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Cover Story: Plethora of possibilities: Retirement planning 2.0 – The Edge Markets MY

A few decades ago, the typical Malaysian investor’s retirement portfolio may not have been ideally diversified as foreign assets were not easily accessible and local investment products were limited. Today, however, investors are spoilt for choice.

Thanks to the regulators’ liberalisation measures and technological advancements, they now have a wide range of options such as foreign equities, cryptocurrencies, exchange-traded funds (ETFs) and peer-to-peer (P2P) financing. These have allowed them to diversify their portfolios so they can better meet their retirement needs.

Personal Wealth speaks to industry experts, market analysts, financial advisers and investors to find out what makes a modern retirement portfolio. Are equities and bonds still essential? Is there value in traditional asset classes? How should investors approach newer and alternative asset classes? And what risks should they be aware of?


Traditional asset classes

Equities and bonds are still considered essential assets and should form the core of one’s portfolio, according to the fund managers interviewed by Personal Wealth. While they do not discount the potential of newer asset classes, they emphasise that investors should be aware of their risks.

“I do not think investors should have an either/or mentality. Rather, they should be opportunistic and look at the array of asset classes at their disposal now. Traditional asset classes could be the anchor for investors who need more transparency and information because these are well established and tightly regulated,” says OCBC Bank (M) Bhd executive director of wealth advisory Michael Lai.

Investors should take advantage of newer asset classes to see how these will benefit their portfolio, he adds. But more importantly, the allocation should match the investor’s risk profile and how familiar he is with the asset class.

“For example, P2P financing is a good form of credit lending, but it has a higher risk due to less transparency and limited information on the companies’ balance sheets. I do not think it can replace investment-grade bonds, which remain very relevant to conservative investors,” says Lai.

Affin Hwang Capital portfolio manager Lim Chia Wei agrees. “I am not against P2P financing, but it is not a great choice for a retirement portfolio. You probably would not want to put too much money in it. People who do invest in it probably put only a small portion of their wealth in it,” he says.

“For retirement savings, I think it is very important to keep it simple and in things you really understand and are proven. The track records of equities and bonds are proven.”

The same goes for venture capital funds. “Compared with bonds and equities, there is less transparency in venture capital funds. For most people, it is hard to understand, so I do not think it is suitable for every investor. People who invest in these funds expect higher returns, but they also have to take higher risks,” says Lim.

For the same reason, he does not encourage people to invest in digital currencies. “I do not believe in cryptocurrencies because these are not supported by the government or central bank the way traditional currencies are,” he says.

He adds that there may come a time when cryptocurrencies are officially recognised and when that happens, these tokens will not be as volatile as bitcoin is today.

Lim says equities and bonds are enough to serve the needs of one’s retirement portfolio. “For most people, a portfolio [of equities and bonds] that can generate an average return of 8% is good enough. If you have saved and invested consistently from young, you should be able to meet your retirement needs through the power of compounding interest.”

Felix Neoh, a financial adviser and director of Wealth Vantage Sdn Bhd, says there will always be people who want to invest in newer asset classes and financial instruments. But they should bear in mind that while it is okay to dabble, these asset classes are not tried and tested.

“They can take these kinds of risks, but in very small allocations so that these do not keep them up at night. The bulk of their portfolio, especially for retirement, should be in more stable asset classes,” he says.

Another advantage of investing in traditional asset classes is that these are offered by banks and brokerage firms, which are able to service their customers. Their services may not include newer asset classes such as equity crowdfunding (ECF) or P2P financing.

“Investors who appreciate the market outlook and product advisory that comes out of banks should stick to traditional asset classes. Newer asset classes are for those who prefer to rely on their own knowledge and are comfortable with the inherent risks,” says Lai.


Investing consistently

It may not sound sexy, but the truth of the matter is that investors need neither complicated nor sophisticated assets to achieve their retirement goals, says Neoh. They can go for asset classes that have been proven to perform in various market cycles and invest consistently while ignoring the day-to-day market noise to avoid being swayed emotionally.

Bonds and equities may not sound exciting, but if an investor does not time the market and regularly tops up his investments over a long period of time, the returns can be sufficient.

“I will take the most notorious epoch of all — the 2007 to 2009 lows. Based on the Bloomberg Barclays Global Aggregate Credit Total Return Index, investors who bought into [the index fund] during the decline would have an average return of about 5% per annum. For equities, the MSCI World Index shows that investors who bought during the decline would have seen an average return of about 10% per annum,” says Lai.

