By Audrey Yeap
Audrey Yeap is a financial planner with more than 17 years of industry experience. She believes that investing for the future is something everyone should educate themselves about
Is it a good time to invest now?
Most of us have been impacted financially in one way or another with the Covid-19 outbreak.
If you are bored but still employed, congratulations! You are one of the lucky ones. The financial impact is not that significant and you should be able to emerge comparatively unscathed.
If you have lost your job, then it’s likely that it’s a very different scenario and you may need to readjust your finances and rely on your savings.
Either way, it is time to think about your investments and how the pandemic has been a financial wake up call for many wage earners. The question is, “Is it a good time to invest now?”
If your financial standing is keeping you awake at night, here are some thoughts worth considering.
1. Do I have extra cash?
We need to have easily accessible funds in case of emergencies such as a car breakdown, a major leak in the house or even a job loss. These funds might be needed to support you over a range of six months to a year covering your monthly expenses (e.g. food, utility bills, mortgage, rental, petrol, etc).
Make sure that you place this money in a financial instrument that can be easily converted into cash and does not put your money at risk. For example, into fixed deposits or cash equivalent investments. Once you have set up this fund, then you can prioritise the extras for investment purposes.
2. When do I need to use this extra cash?
Investment needs time to grow, and we are not talking about months but years. Yes, years! The longer you can stay invested, the greater the risk you can consider to enjoy a higher potential gain. The recommended investment horizon is five years and above. If you do not have a lot of time, or you are not willing to take a lot of risk, then it is advisable to stick to less risky investments like bonds.
3. What are my reasons for investment?
Successful investing requires you to figure out your investment objectives. You can do this on your own or with the help of a financial professional. Having an investment objective keeps you focused to be on track to achieve your goals.
It is possible that you may have two different goals, such as investing for a house down payment (short term) and investing to retire (long term). The big WHY for investment is to ensure that your money works harder for you and is hedged against inflation to achieve your investment objectives.
If you have a financial goal with long-term horizon, you are likely to include some stocks or stock mutual funds in your portfolio for greater returns. If you do not include enough risk in your portfolio, your investments may not earn a large enough return to meet your investment objective.
4. Is it a good time to start investing now?
This is the question on everyone’s minds – with the common investment concept of “buy low and sell high”, we may be disillusioned to wait for the “best” time to invest in the stock market.
Stock markets move up and down, and the path is even more unpredictable with the current coronavirus pandemic dominating so many aspects of the economy and commerce.
If we are always waiting for the bottom and the recovery stage for the right moment to invest, we may always be on the sidelines and waiting. It is only after it happens that we look back and identify the moments when things finally began to turn around and we will then ask with regret, “What if I had invested then?”
Here is the good news – things will eventually get better so if you have the time to let your investment run for a longer term, you will not need to predict the bottom to grow your investment. It is about time in the market and not timing the market.
And the good news is that for investments in Private Retirement Schemes, there is a tax relief of RM3,000 a year.
5. Closing Thoughts
The decision you make now will have a tremendous influence over your future. Start investing now and set your goals. Create a realistic plan with a financial professional to help you build your wealth and establish financial security over the years.
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