How To Invest Internationally – Even If You Aren’t A Millionaire
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What comes to mind when you think of investing overseas?
If you’re imagining yachts, beach houses and foreign bank accounts flush with cash – in other words, something only the uber-wealthy can afford – you’d be mistaken.
Investing overseas can be easy and affordable. In fact, it could be an important part of your retirement portfolio. With the changing global market conditions, it may now be a good opportunity to invest and reap the benefits of staying invested for the long term.
Here’s why you should invest overseas – even if you aren’t wildly rich – and how to go about it.
Why should you invest overseas?
Investing overseas is sometimes associated with higher risks. But that’s not always true. In fact, diversifying overseas could help manage your investment risk by spreading it overseas, and opening up your portfolio to better growth opportunities in the long run:
1. Spread your risk geographically
The FBM KLCI (the index that tracks the 30 biggest Malaysian companies) only gained 26.8% between 2010 and 2019. This was due to domestic factors like weak crude oil prices and political uncertainties, as well as international factors like low interest rates and the US-China trade war.
This means that if you had invested RM10,000 in the FBM KLCI at the start of 2010, your investment would have only grown to RM12,680 by the end of 2019 (assuming you did not make any other buying or selling transactions in between).
You may have been better off with a fixed deposit: if you had put the same RM10,000 in a fixed deposit with an annual return of 4%, it would have grown to RM14,802 in the same time period.
This is the downside of investing only in one country: if the local stock market isn’t doing well, it could limit your portfolio return. But by spreading your portfolio across different locations, you can reduce your risk and potentially improve returns.
2. International stocks could offer higher rates of growth in the long run
The most exciting stock market gains in the past few years have happened overseas, especially in the US. Think about the most valuable brands in the world today – they happen to be American companies like Apple, Google, Microsoft and Amazon. The American stock market has been the best-performing major stock market in the world, with the S&P 500 (an index that tracks the performance of 500 large companies) climbing 248% between 2010 and 2019.
Recently, the US stock market – along with the global stock market – has been experiencing volatility due to uncertainty around the coronavirus (COVID-19) pandemic. But if you’re investing for the long term, this could be a good opportunity to pick up investments that are currently undervalued – that is, investments that are trading below their true value. And by staying invested over the long term, you could potentially ride out any market volatilities and reap the benefits.
Across the pond, Europe also presents opportunities for overseas investors, as valuations are low and dividend yields are high. The region is also home to some of the top global brands, such as Mercedes-Benz, Nestlé and Accenture.
Closer to home, China represents one of the fastest-growing emerging markets in the world. It’s expected to overtake the US by the next decade to become the world’s biggest economy by gross domestic product. China holds great appeal for foreign investors, due to its economic strength and potential for growth. It may also be the first country to restore economic growth due to early precautions taken to stop the spread of COVID-19.
By diversifying your portfolio abroad, you’ll have the opportunity to invest in high-quality companies in developed markets, as well as take advantage of fast-growing emerging markets. In fact, overseas investments have been the main drivers of income for the Employees Provident Fund (EPF) and the Amanah Saham Bumiputera (ASB).
3. Protect against ringgit depreciation
The ringgit has depreciated 20% against the US dollar in the past ten years. If your investments were entirely denominated (i.e. measured) in ringgit, your investments would have lost value, simply because the ringgit has weakened.
Investing abroad can help protect your portfolio against ringgit depreciation. For example, let’s say you invest in assets denominated in US dollars. If the ringgit depreciates against the US dollar, the value of your investment will now be worth more in ringgit terms.
However, this works both ways. If the ringgit appreciates against the US dollar, then the value of your investment will be lower in ringgit terms.
Invest directly in foreign-listed stocks
So how do you invest abroad?
Generally, there are two ways. The first is to invest directly in foreign-listed stocks. You can do that through a local broker that covers international markets, or through a foreign or online broker.
However, for many Malaysians, this isn’t very convenient. Here’s why:
- High fees. Local, foreign or online brokers generally charge high fees – your broker could charge you a minimum of US$25 (RM105) per transaction to invest in the US market. It may also charge you a monthly fee if you do not meet a monthly minimum amount of commissions.
- High starting capital. Because of the high fees imposed, you’d need to invest a relatively large sum each transaction, otherwise the fees will eat into your investment. For example, if you only had RM1,000 to invest per transaction, the fees alone would take up around 10% of your investment.