“However, by juxtaposing the equity markets with the bond markets, we find that pure equity investors would have suffered more volatility than pure bond investors. So, I would say the truth of risk-reward investing remains. I do not think it will ever change.”

Investors should not try to time the market as even fund managers are not able to do so successfully, says Lim. “Over the past three years, the MSCI World Index has gone up 33%, an average of 10% a year. If you had sold your investments three years ago because you thought the average was high, you would have missed out on the 33% gains.

“Even Asia, which is having a very bad year, is still up 17% from three years ago. The longer your investment horizon, especially for retirement, the more fruitless and unnecessary it is to time the market.”

Investors should make sure that their retirement portfolio is well diversified. According to Lim, this means having a mixture of equity and bond funds as well as some exposure to fixed deposits (FDs) for liquidity. He believes that stock picking should only be done by those savvy enough.

“FDs should always be the smallest portion of your retirement portfolio and treated as emergency funds. For instance, you may need money for your child’s education. If this will occur in one to two years, you can put the money in equities and bonds. But if it is less than that, you may want to put it in FDs because if the market collapses during that period, bonds and equities will fall in value and you would not want to sell at that time,” says Lim.

FD rates in Malaysia have averaged between 3% and 4% a year, which is just enough to cover inflation. But these rates may head south as central banks around the world are cutting interest rates. While many conservative investors may still choose FDs, Lai suggests that those with a short investment horizon could slowly go into higher-yielding asset classes.

“Perhaps they can start with an investment-grade bond that offers a slightly higher yield than FDs. After that, they can widen their comfort level and put their money in A-rated bonds and perhaps sturdy defensive equities. Meanwhile, younger investors can add more growth stocks to their retirement portfolio,” he says.

Previously, retail investors were not able to directly access bonds on the local market due to the high cost of entry and lack of information. However, Fundsupermart.com’s Bond Express platform now allows retail investors to buy into bonds in smaller investment amounts, letting them dip their toes in the local bond market.

Neoh thinks investors should stick to lower-risk products such as bond funds to mitigate the risks. If they do not want to invest in traditional bond funds, they can try bond ETFs, he suggests.

The 10-year outlook for bonds and equities will be lower than in the past based on today’s valuations, says Lim. “Valuations are high right now. But I believe these will come down in the next recession and the 10 and 20-year returns will go up again. This is just the nature of the market.”




Many Asians love to invest in real estate. And it will continue to be the go-to investment for retirement planning because of its nature as a tangible long-lasting asset, says Rahim & Co research and strategic planning director Sulaiman Akhmady Mohd Saheh.

“Real estate is a limited resource. With a growing population, whether through organic growth or migration of people from other states and countries, there will continue to be a demand for properties, especially in urban areas. These investments can be a good hedge against inflation,” he adds.

Investing in real estate for the long term can help avoid the property sector’s cycle of booms and busts. This includes going through the current oversupply situation in certain types of properties in Malaysia.

“If you invest in property for short-term gains, the immediate short-term market dynamics will impact your strategy. For instance, I could buy a property today with the intention of selling it in two years. But if the market does not pick up by then, I am locked down,” says Sulaiman.

“But if you have a longer-term vision for the property over 20 to 30 years, it is different. Markets generally move upwards, even on a low gradient.”

That is because the demand for well-located properties is bound to increase, especially in urban areas.

There are various ways to use real estate as part of one’s retirement planning. For instance, buying an additional property to rent out can provide passive income during one’s retirement years. On the other hand, some choose to purchase properties and flip them to generate cash.

“These are some of the key benefits of property investing. That is why it is called real estate — because it is a real and tangible asset that you can see and secure,” says Sulaiman.

Those who want to invest in properties to earn additional income should identify locations that attract high demand from renters, he suggests. For example, they can target those who have moved to the city from other towns.

“They would want to stay where there is public transport, especially along railway routes. These areas are popular, even if you buy a second-hand property. As long as it is a good location with good amenities and it is safe and secure, it is attractive,” says Sulaiman.

Meanwhile, those who want to dispose of their properties upon retirement to get a lump sum of money should take note of factors that lead to capital appreciation. In this case, landed properties may be better than condominiums.

“Landed properties are a bit harder to substitute [which results in higher prices]. For instance, there will not be a condominium suddenly built next to your house because the whole area has already been developed into terraced houses. There are only two corner units in a row of houses as well,” says Sulaiman.

