Is It A Good Time To Use i-Invest, EPF’s Online Investment Platform?

Looking to invest your savings? You’re not alone. Thanks to relatively cheap stocks and low interest rates, Malaysian investors have been flocking to the stock market since the dip in March.

To help investors diversify their portfolio, the Employees Provident Fund (EPF) recently announced a one-year fee reduction for members who want to invest their EPF savings. With the reduction, there are currently no upfront fees for transactions made through i-Invest.

Considering the current economic climate and reduction of fees, should you consider investing your EPF savings through i-Invest?

Reduced fees can mean higher returns

The fee reduction takes place from May 1, 2020 to April 31, 2021. It applies to transactions made through both i-Invest and FMI agents:

• Investing through i-Invest: maximum of 0.5% to 0%
• Investing through an (FMI) agent: maximum of 3% to maximum of 1.5%

This makes it much more cost-effective to invest in unit trust funds. By contrast, the upfront fees of unit trust funds transactions (for non-EPF savings) can go up to 5.5%. If you invest RM10,000, a 5% upfront fee means that you’ll pay RM500 in fees – and you’d only actually be investing RM9,500.

Over many years, the impact of fees is even greater:

Impact of upfront fees on a portfolio

In the example above, the difference between a 5% and 0.5% upfront fee over decades can mean having a few thousand ringgit more in your portfolio. As an investor, lower fees allow you to maximise your investment returns.

The opportunity to diversify your savings

The i-Invest platform allows you to diversify your portfolio with unit trust funds that invest globally. This means being able to spread your investing risk geographically. For instance, if you mostly invest in Malaysian stocks, you’ll lose out if the local stock market doesn’t do well. But if you also invest in other countries that perform better, you may be able to offset these losses.

Diversifying part of your portfolio overseas could potentially offer better returns than mostly investing locally. Over the past decade, many major world markets outperformed Malaysia – America’s S&P 500 rose 248%, while Malaysia’s FBM KLCI rose 26.8%. In fact, overseas investments were the main driver of income for EPF in 2018, despite only making up around a quarter of its assets. 

i-Invest isn’t just for those looking to diversify overseas. There are 280 different unit trust funds qualified for offering by 20 FMIs on the platform – you can choose funds that focus on specific sectors (e.g. real estate), commodities (e.g. precious metals), financial securities (e.g. Shariah-compliant bonds) and many more. This makes i-Invest a good platform for those who want more control over their EPF savings and want to invest for potentially better returns. 

Don’t invest if you are risk-averse 

While it can be a good way to diversify your portfolio, you should be more cautious with your investment if you are nearing retirement, or if you don’t feel comfortable taking on more risk. When you invest in unit trust funds, there is no guarantee that your investments will outperform EPF, or even provide positive returns.

As i-Invest gives control back to you, you should also ensure you have done your due diligence before you start investing. If you’re not comfortable making your own investment decisions, it is best to get professional advice, such as engaging with a financial advisor or an FMI agent.

Otherwise, leaving your savings in EPF is a safe option. EPF has an excellent track record of performance, with historical dividend rates of around 6% over the past decade. It also guarantees a minimum 2.5% dividend for Conventional Accounts, while unit trust funds do not guarantee minimum returns. 

Consider the long run

“Should I invest during a recession?” is a question that often gets asked during an economic downturn.

Sometimes, it can work to your advantage – when a recession happens, the stock market may be selling at a discounted price. It could be a good time to buy stocks when they are relatively cheap. This gives you more returns when the economy recovers, and share prices rise again.

But if you are a novice investor, it shouldn’t matter if we’re in a recession or economic boom.

That’s because timing the market – that is, investing based on whether you think the stock market will go up or down – is incredibly hard, even for the professionals. If you only invest when the stock market is doing well, you’ll be investing in stocks when they are more expensive. And if you wait until the stock market goes down to invest, you could be missing out on stock market gains in the meantime.

When it comes to your EPF savings, investors are advised to focus on the long run and avoid timing the market. Consider investing a fixed amount of money at a fixed schedule (e.g. monthly or quarterly), regardless of whether the stock market is doing well or not. This allows you to capture both the ups and downs of the stock market. When you do this over many years, you’ll be able to ride out the stock market’s short-term volatilities. 

So…should you invest your savings via i-Invest?

The bottom line is that i-Invest is a good platform to diversify your savings. Consider using the platform if you want greater control of how your EPF savings are invested – and can stomach the higher risk involved. From now until April 2021, you’ll be taking advantage of reduced fees to maximise portfolio returns.

However, you should not invest if you cannot take on more investing risk. And if you are new to investing, consider talking to a financial advisor or an FMI agent to help you make an investment decision.

Finally, while we’re currently in a recession, novice investors should avoid investing (or not investing) based on short term stock market movements. Instead, focus on the long run to ride out these volatilities.