Bank interest rate is all time low in the time of writing this article in the year 2021. Keeping your saving in the bank with saving account or fixed deposit is no longer good enough to hedge against the inflation rate. Many people always concern other than fixed deposit, allocating their hard earn money into other investment instrument is risky. With the current low interest rate, keeping the saving with the Fixed Deposit may protect you from losing your capital but you may lose out to the inflation. You will lose out the buying power in the future if your return from the interest you earn from the fixed deposit does not keep up to the inflation rate. Below are some four alternative options for you to consider of your investment:
Money Market
Money market fund are highly liquidated. Generally it is actually invest into Treasury Bills and Bank Fixed Deposit. As the money market is still holding some old Fixed Deposit contract that has not been matured, that means the interest earn is still higher compare to the latest announce interest rate. Money market interest is calculated daily and investor can liquidate anything they want.
Bond Fund
Not like money market fund, bond fund investor needs to prepare to be slightly longer in term of holding period. Advisable minimum 3 years or more. Generally Bond Fund is sensitive to bank interest rate. When bank interest rate goes down, bond price will increase. The reverse applies when bank interest rate increase. Bond Funds suitable for investors who like to seek for regular interest income.
REIT
In general REIT diversified into different type of properties such as office lots and retail lots to generate rental income. Indirectly you are owning the properties without having hassle to manage the tenant as REIT is manage by professional management team. The risk of REIT is higher than money market and bond as it has potentially fetch higher return. This instrument is suitable for investors who like properties but do not wish to spend time managing the properties. Liquidity of REIT also higher compare to physical property investment and the capital to invest into REIT is as low as RM100.
Equities
Generally equity is investing in stocks. It is higher return compare to money market, bond, or REIT. With higher return always come with higher risk. This is suitable for longer term of holding investor.
How To Choose
Different instrument cater for different risk profile and different investment time frame. You need to identify your investment objective and investment time frame before you decide which instrument you will allocate your hard earn money into. Generally speaking, if you allocate higher risk instrument like equities, it is advisable to have investment interval five years and above. In fact the longer the investment interval you allocate, the better potential the return it will be with the power of compounding. If you do not have much time, you can choose to allocate into Money Market or Bond. No matter what instrument you have decided, do not allocate all of your capital into one instrument. As we always say, don’t put all your eggs into one basket.
FEEBACK & QUESTIONS
We can’t cover everything here as the topic may be very wide. You probably have further questions or let us know how we can make this better for you.
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