The table below shows the difference of fund invested returns from FD, EPF and equity funds.

A right decision can make you gain RM 200,000 extra wealth in just 10 years period. Simple as that!

We believe that the very foundation for why we, or anyone, should invest their money is: To Achieve Their Goals.

Common sense tells us that we should have goals for our money, but so often when we evaluate prospective clients’ portfolios, we see that their goals rarely match how they’ve been allocated.

Bank savings or Fixed deposit account has virtually zero principal risk, but the reward (interest paid) is also very small (3%-4%), especially when you figure in the impact of inflation on your savings. This would be one of the most conservative ways to use your money.

Investopedia defines inflation as, “the rate at which the general level of prices for goods and services is rising”. With inflation, you begin to lose purchasing power of the money you’ve saved, unless the interest being paid or the investment is growing at a greater rate than inflation. If you keep all your money in a savings account, you run the risk of your money not growing quickly enough to provide for your long term goals.

This is why many people put some money into savings to provide for their immediate needs, while also investing to provide for their long term goals (“long term” being more than five years down the road).

So, the question becomes how much money should I save for immediate needs, short term goals, and long term goals? If you have immediate needs over the next month or six months, then a savings account may be the best place for your money, because you are guaranteed to get back the money that you deposited into your account when you need it.

When you have major life goals that you’d like to save for — for example, retirement, a home purchase, etc. — you’ll likely need to save for many years (more than 5 years). Over these long term time horizons, if your investment portfolio is diversified and allocated properly, you should have greater returns than in a savings account, because you’d be taking on greater risk by owning stocks and bonds. This is a good trade off, but you need to make sure that you have the appropriate amount of risk for the time in which you’d need to achieve your goals.

Not many countries in the world have a compulsory retirement saving scheme, but in Malaysia we are fortunate to have the EPF to help employees save up for their retirement right from their first job!

The EPF scheme, which has been around since 1951, requires employers to contribute a statutory rate of at least 12% to employees’ EPF savings and 11% share comes from employees’ own salary.

Although the guaranteed minimum dividend rate is 2.5% a year, EPF members have enjoyed an average dividend of 6%. As such, most Malaysians rely on their EPF savings for retirement.

So much so for many, the EPF is the only source of funding for their retirement. But this mindset is set to change.

Eggs in different baskets

As EPF savings do not provide most retired employees with enough to live above the poverty line after retirement, it is failing to serve its intended purpose. For over four-fifths of members, poor returns to their EPF savings will prevent them from retiring in comfort. Clearly, depressed wages, low EPF investment returns and high household debt are not serving most Malaysians well.

While EPF’s dividends have been nothing less than impressive, far too many people make the error of putting all their eggs in one basket when it comes to saving for retirement.

It is extremely important to diversify your investment to avoid risking everything that is put in one basket. If the basket falls, you will have no more eggs.

By diversifying your retirement portfolio, you decrease the chance that all your investments will experience the same negative market forces at the same time.

One way is to blend a variety of different investments with various characteristics so you can reduce their overall risk while increasing their potential for greater long-term results.

Retirement investment options

A key reason why people invest is to protect them against the decrease in purchasing power brought about by inflation. By investing the savings at rate equal or above the inflation rate, the purchasing power of the savings will be preserved or increased.

There is a plethora of investment products in the market with different characteristics which you consider using to diversify your retirement baskets.

Your retirement savings are sacred, so it is understandable that you don’t want to take unnecessary risks. But that doesn’t mean you should rely on safe investments such as bank fixed deposits.

To build a nest egg large enough to see you through retirement, which may last 20 years or more (Malaysia average life expectancy rate - 75 years old), you will need the growth potential that equities can provide.

If you are still 20 to 30 years away from retirement, it is recommend to have a lion’s share of your retirement portfolio in equities or equity funds.