Hi Everyone

I've recently taken out my money from a savings plan I had previously ( it was decent but the return is low for my current age, I'm in my mid 20s and am keen with something with higher risk and higher returns )

And am planning to diversify my investments in different vehicles

I currently hold as some of you may know

Stocks
FDs
Cash
Foreign Currency
e-Toro
StashAway
Planning to add
(ETF)
(Bonds)
(Crypto)
(Unit Trust)

With that said I've researched more into Bonds and ETFs and I have a slightly better grasp of what these 2 are




Bonds basically is lending your money to the government ( AAA ) or a corporation ( A B C etc which are higher risk bonds ) in return for a coupon rate ( which works like interest rate )

Say I put in RM10,000 in a 10 year Malaysia Government AAA bond for a Coupon rate of 5% p/a over 10 years

So my money will be

RM 10,000 + 5% per year compounded for 10 years = RM 16,288.95

or ....

Is it RM 10,000 + 5% a year without compound = RM 10,000 + RM 500 p/a x 10 year = RM 15,000

From what I can see these are safer than Stocks but yield higher returns than FD but the catch is they are not guaranteed by PIDM




As for ETFs

It's basically buying a stock with a lot of different stocks in one basket

ie SnP500 contains Apple, Coca Cola , Microsoft etc in one stock

So it averages the stock price ... so it's well diversified by itself, correct me if I'm wrong here


With all that said
1. Is my understanding of Bonds and ETF correct?
2. Where can I buy ETF and Bonds in Malaysia ?

I have an account with Rakuten but it doesn't show anything when I type in Bonds / ETF

And even when I click on the indices I don't have a buy option which is confusing

As for bonds I heard I have to go sukuk Malaysia yes?

for bond, you will get 500 per year non compounding, but you can reinvest to get YTM provided no default and you hold to maturity

for etf, yes its a diversified basket of stocks depending on the index rules

you can buy ETF via bursa but US etfs are better via robo advisors

bonds you need to talk to personal bankers, they have bond issuance at min rm250k subscription

else look for fundsupermart for bond ut or new issuance at rm10k min

about buying bond in malaysia
https://www.google.com/search?ei=QqGOX4CGFd...Q4dUDCA0&uact=5

about buying ETF in malaysia
https://www.google.com/search?ei=WKGOX9_6J7...Q4dUDCA0&uact=5

Should be the second calculation.
Bonds are complex because a 5 year annual coupon bond of 5% means your cash flow will be

Year	0	1	2	3	4	5
Cash flow	-10000	500	500	500	500	10500

However, when you receive your RM500 coupon per year, you may or may not be able to invest at the 5% rate.
Therefore, can't really say it's 5% compounded per annum.

Generally, higher bond yield means more risky. A 15% 5 year annual coupon bond does not mean it's good.
It can mean that the borrower will default and your cash flow will look like:

Year	0	1	2	3	4	5
Cash flow	-10000	1500	1500	1500	0	0

You must also account for inflation to measure your real return.
E.g. Argentina bonds might pay 10% p.a. but their inflation is 30%.

S&P500 is not average of the stock price. It's an index. An index can be constructed several ways (e.g. price or market capitalisation).
S&P500 follows market capitalisation. You cannot invest in S&P500 because it is just a calculation of the weightage for the basket of stocks.
You can only invest in an ETF that tracks the S&P500 index such as VOO.

One person may say it's diversified, some may say it's not.
S&P500 is basically investing in US economy. If it tanks, it's not exactly diversification.
True diversification is investing in something like VTI ETF. This has stocks from all around the world.

Note that overdiversification can be a bad thing. It reduces gains.
While diversification is a good way to preserve wealth, concentration is often a better way to build a fortune.

You want to buy bond in Malaysia, wait until yo have RM250k. One bond will cost you RM250k.
The only way is buy via FSM MY or buy bond funds (aka unit trust of which hold bonds)
And for that you need to learn how to pick good funds. See here for some guide. Read first page and hang out in the forum.
https://forum.lowyat.net/topic/4193169

I won't even touch bonds cause I am dividend growth guy. Bond coupons are fixed and in this low environment rate bond coupon sucks. Here's why dividend grow investing beats bonds anytime any day provided you have guts to hold/buy more when price dips. Easier said then done.
Dividend growth investing will ensure that the dividend you received will continue growing at a certain % every year without fail.
If the company don't increase the dividend, out it goes.
A bond on the other hand is fixed until the call date (expiry date/maturity)

Say a bond giving 3%p.a interest in coupon vs a dividend stock giving 3%p.a and growing at 10%p.a, if you hold both for 10 years, you get of 3% for your bond and get 7.07% for your dividends. Are there such stuff. Of course and I invest in them.