The capital appreciation of properties in the Klang Valley can vary. During the property upcycle from 2011 to 2014, prices saw double-digit growth of up to 30% a year, which was rather unsustainable, says Sulaiman.

But in the past 10 to 15 years, even property prices in the northern fringe of the Klang Valley have been rising at about 5% per annum, whereas properties that are closer to town can see growth of up to 8% per annum. “In the Klang Valley, you are probably looking at price increases of between 6% and 8% on average,” he says.

A property in the Klang Valley could see a rental yield of 2% to 3% a year. Taking into account the average capital appreciation of 5% to 6% per annum, this translates into an investment return of about 8% a year, which exceeds the returns of investments such as FDs.




When it comes to commodities, market analysts advise that you invest in precious metals such as gold, silver and palladium.

For a retirement portfolio, gold and silver would fit better than hard commodities such as crude oil, says Valour Markets Pte Ltd managing partner Stephen Innes.

Historically, gold outperforms equities in a bear market and is a good asset to protect investors from the effects of monetary policies. Innes thinks there is a strong opportunity for gold to move towards the US$3,000 per oz level over the next five years — double the current level — given the macroeconomic factors that will continue to drag the global economy and support the price of the yellow metal.

“The market is currently bracing for a lower-for-longer interest rate cycle and there are underlying problems in the economies of Europe and China. This includes structural problems such as weaker manufacturing growth and tensions surrounding trade and national security five years down the road and possibly even beyond that. I do not think we are anywhere near the end of gold’s rally,” says Innes.

On the other hand, silver is a bit tricky, he adds. Unlike gold — which is backed by central banks — silver is attractive because of its utility for industrial purposes. While he does not think silver will perform as well as gold in the same period, he believes it could go up to US$27 per oz over the next five years and even hit US$30 in 10 years. Silver is currently trading at about US$18 per oz.

Meanwhile, Oanda Asia-Pacific senior market analyst Jeffrey Halley thinks palladium is an interesting commodity to consider. This is largely due to its industrial use, especially in making modern, high-performance catalytic converters. One of the rarest metals on earth, palladium has the appeal of scarcity, given that supply comes primarily from Russia and South Africa, he points out.

Innes concurs, adding that the shift towards green energy supports palladium in the long run. “Catalytic converters convert toxic gases into less harmful gases before they are released to the atmosphere. I think in the long run, electric and hybrid cars are going to gain in popularity because petrol-based cars are going to be obsolete. This will indirectly benefit the white metal down the road,” he says.

On the potential of allocations to soft commodities such as soybeans and coffee, Halley says investors will have to be aware that these are largely driven by supply and demand. The price of coffee, for example, increases whenever there is a drought in Brazil, one of the largest coffee producers in the world. Similarly, banana prices go up when there are plant diseases affecting countries such as South Africa, one of the world’s largest exporters of the fruit.

“One of my concerns is how individual investors trade these soft commodities. Rather than trading the individual commodities, I think it is far safer to do it via ETFs. There are a lot of ETFs out there that track both soft and hard commodities,” says Halley.

Should investors increase their allocations to commodities in the current market conditions? Innes thinks it is a good idea as he believes commodity prices will rise over the next two to three years because of things like the lower-for-longer interest rate environment as well as central banks’ move towards deficit spending and fiscal-driven initiatives towards tax cuts, which will boost the global economy (although not necessarily push interest rates up).

“This is based on a view that we are going to have almost another 2008 type of market. If you look at bond yields in the US right now, they are very low. A growing number of bonds around the world have negative yields, so it is a really good time for governments to start opening up deficit spending programmes. This will be great for commodity prices as there will definitely be an increase in demand over the next few years,” says Innes.

The commodities sector has seen some innovation over the past few years, thanks to the implementation of blockchain technology. Today, there are cryptocurrencies backed by commodities such as gold and crude oil.

In the near future, this could include coffee. Bloomberg reported in July that Brazilian coffee farming cooperative Minasul planned to issue a coffee-backed token that month, although no further update can be found.

Halley says that while these are interesting developments, he does not think cryptocurrency tokens fit into one’s retirement portfolio. “The important thing to remember is that certain things have a place in one’s rainy day fund and retirement portfolio while others do not. The market is still very immature and we do not know where it will take us in the next five years. Investors can pay attention to the space, but they may not want these coins to be part of their conservative portfolios.”



