include financial education, financial institution and prop trading firms in Brunei, Canada, Malaysia, Singapore and the US. He is currently Head of Global Market Strategist at Quantdynamic Research Company and can be contacted at mukhriz@quantdynamic.com.