Worried about what kind of investments you should have in your retirement life? Find out here what kind of investments a retiree should look at.

 

Life in retirement isn’t always sunshine and roses. Since you are not working anymore, you worry about whether you have enough to sustain your lifestyle.

Since retirement is getting harder and retirees would want to achieve new financial goals, it makes sense if you want to invest in a set of asset classes to feel comfortable.

The types of investments that you can undertake in retirement should have the following characteristics:

  • Low risk and volatility
  • Consistent dividends and returns
  • Low management cost
  • No worries

These characteristics are important to ensure stability for your financial life, and isn’t aimed at maximising your profits. The time of chasing after profits is behind you now, and you must adapt your investments to suit retirement life.

Find out below what kind of investments you can invest in to ensure a steady retirement life.

Investment #1: Exchange Traded Funds

Exchange traded fund (ETF) is one of the most important financial products since the last decade. Its creation has enabled ordinary folks like you and me to diversify our investments with a low amount of capital.

In the past, diversification was a privilege for the better-offs who had a higher amount of capital. It was used to limit the exposure of an investor to any particular asset classes, by having as many different investments together.  For the people that did not have that much capital, it was hard to diversify with the need to invest in so many different investments. However, the creation of ETFs is a game changer on many levels.

An exchange traded fund basically tracks an underlying index or the stock market as a whole, with a broad collection of stocks in it. It is available in the stock market just like any public listed companies.

The best thing is that you can afford it now. You can buy an exchange traded fund like how you buy Maybank shares. No longer do you need to stress about buying all the big companies in the KLCI to diversify your investments.

Bursa Malaysia publishes a comprehensive list of exchange traded funds on its website. The funds covers all kinds of exposures such as:

ETF fulfills all the criteria of investments that you are looking for:

  • Risks are diversified in the ETF, and follows the market performance closely.
  • ETF normally generates consistent dividends every year.
  • ETFs have lower management cost (about 1% of net asset value) compared to unit funds (up to 5% of net asset value).
  • ETF is meant to emulate the performance of the overall market, so there are little worries.

ETF is one of the best investment to have during your retirement as you can easily buy them on the market and not check its price everyday.

 

Investment #2: Blue Chip Stocks

Blue chip stocks are large public listed companies that have well-established financial track records. They are your Maybanks, Axiatas, and Tenaga Nasionals of the Malaysian stock market.

Blue chips are ideal for your retirement investments as they are typically very stable companies with no immediate concerns of going down. They are consistently profitable and distribute dividends almost every financial quarter.

Maybank for example, has dividend yields that range from 5% to 9%, and is the biggest bank in Malaysia by asset size. That means for every ringgit invested in Maybank, you can expect to receive 5 to 9 sens in dividends every year with a good amount of certainty.

These profits are better than the 2% to 3% returns from fixed deposits, although fixed deposits guarantee the returns to you while blue chips doesn’t. You will still be taking a higher risk investing in blue chip stocks, than fixed deposits as companies can change their dividend policies.

If you are feeling lost on where to start looking for these blue chip stocks in the Malaysian market, you can start by looking at the companies included in the FTSE Bursa Malaysia Index.

Typically, the companies that are included in the index are the top 30 biggest companies by market capitalisation. What you are trying to look for are companies that are big.

However, buying blue chips to diversify your investment may be unfeasible if you are don’t have enough capital to do so. Blue chips normally trade at high share prices and it will be expensive to buy a wide array of blue chips.

For example, Nestle Malaysia price is currently at RM142 per share, while UEM Sunrise price is at RM0.37 per share. If you want to buy shares, the minimum amount you can buy are 100 shares for each transaction. So, you would need a minimum of RM14,200 to buy Nestle but only RM37 to buy UEM Sunrise shares.

Do you see the problem here? While Nestle is an extreme example, most blue chip companies do trade at higher share prices compared to the rest of the market. You would need a large amount of capital to diversify.

In this case, an exchange traded fund might serve your purpose better. That said, if you want to craft your own set of portfolio, you can pick and choose your own set of blue chip stocks.

Investment #3: Fixed Deposits

Fixed deposit (FD) is probably the most popular investment instrument for everyone regardless of income and age.

It fulfills all the criteria what a retiree would want for his or her investment.

It is low risk and generates consistent returns as the bank or financial institutions guarantees the return that they promised to you. It has low management cost as you are only charged for service and administration fees to procure a fixed deposit account.

Fixed deposits are a great way to counter the ever present inflation effect on your money. If you have RM100, and the inflation rate is 2%, your RM100 will be worth 2% less next year as prices would have increased by 2%.

From 2010 to 2019, inflation in Malaysia averaged 2.1%, so fixed deposit returns of 2% to 3% is a guaranteed investment to counter the effects of inflation.

Now, you might be thinking there are a myriad of investments out there that have higher returns and fixed deposits are boring and doesn’t give you any returns.

However, to get higher returns, you need to take higher risks. This is one of the most unbreakable principles of investments.

Life in retirement isn’t about taking risks to maximise your profits anymore. It is about stability of cashflows to suit your lifestyle when you are not working.

Fixed deposits returns are guaranteed, and while investing in higher risk instruments do give you higher returns, you can also incur losses on them. Losses in retirement are more damaging as you would not have a job to fall back on to cover it.

There are a myriad of fixed deposits out there, and they are accessible to anyone as generally they do not require a large amount of capital. If you are feeling lost on which fixed deposit to choose from, you can have a look here for a comprehensive list of fixed deposits which also includes Islamic fixed deposits for Muslims.

Investment #4: Malaysian Government Bonds/ Securities

Probably the safest investment in Malaysia, the Malaysian Government Bonds/ Securities or more aptly named MGS. They are issued by the Malaysian government and range from 3 years to 10 years in maturity, or in some cases, longer than that.

They are normally sold at a discount and generate annual coupon payments to you. For example, for a MGS that is priced at RM100, you would normally buy them at a price at about RM95 depending on how long the maturity is. The coupon rate is normally around 2% to 3%.

Upon maturity, you would receive RM100 and also the annual coupon payments from the bond. Hence, it is a popular investment for everyone especially for retirees.

Its returns are guaranteed, and the government would rarely default on them. It has the ultimate backing of a government behind it. You won’t go wrong with investing in MGS if you are looking for stability and consistent returns. Most importantly, you don’t worry about whether a government can afford to pay your coupons and make good on their promises.

It is the ideal investment where you can just buy it and leave it alone. Unlike exchange traded fund and blue chip stocks, you don’t have to monitor them everyday to see whether you are making money.

You can buy MGS from any broker, banks and financial institutions, and the process has been easier and more accessible to all investors as investors can buy bonds from as low as RM1,000.

For the fellow Muslims, there are also issuances of Islamic government securities and Malaysia is actually one of the biggest markets for Islamic Bonds.

 

Conclusion

As a retiree, your objective for your investments is to generate low risk, consistent, and regular returns to fund your lifestyle. The combination of the four investments of exchange traded funds, blue chip stocks, fixed deposits, and Malaysian government securities, could ensure that you can live the lifestyle you want without relying on your children.

 

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