Private equity

Over the past five years, the private equity (PE) sector has seen more money raised, invested and distributed to investors than in any period before this, according to Bain & Co. The asset class has produced steadier and more reliable returns than public equities in recent years, especially as the stock market continues to witness bouts of volatility.

Based on this track record, investors should consider having some exposure to PE for their retirement portfolios, says Gavin Tan, vice-president of investment and investor relations at COPE Private Equity. “According to Cambridge Associates, global PE as an asset class posted returns of 13.5%, 12.8% and 12.7% over 10, 15 and 20 years respectively as at Dec 31 last year, outperforming public markets by 200 to 600 basis points (bps) annually.”

Against the current backdrop of low interest rates — which seem likely to stay low for longer — and market turbulence, this is a good time to start investing in this asset class, he adds. PE is typically a long-term investment that could go up to 10 years.

“We expect private market valuations to trend down over the next 12 to 18 months, which bodes well for those looking to invest. While we are in a low interest rate environment, most small and medium enterprises (SMEs) will tell you they are facing difficulties in accessing financing. As financial institutions tighten their lending in an economic downturn, entrepreneurs will turn to PE as an alternative source of financing,” says Tan.

Interestingly, according to a recent report by PitchBook, growth in smaller public companies have lagged behind their private market counterparts in the past decade. Many company managers are also choosing private ownership to take a longer-term view and operate outside the quarterly reporting cycle, as is required of public companies.

“We are confident PE will perform well in the future. As long as there are businesses out there with great products and services looking to grow regionally and globally, this sector will continue to have a role to play and thrive from assisting these businesses,” says Tan.

While PE investments are not generally accessible to retail investors, most high-net-worth individuals (HNWIs) can access this asset class via private banks and family offices. “In terms of allocation, one can take reference from pension funds — which allocate between 1% and 10% of their funds into PE — or the family offices of HNWIs, which allocate between 20% and 30%,” says Tan.

There are a few things investors should take note of when it comes to this asset class. One is that PE is a blind pool of money that is generally committed for a period of 7 to 10 years. It is also illiquid. “Thus, PE may not be suitable for investors with shorter investment horizons,” he says.

The selection of PE fund managers is also important as the difference in performance between the top and bottom quartile of fund managers is higher than that of fund managers in the unit trust industry. In addition, private markets typically have less transparency than public markets, so investors need to rely on experienced fund managers to navigate the markets.

“Unlike public markets — where companies undergo vigorous due diligence, scrutiny and vetting prior to admission — private companies may suffer from poor governance, lack of distinction between personal and business expenses, undisclosed related parties, non-compliance with rules and regulations, fraud and other issues,” says Tan.

He suggests that Malaysian investors go beyond the country and the region when investing in this asset class. “Where possible, one should consider having PE assets in the US and Western Europe as these have historically outperformed those in emerging markets,” he says.



Venture capital

Venture capital is a good addition to a traditional retirement portfolio because of its role as a diversification tool, says Victor Chua, managing partner at venture capital firm Vynn Capital.

He adds that going forward, the asset class will be more attractive to investors, especially high-net-worth individuals and family offices looking for value in alternative assets.

“Due to the short-term volatility in public markets, I think people are going to see more value in making venture capital investments. There is only so much alpha that can be derived from listed stocks. Investors are going to look for something like venture capital as a way to get additional yield, and the interest is definitely picking up. I think it will make up a bigger portion of one’s retirement portfolio in the future,” says Chua.

There is a growing number of venture capital firms around the world, thanks to factors such as an exponential increase in high-growth technology start-ups and diminishing entry barriers to the world of high-risk, high-reward investing for various types of unaccredited investors.

A Jan 15 report by KPMG says 2018 was a strong year for venture capital investments, which soared past US$250 billion for the first time this decade, with emerging markets such as Malaysia, Brazil, India and Indonesia attracting well over US$8 billion in investments. The report notes that the growing number of deals in emerging markets likely reflects investor sentiment that these markets have a wealth of potential or companies able to provide services that cater to the needs of the underbanked and unbanked populations.

However, Chua points out that retail investors should not simply jump on the bandwagon. They need to make sure that they are able to stomach the risks associated with investing in start-ups, which have a high probability of failure.

