Diversifying your investment portfolio? ETFs could be your lazy pyjama jamba for 2025!

Ali is tired and exhausted. It has been a long day. He arrived home after being in a traffic jam for 2 hours. Such is the city when it rains. Two of his kids got the flu at school, so they have been crying and finally went to sleep. His wife, equally as tired as he is, is catching up on work on her laptop. As he flips through his phone, he gets a notification from his investing app that shows that he’s losing 10% on a stock he invested in last week. He shouldn’t have listened to his friend.

However, he doesn’t really have any time to research and invest. All he can do is listen to ‘tips’ that he finds on the internet, friends or relatives and take a gamble.

If you are feeling similarly constrained as Ali, exchange-traded funds (ETFs) could be what you are looking for.

What is an Exchange-Traded Fund?

Imagine you need to buy groceries from the supermarket. Typically, you have to go to every section to buy what you need for the month. That takes time.

What if at the entrance, the supermarket bundles all the things shoppers normally buy into one big package? A 2-hour grocery trip becomes a 5-minute affair if you are fine with the package. It has most of the things you need, and you can spend your time doing something else.

Think of exchange-traded funds (ETFs) as that package.

ETFs are a combination of investments that represent and track the overall markets, such as stock indexes, commodities, bonds and others.

You can buy and sell an ETF in the market, just like how you buy a stock. In Malaysia, ETFs are listed on Bursa Malaysia. You can also buy ETFs from overseas, but you might have to get a foreign broker to do so.

Why Invest in ETFs?

There are 3 main reasons why ETFs could be for you.

  1. Low fees
  2. Low effort
  3. Provides diversification
  4. Easy to buy and sell

1. Low Fees

ETFs annual management fees are normally below 1%, lower than unit trust funds fees of 1% to 2%. Management fees are charged by the investment manager as service payment for them investing and managing the fund.

2. Low effort

There’s not much effort taken to research about ETFs, or monitor their performance. ETFs are constructed to mimic the overall markets’ performances. For example, an ETF for the Kuala Lumpur Composite Index (KLCI) will normally have the same returns as the KLCI market.

This also means that you don’t have to research or monitor a specific company or investment. You can just invest in an ETF and ignore it for a month as the ETF will just follow the overall stock market.

3. Provides diversification

Diversifying is important as it will protect your investments from risks and too high of a loss. For many investors, diversification is difficult as you will need to invest in at least 30 different stocks.

You may not have enough money to invest in so many. An ETF solves that problem as it already has a myriad of stocks in the portfolio of the fund to reflect a stock market index. For example, you might need about RM30,000 to buy different stocks but only RM1,000 to buy a KLCI ETF.

4. Easy to buy and sell

Like stocks, ETFs are easily bought and sold on Bursa Malaysia. You can easily do so through many of the local brokers (or international brokers for foreign ETFs). ETFs are easier to buy compared to unit trust funds, as you will need to check with the fund whether are there any units that you can buy to enter into the fund.

There are even robo-advisors now that allows you to invest in their funds that resemble ETFs across Malaysian and international markets.

But ETFs Have Cons Too

Like all investments, ETFs have cons too and are not perfect:

  1. Could be risky and unpredictable
  2. Rarely beats the market
  3. No control

1. Could be risky and unpredictable

ETFs could be risky and unpredictable also, depending on which markets they are trying to represent. If it tracks a risky market such as cryptocurrency, it will be too.

2. Rarely beats the overall market

As ETF matches the index or market, it won’t have a higher return or outperform. If you are looking for higher returns, you may need to take more risks by investing in a unit trust fund that is aggressive or do-it-yourself.

3. No control

What the ETF invests in is out of your control. As it mirrors a market, the investment manager will regularly buy and sell to reflect that. He or she will not take into account the fund investors’ feedback or suggestions.

How to Invest in ETFs?

The most straightforward way is to open a stock trading account either with a local or international company. Malaysian ETFs can be bought through local brokerage, while international ETFs are typically found from international brokers.

You can find the full list of brokers listed on Bursa Malaysia’s website. Remember that you will need the following documents to open one.

  1. Identification Card (IC) or Passport
  2. Bank statements
  3. Payslip, Employee Provident Fund (EPF) statements (optional)

You will incur the typical fees when you invest in an ETF such as transaction, opening, stamp duty, and sales and services tax.

To find out which ETFs are available in Malaysia, you can refer to this list from Bursa Malaysia also.

Conclusion

If you don’t have much time to do your own research to invest, ETFs could be worth considering adding to your portfolio. It has low fees, and is low effort. And most importantly, you can diversify in an affordable manner.

 

Let us know in the comments below what you think about ETFs!

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