Are You Ready For a Retirement? A Beginners Guide

One question that Millennial seems to ignore is this: Are you ready for retirement? Choosing the right investments and having a special account for retirement is very important to prepare for your retirement. As human beings make advances in medicine and technology, it has helped us to live longer than ever before. This has made saving money at an early age all the more important.

But saving is just one aspect of preparing for retirement. You need to be concerned with inflation, which basically means the increase in the price level of goods and services in the future. With the future increase in price, each unit of currency can only buy less goods and services as compared to previous years. In other words, inflation also reflects a decline in the purchasing power of money.

This is where investment plays an important role especially investments made when you’re young. In addition to the compounding factor (i.e. simply re-investing the profits earned), you have to consider choosing the right types of investments to make the most of your returns. Here is how to manage the process.

How Much Should I Save?

First off, let’s start with how much you should save. Many financial advisors recommend saving 10% to 15% of your monthly income, but some may feel that 15% is too much. If you are in doubt about your trajectory, refer to any available retirement calculator online for how much you need to save month to month.

How Should I Invest?

Having determined the amount of savings that you need to invest every month, it is time now to find out where you need to invest that amount. There are a number of things to consider when building a retirement portfolio and we will discuss some of the details below.

It is a definite advantage if you have a permanent job, as you would have an EPF account which guarantees your employer making a monthly contribution in addition to your own contribution. But you can also get access to other types of investments for example:

Target-date funds

An effective and low-maintenance way to maintain an appropriate asset allocation is through a target-date fund. Just pick the right “target date” (the year closest to when you’d like to retire) and the fund company will automatically adjust the allocation over time on your behalf.

Other funds

Diversification helps investors by decreasing overall investment risk while increasing potential for overall return. Mutual funds, index funds and ETFs all pool investor money into a collection of securities, allowing investors to diversify without having to purchase and manage individual securities.

Individual stocks and bonds

Some investors prefer to research and buy stocks and bonds on their own as there are many financial benefits. For example, generating a steady flow of income can be attractive as you begin to withdraw money from your investments during retirement. Dividend stocks can provide an income stream, and building a bond ladder (buying many bonds that mature over several years) helps manage interest rate risk while generating stable cash flow.

However, investing in individual stocks and bonds takes a lot of capital, risk, and a lot of knowledge to build your own diversified portfolio.

How does this fit into my portfolio?

When choosing an investment product, it is important to see the bigger picture. Consider your goals, risk tolerance and time frame. These factors lead you to the optimal allocation of assets for your total investment portfolio.

Retirement accounts are usually the most aggressive part of your entire investment portfolio because these accounts usually have the longest period of time.

But remember, the basic asset allocation and investment of your retirement account should not be static. Your retirement account should gradually change and adjust over time, becoming more conservative as you move closer to retirement.

An example that is often given is, if you are in your 20s or 30s, you have a portfolio of 30% stocks (high risk) and 70% bonds (low risk) because you have a longer term to recover from any losses, while getting older to retirement age, your portfolio should be more conservative for example 70% bonds and 30% shares.

BEST Invest

If all of this sounds too overwhelming or if you’re wary of handling investment choices on your own, we’ve got you covered. There are many types of online investing options to help you.

Robo-Intelligence applications like BEST Invest are a low-cost way to access investment help with low or no minimums. Robo-Intelligence uses computer models and algorithms to help you customize investments for your portfolio.

The BEST Invest app offers an investor the opportunity to start investing either by selecting the ‘’Do it for Me’’ or the “Do it Myself” functions in the app. To illustrate, “Do it for Me” function enables the Robo-Intelligence system to identify and select the best investment methods, suitable funds and the investment amount based on the investor’s risk profile. Investors would not have to worry about their investments as they can focus on achieving their investment goals. Simply set the target amount that you want to achieve and when, and you can invest monthly as recommended by the app.

Alternatively, the ‘’Do it Myself’’ function enables investors to make their own decisions and self-invest without the assistance of the Robo-Intelligence system for a more customised experience. Investors can start investing and building their investment goals with the BEST Invest app with a minimum amount with zero sales charge. Investors can also invest and withdraw their investments anytime and anywhere.

With BEST Invest, investors can invest as low as RM10 only!

If you want to read more about investing, do visit our collection of articles on BIMB Investment’s website here.