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General investment FAQs

What affects the value of money?

Money has a tendency to lose value over time because the price of goods and services carry an upward tendency, also known as inflation. Here are some factors that could erode the value of your money:

  • Inflation - Inflation occurs when the price of goods and services rises. When the price of goods and services level rise, each unit of currency will get you fewer goods and services. Consequently, inflation will result in a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. That is why the money you earn today will be worth less 10 years from now.
  • Fluctuation in the profit rate of Term Deposit-i accounts - A drop in profit rates means a smaller return on your deposits, and if the profit rate is lower than the rate of inflation, your deposits lose value. But for some types of investments, such as equities and Sukuks, the value of your investment may actually rise because of the fall in profit rates of Term Deposit-i accounts.
  • International economic trends - What happens in other economies can affect the value of your money. Political circumstances, GDP growth and stock market movements in other countries can all have an impact on the buying power of your money.

What are the basic rules to investing?

Here are some simple guidelines to follow for making wise investments:

  1. Set your investment objectives.
  2. Do your homework before investing. It's risky to rely on pure luck when making an investment.
  3. Ask yourself whether your objective is to have a short-term or long-term investment.
  4. If it's a short-term investment, make sure you have a cut-off point in mind to protect your bottom-line.
  5. If your objective is long-term investment, don't make investment decisions out of panic when the market becomes volatile.
  6. Invest as much as you can afford, but no more than that.
  7. Don't leave money lying around in non-profit bearing accounts, except as cash on hand for a rainy day.
  8. Make sure your investment portfolio gives you a big enough return to beat inflation.
  9. Always invest through a reputable investment firm or financial institution.
  10. Diversify. Invest internationally and spread your investments over a range of low, medium and high risk products in order to hedge against losses.
  11. Make sure you understand exactly what risks are involved with every investment you make.
  12. If in doubt, seek professional advice.
  13. Keep an eye on your investments. Take opportunities and shift products if it is beneficial to do so.

When should I start planning for the future?

The sooner you start, the better. The example below shows the difference in accumulative savings between Mr Early and Mr Late, who started saving at different times.

Mr Early saves for 10 years and then stops. Mr Late starts 10 years later and saves for 20 years. But Mr Early still get 87% more than Mr Late (based upon an investment that gives 10% annual growth, not taking into account annual inflation).

Year Savings by Mr Early
Accumulation
Savings by Mr Late
Accumulation
1 1,000
1,100
0 0
2 1,000
2,130
0 0
3 1,000
3,641
0 0
4 1,000
5,105
0 0
5 1,000
6,716
0 0
6 1,000
8,487
0 0
7 1,000
10,436
0 0
8 1,000
12,579
0 0
9 1,000
14,937
0 0
10 1,000
17,531
0 0
11 0 19,284
1,000
1,100
12 0 21,213
1,000
2,130
13 0 23,334
1,000
3,641
14 0 25,667
1,000
5,105
15 0 28,234
1,000
6,716
16 0 31,058
1,000
8,487
17 0 34,163
1,000
10,436
18 0 37,580
1,000
12,579
19 0 41,338
1,000
14,937
20 0 45,471
1,000
17,531
21 0 50,018
1,000
19,284
22 0 55,020
1,000
23,523
23 0 60,522
1,000
26,975
24 0 66,575
1,000
30,772
25 0 73,232
1,000
34,950
26 0 80,555
1,000
39,545
27 0 88,611
1,000
44,599
28 0 97,472
1,000
50,159
29 0 107,219
1,000
56,275
30 0 117,941
1,000
63,002

The sooner you start, the better. The example below shows the difference in accumulative savings between Mr Early and Mr Late, who started saving at different times.

Mr Early saves for 10 years and then stops. Mr Late starts 10 years later and saves for 20 years. But Mr Early still get 87% more than Mr Late (based upon an investment that gives 10% annual growth, not taking into account annual inflation).

