When you have some spare cash sitting in bank without doing anything for you, then perhaps it is time to look into what you can do with the money. Of course, when you reach RPC blog you know that it is definitely about investment. We preach heavily on investing your money as soon as you can so that you will be able to grow your wealth. Now let’s try with small amount of capital that is reasonable that many people can invest. But then again, the question to ask is what to invest with 10k in Malaysia?
There is certainly a massive debate over this. If you haven’t read my previous blog, you can read more about it here – Rental Property vs Stocks – The Differences.
Now let’s straight dive in the most popular option. Stocks. What can you invest?
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For this test, we are going to take those stable and defensive counters. We are going to deploy value investing method, which is a long term investing in fundamentally strong companies. Though some might argue that in order to maximize return, we need to trade on growing counters. But we are looking at stable and safest investment. Stock trading is high risk as it requires very high technical knowledge in order to yield the best return. Assuming all of us are average retail investors and we just want something safe that could give us decent return over long period of time. This is way better as to compare with low return traditional investments e.g. fixed deposit and savings account.
DISCLAIMER: THIS IS NOT A RECOMMENDATION TO BUY ANY STOCKS BUT MERELY AN ILLUSTRATION ON THE CONCEPT OF VALUE INVESTING
The example above, we will invest in relatively stable companies with high dividend yield. I know some of you might argue that these are not the best counters. You could be right. But that’s not the point. We are running a scenario for average Joe can do. So we split our 10k investment into seven counters to better manage our risk. Not only we split into different counters, we also spread the risk into several sectors. With settings above, our portfolio should be relatively safe.
Now let see our investment portfolio performance assuming the dividend yield remained the same over the next 12 months.
Based on the result above, our portfolio dividend yield is 6.80%. This is better than traditional investment e.g. fixed deposit, savings etc. Our portfolio above is also outperform EPF’s dividend rate of 5.20% for year 2020.
But is this the best investment we could do? What if we put this spare cash into property? Would it perform better or otherwise? Let’s check…
With the capital that we have, this is what to invest with 10k in Malaysia. A low cost flat or apartment. There is no other way besides these apartments. But hey, we just want to maximize what we could afford.
I’ve ran a quick bank value for this apartment. The average bank value is about RM100k – RM110k. Now of course, we are investors so we will buy at below market value. We will buy in at the price of RM80k. Since the property has high bank valuation, so we get highest possible loan. This could be offer from banks with 100% or special loan for renovation etc.
Like the calculation above? You can get FREE PROPERTY INVESTMENT SIMULATOR HERE.
Since we get 100% loan based on highest valuation, therefore our down payment is financed under loan.
Our capital to purchase this apartment is RM9,243 only. The rest of the cost is financed under loan. Now, how would this property perform? Let’s look into the market rental.
As we leverage on the loan, our capital invested is only RM9,243.
The average market rental is RM850 per month. So we will deploy the same cash-on-cash-return to benchmark with the yield from stock investing.
If we renting the property out for RM750 per month, our rental yield would be 45.18% per annum.
Calculations as below:
Monthly Net Rental: RM348 (RM750 – RM402)
Yearly Net Rental: RM4,176 (RM348 x 12)
Cash-on-Cash-Return: 45.18% (RM4,176 / RM9,243).
If we compare what to invest with 10k in Malaysia, I would prefer to invest in property. Not only the yield is high but at the same time, the property gives cash flow every month. Stocks unable to give such constant dividends unless with REITs. But REITs by nature is property anyway. So it is not directly comparable.
Conclusion
Both stocks and property are great to invest. But the key to property investment is rental. Not all the properties can give you such high return that is safe to invest. Moreover, the reason why property can fetch high cash-on-cash-return to compare with dividend stocks is because the ability of getting loans from banks for leverage purposes. Let me end this article with one piece of advice, if you have 20k capital, why not deploy the strategy above with 50/50 spread between stocks and property? Happy investing.
