Here's What Happens When You Invest RM200 A Month

What can you do with RM200? Perhaps buy a week’s worth of groceries, or a nice dinner for two or a new pair of earbuds. In other words, RM200 is useful, but may not be life-changing.

But what if we told you that it could make a big difference to growing your wealth? Here is why you should consider investing, even if you can only spare RM200 a month.

What happens when you invest RM200 a month?

Investing consistently over many years - even if you can only put aside a bit of money - can help you grow your wealth significantly. Thanks to the power of compounding, your investment returns can generate their own returns over time. The more time you give your investments to grow, the greater this compounding effect will be.

For example, here’s how much RM200 a month can grow at a 7% annual return rate over many decades:

After 40 years of investing RM200 a month at 7% returns p.a., you could save up to RM479,124. This can really boost your retirement fund, considering that almost 75% of Employees Provident Fund (EPF) or Kumpulan Wang Simpanan Pekerja (KWSP) members have account balances below RM250,000 at age 54.

Investing does take a bit more effort than just saving your money in a bank account. But it does help you generate potentially higher returns. After all, fixed deposits may only offer around 1.5% to 2% returns per annum, and savings accounts typically offer even less.

For a detailed report of how investing RM200 can help you reach your financial goals, use the Maybank Financial Goal Simulator. You can set your goal target amount, and how much you can invest every month. Based on these inputs, the simulator can estimate your probability of reaching your goal.

How to invest RM200 a month

So, how do you actually invest your money? Here are a few ways.

1. Stocks

   It is possible to invest in stocks, even if you do not have much money. You just have to buy a minimum of 100 shares. But your stock brokerage firm may charge a minimum brokerage fee every time you buy or sell. In addition, other fees and charges such as clearing fees and stamp duty may apply. If the amount you buy is too small, the minimum brokerage fee may eat up a large percentage of your investment. You can get around this by saving up for a few months before making an investment. This way, you can spread the minimum brokerage fee over a bigger purchase amount.

   However, you may still want to avoid investing directly in stocks. If you have limited funds, it could be hard to diversify - that is, spread your funds across different stock investments. When you put all your money in a single investment, you risk experiencing huge losses if that investment does not perform well. On the other hand, having multiple investments minimises your losses if a single investment in your portfolio underperforms.

2. Exchange-traded funds (ETFs)

   An ETF is a group of investments (such as stocks, bonds or gold). This makes ETFs a good option for beginners with limited funds, as you can easily diversify into many investments at once.  For example, if you invest in the FTSE Bursa Malaysia KLCI ETF, you’d be investing in the 30 biggest public-listed companies in Malaysia. As your funds are spread out across many investments, an ETF can be less volatile than investing into a single asset.

   ETFs are traded on the stock exchange too, so you will incur a brokerage fee and other charges when you buy and sell. The upside to being traded on the stock exchange is that ETFs are very liquid - you can easily sell off your investments to access your funds.

3. Unit trust funds
   

   Unit trust funds are like ETFs, in that they represent a group of investments. But instead of being traded on the stock exchange, you can invest in them through Fund Management Institutions (FMI) or through distributors like banks. 

   There are many types of unit trust funds in the market, such as those that invest in a specific geographical area, or in certain types of assets. Unit trusts come with risk ratings - funds with higher risk ratings are more suitable for investors that can take on more risk.

   To invest in unit trusts, you need a unit trust investment account. Typically, you will need to make an initial investment of RM1,000 for each unit trust fund. But after that, you can set recurring transactions of as low as RM100 per month with Maybank’s Regular Saving Plan.

   Unit trust fees can vary, depending on the type of unit trust (for example equity versus fixed income fund) and the sales agent.

Increase your monthly investment over time

If you are finding it hard to put aside money to invest, here is what you can do: 

• Set up a recurring transaction. Automatically transfer money into a separate savings account the moment you get your salary. This removes the temptation to spend it.
• Plan your meals. Cooking more meals at home can significantly reduce food costs. Plus, it could even be better for your health. 
• Switch plans. Whether it is your mobile plan or home broadband, consider switching to a cheaper plan.
• Ditch the car. If you have just started working, you may be looking out for your first car. But if you can get around by alternative modes of transportation instead, it is worth delaying this purchase, as vehicle ownership can be expensive.

Try to increase your monthly investment over time. After all, you probably have several financial goals - your first car, a new family home, education for your children or early retirement. Being able to invest more will increase your chances of achieving them all. 

This could mean investing a higher proportion of your salary. For example, if you can only invest 5% of your salary, try bumping that up to 6% by the end of the year. You could also increase your monthly investments in tandem with your salary increases. If you receive an RM500 raise, you could set aside RM100 to invest and allocate the rest to other spending.  

That said, investing RM200 a month is a great start, and it can make a real difference in the long run. As you embark on your investing journey, don’t forget to use the Maybank Financial Goal Simulator to estimate how your monthly investments can help you grow your wealth. As you gradually increase your ability to invest more money, it can help you plan for multiple financial goals.