Year 1
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 2
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 3
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 4
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 5
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 6
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 7
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 8
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 9
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 10
Savings by Mr Early
1,000
Accumulation
0
Savings by Mr Late
0
Year 11
Savings by Mr Early
0
Accumulation
1,100
Savings by Mr Late
1,000
Year 12
Savings by Mr Early
0
Accumulation
2,130
Savings by Mr Late
1,000
Year 13
Savings by Mr Early
0
Accumulation
3,641
Savings by Mr Late
1,000
Year 14
Savings by Mr Early
0
Accumulation
5,105
Savings by Mr Late
1,000
Year 15
Savings by Mr Early
0
Accumulation
6,716
Savings by Mr Late
1,000
Year 16
Savings by Mr Early
0
Accumulation
8,487
Savings by Mr Late
1,000
Year 17
Savings by Mr Early
0
Accumulation
10,436
Savings by Mr Late
1,000
Year 18
Savings by Mr Early
0
Accumulation
12,579
Savings by Mr Late
1,000
Year 19
Savings by Mr Early
0
Accumulation
14,937
Savings by Mr Late
1,000
Year 20
Savings by Mr Early
0
Accumulation
17,531
Savings by Mr Late
1,000
Year 21
Savings by Mr Early
0
Accumulation
19,284
Savings by Mr Late
1,000
Year 22
Savings by Mr Early
0
Accumulation
23,523
Savings by Mr Late
1,000
Year 23
Savings by Mr Early
0
Accumulation
26,975
Savings by Mr Late
1,000
Year 24
Savings by Mr Early
0
Accumulation
30,772
Savings by Mr Late
1,000
Year 25
Savings by Mr Early
0
Accumulation
34,950
Savings by Mr Late
1,000
Year 26
Savings by Mr Early
0
Accumulation
39,545
Savings by Mr Late
1,000
Year 27
Savings by Mr Early
0
Accumulation
44,599
Savings by Mr Late
1,000
Year 28
Savings by Mr Early
0
Accumulation
50,159
Savings by Mr Late
1,000
Year 29
Savings by Mr Early
0
Accumulation
56,275
Savings by Mr Late
1,000
Year 30
Savings by Mr Early
0
Accumulation
63,002
Savings by Mr Late
1,000

What should I do before I start investing?

Know your current financial situation. Before you begin to think about investing your money, you should know how much you can afford to spare for investing every month. Naturally, the more you can put aside now, the better it will be for your future. It's up to you to strike a balance between your current lifestyle and your expectations.

Calculate your income and expenses by taking into account the following:

  • Home financing payments
  • Personal taxes
  • Other financing payments
  • Living expenses
  • Emergency funds
  • Car expenses
  • Entertainment
  • Holidays
  • School fees
  • Family commitments

Generally speaking, whatever spare cash you have after allowing for all your expenses is what you can afford to invest. You can commit a certain amount each month and look at it as a monthly expense. As your income increases, it's a good idea to increase the amount you invest proportionately. By doing this, you'll be keeping up with inflation and your money will be working harder for you.

What should I do next after I determine how much I can invest?

Once you know how much you can afford to invest, set your objectives - why you're investing and how you're planning to use your investments. Your objectives could incorporate 1 or any combination of the following:

  • Retirement
  • Protection for your family
  • Education for your children
  • Wealth accumulation

Divide your objectives also into long-, medium- and short-term goals. This will help you choose the type of investment you want to make. For example, if you plan to send your child to study abroad in 3 years' time and you need to save for their tuition fees and living expenses, you'll need a fairly low-risk investment. Think about when you'll need the return as it also helps to determine the time horizon of your investment.

How do I determine my risk appetite?

Keeping your objectives in mind, determine how much risk you're prepared to take. Do you want to adopt a conservative, moderate or aggressive investment strategy? Ask yourself the following questions before you make your decision:

  • Are you prepared to make long-term investments, which will allow you to take greater risks for higher returns?
  • If you're going for short-term, high-risk investments, can you afford to lose some of the money you invested?
  • If you're married with children, what level of risk can you take to still be certain of their future?
  • If you want your money to be safe, will you be content with a moderate rate of return?
  • If you opt for safe investments, will the returns be enough to cover inflation?

Everyone has different reasons for saving, and the purpose of your investment can affect how much risk you’re prepared to take with your money. If your investment is to pay for your children’s education, then you may be investing over a long period of time, and looking for a higher return. As a result, you may be inclined to choose a higher-risk investment option.

Conversely, if you’re investing to pay for an overseas trip or a new car, you may be investing for a short period of time and want certainty about the outcome of your investment, so you may feel more comfortable with a lower risk investment option.

What type of financial products can I invest in? What type of financial products may generate profit/hibah?

You can choose from 2 main financial products with varying degrees of risk:

  • Term Deposit-i
  • Shariah compliant investments

Traditionally, Term Deposit-i accounts are the safest place to put your money. They come with lower risk - you can quickly and easily retrieve your money if you choose to do so - but profit rates may be forfeited. Investment products offer potentially higher returns, but also carry greater risk.

What investment products are available in the market? What Shariah compliant investment products are available in the market?

One thing to remember about investments is that the level of return is generally proportionate to the level of risk. This is why an investment offering potentially high returns will usually have a high risk element. The products available in the market are:

  • Securities/stocks
  • Sukuk
  • Foreign currency
  • Shariah compliant unit trust funds
  • Structured investment-i

What is Dollar Cost Averaging?

Dollar cost averaging is an investment strategy whereby the investor invests a fixed amount in a particular investment on a regular basis, regardless of the price. More units are purchased when prices are low and fewer units are bought when prices are high. Eventually, the average cost per unit of the investment product will become smaller. Dollar cost averaging reduces the risk of investing a large amount of money in a single investment at the wrong time.

How can I keep track of my investments?

As our customer, you may keep track of your investment portfolio via HSBC online banking under the Wealth Dashboard section.