If you want to buy ETF in Malaysia you can forget about it unless you are willing to fork out USD25-40/transaction + quarterly platform fees + dividend fees + markup exchange rate by Malaysian brokerage.
You want to buy ETF open an overseas brokerage for cheap
https://forum.lowyat.net/topic/4744515
https://forum.lowyat.net/topic/3396549

Other alternative
Stashaway

You can forget about PIDM when it comes to investing. When it comes to investing, there aren't no PIDM to protect your capital. That's why it's call investing. Your capital is a risk.


This post has been edited by Ramjade: Oct 20 2020, 10:47 PM

For bond/fixed income portion:
i. Bond unit trust fund, pros it's a basket of bonds, can buy 0% fee from certain platforms; cons annual expense, if the fund manager's choice is bad and there's a default/downgrade
ii. Amanah Saham Malaysia (if you're non bumi)/ASB (if you're bumi), pros fixed price no drawdown; cons hard to buy, lately % getting lower
iii. EPF (min 2.5% if you're in non bumi account), pros no drawdown; cons conditional withdrawal/upon retirement

*ASM and EPF may be considered fixed income because it has no drawdown risk and dividends come in the same time yearly without fail so far

Equity/risk on stuff, I'd not comment. Some people like REIT, some like small cap, some like large cap, some like foreign tickers, others like crypto and FX. You hold some of this and that, so I think you know best based on what feels right and works for you.

Just to add to all those information above.
In regards to ETF, if you already have an eToro account, I believe you can buy ETF as an underlying asset, not CFD.
Of course they will ask you to first sign the W-8BEN to be able to buy/sell US stocks

Most popular ETF for NASDAQ is QQQ
Most popular vanilla ETF for S&P 500 is SPY, IVV, VOO
If you want to save money on Robo-advisor fees and DIY your own ETF basket for diversification, just create your own portfolio using their (stashaway or mytheo or akrunow) % allocation or your own custom ETF basket
As always DYOR, happy investing

This post has been edited by omegaoracle: Oct 21 2020, 01:26 AM

Hi Ramjade,

compare buying Malaysia ETF in bursa and overseas ETF, the norm for Malaysia ETF is that the spread is too wide means expensive compare to overseas. If taking into account for exchange rate to buy overseas ETF, will overseas ETF still cheaper?

The ETF that I am interested now is Tradeplus New China

Bonds are not for everyone. The entry bar is set quite high, especially if you’re a new/young investor starting out - as someone mentioned, whole (retail) bonds are sold in multiples of RM250,000 or $250,000 (in Singapore). Investment grade bonds don’t pay a high yield, usually up to 5% (and even that is rare now, given the super low interest environment) per annum, and the coupon is not compounded.

The typical bond buyer profile is someone who is more interested in preserving their wealth/capital with returns that beat inflation, as opposed to someone who is actively looking to grow their capital with higher returns.

A bond fund is like someone who has bought a basket of bonds, and now repackages the total into smaller, easier to digest, parcels and resells them to investors. So, instead of having to cough up $250,000 (or RM250,000) each time, an investor can come up with say, $50,000 and own a portion of a basket of bonds. The coupons are also then pro-rated and distributed accordingly.

As for defaults, only in catastrophic circumstances would investment grade bonds turn turtle - Lehman Brothers was a good example. And look at the pain and subsequent decade of mess that event created. If you pick and choose your IG bonds carefully, you can sleep relatively well at night, free from the roller coaster dips and crests of the economic turmoil - and just continue ie to wait for your next coupon. There’s also capital appreciation from your initial purchase price, if you bought at the right time, of course.