- Hard to diversify. If you want to buy stocks of large companies in developed markets – say, the US – you may need a lot of money. For example, you’d need US$2,153 (RM9,026) to buy a single Amazon share. But putting your money in only one company is risky, and you’d need a lot more money to build a diversified portfolio of individual stocks that encompasses different industries.
- Going offline. Some local brokers require you to be present in-person to open an account. They may also not have online transactions available for certain markets.
Invest in unit trust funds listed locally
The good news is that there’s a way to invest overseas that’s more convenient and involves lower sales charges. With the EPF’s new online investment platform, EPF i-Invest, you can invest your retirement savings directly into unit trust funds that invest overseas.
For example, Principal Asset Management has a range of EPF-approved unit trust funds that can help you diversify overseas:
| Fund names: | Region | 7- year annualised return (31/12/2012 to 31/12/2019) | 2019 calendar year return (31/12/2018 to 31/12/2019) |
|---|---|---|---|
| Principal Greater China Equity Fund (formerly known as CIMB-Principal Greater China Equity Fund) | China, Hong Kong and Taiwan | 13.56% | 22.62% |
| Principal Global Titans Fund (formerly known as CIMB-Principal Global Titans Fund) | US, Europe and Japan | 12.95% | 21.43% |
| Principal Asia Pacific Dynamic Income Fund (formerly known as CIMB-Principal Asia Pacific Dynamic Income Fund) | Asia Pacific ex-Japan | 11.87% | 16.36% |
| Principal Islamic Asia Pacific Dynamic Equity Fund (formerly known as CIMB Islamic Asia Pacific Equity Fund) | Asia Pacific ex-Japan | 7.35% | 18.35% |
With unit trust funds, it’s easy to build a diversified portfolio of quality businesses. For example, if you invest just RM1,000 in the Principal Global Titans Fund, you’d be investing in large, well-known companies like Amazon, Microsoft and Alphabet. You’ll also be diversifying your money across many other sectors, such as healthcare, information technology and financials. This fund has won the Lipper Fund Awards for being the best-performing fund of its category for the year 2018.
You can also take advantage of the fast-growing Chinese economy with the Principal Greater China Equity Fund. This fund focuses on companies in China, Hong Kong and Taiwan, allowing you to invest in huge brands like Tencent, Alibaba and Weibo.
Besides, there are two newly approved Principal unit trust funds effective 1 April 2020. This means you have more opportunities to invest with Principal on the platform:
| Fund names: | Region | 7- year annualised return (31/12/2012 to 31/12/2019) | 2019 calendar year return (31/12/2018 to 31/12/2019) |
|---|---|---|---|
| Principal China-India-Indonesia Equity Fund (formerly known as CIMB-Principal China-India-Indonesia Equity Fund) | China, India and Indonesia | 10.07 % | 15.91 % |
| Principal DALI Asia Pacific Equity Growth Fund (formerly known as CIMB Islamic DALI Asia Pacific Equity Growth Fund ) | Asia Pacific ex-Japan | 6.04 | 15.73 |
Why choose Principal?
Principal Asset Management Berhad has been recognised as one of ASEAN’s top management houses. They offer a variety of solutions to meet the varying needs of investors in Malaysia – with nearly 90 fund choices to help diversify your portfolio. Plus, Principal has received awards for Best Asset Management House in ASEAN by Asia Asset Management (2019) and Best Wealth Manager, Malaysia by Asset Asian Awards (2018). Across SE Asia, Principal serves over 1 million investors with RM88.1 billion in assets under management as of December 2019. And, around the world, Principal manages USD $735.3 billion in assets as of December 2019.
How to start investing with EPF i-Invest
- Investing abroad through Principal requires little initial capital. You’d only need a minimum of RM1,000 to diversify your EPF Account 1 savings through overseas investment.
- For a limited time only, you’ll also incur 0% sales charges when you invest in Principal’s unit trust funds via EPF i-Invest. This means that there won’t be any upfront fees eating into your portfolio, allowing you to maximise your portfolio returns.
- Take advantage of these promotions:
- Be a new Principal EPF i-Investor today and you’ll receive RM50 Touch ‘n Go eWallet reload pin when you invest a minimum of RM5,000.
Click here for campaign information and terms and conditions.
Ready to go international?
If your investment portfolio is concentrated in the Malaysian market, it could be time to consider diversifying overseas. After all, leaving your EPF savings on autopilot may not be enough to secure a comfortable retirement.
Investing your retirement savings comes with certain risks, as returns are not guaranteed. However, if you’re ready to take greater control of your savings, you could potentially gain higher returns and get closer to your retirement goals.
