Before I start with my definition, let’s google it first.
According to Investopedia,
“An investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit.
(Investopedia Definition Link)”
As we are concerned with financial instruments in this blog, the bolded part is more relevant. After quoting the formal definition from a reputable source, let me give you my own definition of investment: use money to earn more money. Why do we need more money? Every person has his or her own reason. At the very least, it is to beat inflation. Inflation will reduce the value of money that you currently have. Besides that, with the extra money, you can have the things that you have always wanted. So what is your goal of investment?
Before I continue, I have to make it clear that saving is not a type of investment. It is a necessity instead. Before you start to invest, please set aside a sum of money equal to 3 – 6 months of your monthly expenses. This is to make sure that you will have peace of mind when investing. Imagine that you need money during an emergency but all your money is invested in the financial market. What would you do? You would have to make a fire sale even if the timing is not right. Thus, without that buffer, you might not be able to sleep soundly at night and may commit investment mistakes. In short, save before invest.
Financial instruments
So what to invest in? Honestly, it is up to your preference. Below is a list of financial instruments that are available to retail investors in Malaysia:
- Stock market = Bursa Malaysia – including shares, exchange traded funds, warrants, options, futures (the last three derivatives are more risky in my opinion but it may be due to my lack of exposure to them)
- Mutual funds
- Crowdfunding
- Private retirement schemes
- Precious metals
- Precious metals investment account – mostly gold and silver
- Real estates
- Alternative investments e.g. rare wines, paintings
In this blog, we are mainly going to talk about stocks, mutual funds, crowdfunding and private retirement schemes as I only dabble in these areas. Before you start to invest in anything, do make sure that you understand the instrument. If not, you would better just save the money in the bank or donate it to others (I am more than happy to receive it!). Or else, your money will just go down the drain.
Why do I say so? It is because investment should be treated as a business venture. As not all business ventures will turn a profit, all investments also entail a risk of loss. Without proper knowledge and attitude, this risk is very real and the consequence can be very damaging to your personal finance.
All in all, remember that the main rule of investing is to maximize profit and minimize risk. Happy investing!
