This article first appeared in Capital, The Edge Malaysia Weekly on April 11, 2022 - April 17, 2022

YOUTH have always been seen as having a higher risk appetite in search of greater investment returns. But that may not be the case among Malaysian youth after the pandemic outbreak, with only 3% saying they have a high-risk appetite, according to the recently-published Securities Commission Malaysia Annual Report 2021.

An investor survey was undertaken by the regulator in 2021 to assess the level of knowledge, behaviours and motivation of youth in the capital market.

Marshall Wong, a licensed financial planner at FA Advisory Sdn Bhd, is surprised that only 3% had a high-risk appetite.

“Quite a lot of people that I know are considered high risk. They actually invest in assets like cryptos. Some invested in cryptos in early 2019 and 2020. Even though cryptos fell a lot early this year, the returns are still quite high as compared to any other asset classes,” he tells The Edge.

Kevin Neoh, a licensed financial planner at VKA Wealth Planners Sdn Bhd, observes that there has not been a shift towards being more conservative among youth when it comes to investing.

On capital market products and their associated risks, 70% of the respondents deemed stocks/shares to be high risk. In contrast, they viewed investments in Amanah Saham Bumiputera as low risk. Interest was also seen in private retirement schemes, as well as unit trusts/mutual funds.

Overall observations suggested that respondents perceived the capital market products as high-risk and this perception was consistent across the demographic profiles.

“At the same time, the same survey reveals that the respondents view certain instruments such as contracts for difference as medium risk, whereas these can be a rather high-risk instruments,” says Neoh.

“Investors have to understand if the investments and products they are currently investing in are actually risky or conservative. If I have the perception that the products I am investing in are safe — when they are not — I may feel that I am not taking risk as well,” he adds.

The findings suggested that respondents considered several factors prior to investing, such as being aware of how much money was available for them to invest, advice as well as recommendations from friends and family, including on the potential returns on the investment.

Paul Low Hong Ceong, president of the Financial Planning Association of Malaysia, says it is common to see those who have more disposable income but are not investment savvy and those from lower-income groups being more conservative in investing. Their investment portfolio should preferably be based on life goals, the duration they have for the investment and their ability to take risk.

“Definitely, allocation across different instruments that move differently in the changing market is ideal. Again, this has to be pegged against the youth’s ability to take risk, otherwise they will be in for an emotional roller-coaster ride which may result in a knee-jerk reaction by selling too fast or following the wrong crowd in investing,” he explains.

Wong stresses that having an emergency fund is the most important thing in the first three years of employment. His advice to the youth is to allocate a portion of their monthly salary to investments in an automatic manner.

“Make sure the money is automatically credited into other types of investments, such as recurring investments for unit trusts. You can do that for crypto investments as well. The key here is ‘automatic’— you don’t have to think too much about it. For most people, when they see a huge amount of money in a bank account, they may not be able to resist the temptation to buy gadgets.”

Wong shares that his personal investment in cryptos is aimed at hedging against any inflation risk that may happen in fiat currency.

“However, [it is] not that a lot of my money will be going there. It is about 5%-10% of my investment portfolio, but it is quite high for a lot of people. So, it depends on your risk appetite.”

Max Growth Wealth Education Sdn Bhd managing director Nicholas Chu thinks young investors should be able to take on more risks given their longer investment time horizon. “They have time to learn and even to have losses at a very young age, which they can absorb. They must learn to achieve consistent returns in future.”

He advises investors to adopt the dollar-cost averaging method. “Investors can try to choose the top 20 best-performing financial products regardless of [whether they are] unit trusts or stocks. During this process, they can sharpen their mind and analytical skills and find more valuable investment products.

“When they go for dollar cost averaging, it is recommended to have just a 10%-20% [of their] investment portfolio in income funds, in case you need funds to top up equity investments during a market correction.”

Chu is of the view that, compared with alternative investments, traditional investments are a better option for young investors with greater protection. “If investors are interested, I would suggest less than 20% in alternative investments. I don’t think this should be their main investment.”

Similarly, he does not encourage excessive investments in the crypto space. “I don’t reject it, but I don’t encourage investments in cryptos. Many youth only pay attention to the returns, which is a big problem. You must have an interest to find out why you have this kind of return.”

On whether youth should explore opportunities in alternative investments, Low thinks that this may happen as the youth earn and learn more.

“They must also have emergency funds and, if possible, investment funds so that they do not need to dip into their savings should their investments drop when going through a down market. Personal finance and investment knowledge helps build confidence to take higher risk in investing through informed decisions.”

Neoh cautions that certain alternative investments may have higher risks, such as liquidity and default risks. “Investors should be aware of their financial planning needs, with suitable asset allocation. I would suggest they focus on how to use the money they have to live better, and not just let potential investment returns be the major driver in their decision making.”

Nonetheless, Wong opines that peer-to-peer (P2P) lending is something investors can consider. Although there have been defaults, investors may want to allocate a bit to this space considering its return rates.

In 2021, the total funds raised via P2P lending reached RM1.14 billion, more than twice the amount raised in 2020, according to SC. Retail investors accounted for 90% of the investor base, while angel and sophisticated investors came in at 5% each.

The total assets under management of licensed fund management companies (FMCs) in Malaysia continued to grow in 2021, increasing 5.04% to RM951.05 billion in 2021 from RM905.46 billion in 2020. Notably, the top five FMCs contributed to 54.81% of the total AUM compared to 55.27% in 2020.

Take Areca equityTrust — the winner of the Equity Malaysia (Malaysia) category (three, five and 10 years) in the Refinitiv Lipper Fund Awards 2022 — for example. It registered returns of 104.98%, 161.39% and 334.62% for the periods of three, five and 10 years ended Dec 31, 2021, respectively.

During the same three- and five-year period, the benchmark FBM KLCI was down 7.3% and 4.5% respectively, but it registered a positive return of 2.4% for the 10-year period.

Meanwhile, Bitcoin — the largest crypto by market capitalisation — has leapt 1,058.5%, 4056.3% and 10,200 times during those periods.

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