A good example in my case is a bunch of UBS and CS bonds which I bought during the COVID panic for below IPO. Then, news of their possible merger broke, and the bond prices rose in tandem with their share prices in fact, all of my bonds have appreciated! Contrast this with my 25% haircut in terms of rental returns received from my erstwhile most reliable client (a master tenant who rents a number of suites from me as part of his boutique hotel operations in Sydney) since the first 3rd of this year, and the recent announcement of a cap on dividends to be distributed by the local banks as part of the COVID response!

However don’t let me sway you with only the good news and positive perspectives. It’s not all a bed of roses, and low risk doesn’t mean no risk.

This post has been edited by hksgmy: Oct 21 2020, 06:46 AM

Forget about buying etf in Malaysia. It's not cost effective. Just look at the fees.

Let me counter that. I bought a dividend stock which was going on super sales during covid.

Price have increase back by 50%. I have secured myself a nice 10%+p.a dividend for life

Moral of the story, buy during crash.

This post has been edited by Ramjade: Oct 21 2020, 08:08 AM

I think the real lesson here is to buy into something that you know well and have done your research - be it bonds or shares, there are bargains and gems to be found. Well done on your recent trade, and safe & happy investing my friend!

No problem you too.

For those wanting to buy bonds can consider buying from US, it cost only USD25.00/ unit.

Good suggestion for those who are keen to hold USD.

One of my personal preferences, however, is to only buy in the local currencies that I’m comfortable holding - in my specific case, SGD (my home currency) and AUD (my retirement currency). Many decades ago, I lost over $50,000 when the USD plunged from 1.7 to its present 1.35 to the SGD - while that figure of $50,000 is a little less than a week’s revenue now, back then, it was many months’ salary!

Once burnt, forever shy... sadly, that’s my risk adverse nature.

Since TS is in mid 20s, can consider not to buy bond fund, just direct focus in equity
But before that must make sure have 6 months emergency fund and the money you invested will not be needed for use in your target period.

Bonds are not just govt bonds. There are also corporate bonds. Corp bonds are basically divided into 2: investment grade and non investment grade (or high yield or junk). These fetch higher yields than govt bonds.

There are also bond etfs, being etf investing into bonds. For eg TLT is an ETF that invests in long dated US govt bonds.

I own bonds, singly and via etfs.

Problem with bonds now is the historical low yields.

I though during bad economy corporate bond will be higher coupon rate.

The single most influential factor on bond yields is the prevailing interest rate. When the economy is bad, central banks tend to lower interest rates to stimulate economic growth, pushing down the bond yields.

Unless you have bought a floating-rate note, the coupon rate on a bond is fixed by contract.

You are partly right, but there are 2 competing forces here.

1) Bad economy = higher possibility of default = higher interest to commensurate for higher risk

But there is a bigger pressure down:

2) Central Bank interest rate policy. Keeps interest rate low.

Saw a lot of people recommend bond fund for newbies (not directly you).

Nothing wrong with that. But one thing to remember is bond funds go up when interest rate is lowered. That's also likely why your bonds bought during covid crisis soared when interest rates got cut to 0%.

BUT the inverse is also true. Bond funds go down when interest rates rise (especially rise above the point u bought the fund).

Since rates are now 0%, buying a bond fund now is not a great investment TBH. I also own many bond funds (eastspring and Affin Hwang) which have done excellently over last 5 years. But considering selling. Interest rates have nowhere to go but up....

Yes, absolutely true. However, here's what I'm basing my present purchases on: the fact that Maybank Singapore has pegged a 5-year home loan to a FIXED rate of 1.5%

The interest rates will stay low for the immediate future - that's what I'm betting on.

Ultimately, they will rise, but by then, I would have sold the bonds and moved on to the next safe thing Or, newer bonds with a better yield. New bond offering yields will have to rise in tandem with the interest rate environment, otherwise there'll be no takers.

You're a sophisticated investor (much more than me lol). I'm sure you will.

Just pointing out to TS that bond fund are not the typical "buy-and-hold-forever till retirement" fund that your parents gen are used to. Its more of a cyclical trade-in-and-out.

Kinda like USO ETF. If someone buys that and hold for 20 years thinking its like QQQ or SPY A, they will be in for a big shock...

Actually, I need to clarify: I don't buy bonds via funds. I own whole bonds. I find that gives me far more say and sway over the way I can manage my portfolio.

The mention of the example of how a bond fund works was for the benefit of the TS.

This post has been edited by hksgmy: Oct 21 2020, 12:38 PM