“First, I think retail investors should start out as angel investors [investing at a much lower base]. They should make sure that they have ample capital that they are prepared to lose because there is a high chance of early-stage companies failing. If they are not doing it full-time, they should not expect too much and keep the investments as a minor part of their portfolios. If the investors are more experienced and confident of their ability to spot the right companies and help them succeed, then they can start making formal venture capital investments, putting in more money in later-stage companies,” he says.

While Chua is unable to pinpoint his personal allocation to venture capital investments, he thinks it will continue to be a big chunk of his portfolio, even beyond retirement. “I will do this for as long as I can. Venture capital is not a new asset class. It has been around for decades and it has been a viable investment for many long-term investors throughout history. There will always be new trends and opportunities to tap. So, I will keep looking out for them,” he says.

Chua is currently eyeing a few trends, the first of which is cross-border commerce. He says the internet and emergence of various supply chain solutions have enabled SMEs to push their products to markets that they previously did not have access to. One of the largest benefactors of cross-border commerce is travel and tourism and investors should pay attention to travel technology in particular, he says.

Another trend Chua thinks will take off is property technology. According to him, there are many issues in the region’s property industry. For instance, not only are prices not looking too attractive, developers are struggling to sell their assets. “So, I think there are a lot of opportunities for tech platforms to come in and help homeowners and property developers make use of their assets and generate an enhanced yield while waiting for the units to be sold,” he says.

Chua says there has been a noticeable increase in the number of institutional and corporate funds looking to make venture capital investments and reap the returns of an increasingly digital economy. In fact, certain prominent local tycoons are acquiring start-ups right now, he adds. “I think they are trying to get into such investments at the early stage.”



ECF and P2P financing

Due to the higher risk profile of newer asset classes such as equity crowdfunding (ECF) and peer-to-peer (P2P) financing, most of the industry observers that Personal Wealth spoke to do not recommend making these a core part of one’s retirement portfolio.

Their reasons vary. Some say these asset classes are relatively new in Malaysia so investors may not be familiar with them yet. “Investors are advised to understand the risks of these asset classes before investing. These products typically come with higher risks, but such risk-taking is commensurate with higher returns,” says Kevin Neoh, a licensed financial planner with VKA Wealth Planners.

“I would say investors should treat these asset classes as ‘satellite’ investments, with each representing a small portion of the overall portfolio — for instance, between 5% and 10%. Investors should do their homework or get professional advice before making an investment.”

Aaron Tang, who writes the popular financial blog Mr Stingy, shares his experience. “I look at my situation as having two portfolios. The retirement portfolio comprises the more traditional assets while my ‘Looking for high returns’ portfolio includes some of the newer asset classes,” he says.

While the newer asset classes provide investors with the option of earning higher yields, these high-risk, high-return assets could give people the impression that it is easy to make money quickly. “I worry that investors — especially young people — may start putting all of their money in high-risk investments without any due diligence. That is speculation at best, gambling at worst. I hope people realise that as in all things, balance is very important,” says Tang, adding that investors should only use money they are willing to lose when it comes to high-risk assets.

He also believes that investors should keep most of their funds in safe assets. “In the past century, we have seen that properties and stocks have generally performed well over the long term. I do not know if any of these new asset classes will ever be ‘anchors’ like stocks and bonds, which have dominated for decades,” he says.

Neoh says bonds act as a defensive asset when equity markets face turbulence. The newer asset classes can play a role in one’s retirement portfolio as a form of diversification, provided that the investor understands the risks.

“It all depends on your investment needs, ability to understand the risks as well as the makeup of your financial situation. If you can understand the risk and stomach it and you are comfortable with the risk-reward characteristics, why not? Otherwise, you should avoid these asset classes at all costs,” he adds.

Neoh advocates having a mix of alternative assets, rather than investing in just one asset class, or putting all of one’s eggs into one basket, so to speak. “If the investor is young, the portfolio may be geared towards growth rather than preservation of income. But if the investor is approaching retirement, the portfolio should be tilted towards fixed income or equity income and away from growth stocks or growth funds,” he says.

Neoh has seen his clients diversify into asset classes such as private equity via a unit trust structure. Some of them have also invested in preference shares of private companies.

“Preference shares come in many forms. These can be with or without collateral. Preference shares that come without collateral typically have higher returns since the risks are higher. The risks you are taking on should commensurate with your returns” he says.

While it is difficult to estimate the returns of asset classes, Neoh expects ECF and P2P financing to generate returns of at least 15%. “These asset classes make up my non-core portfolio. For my core portfolio, I have assets that generally provide returns above FD rates to 8%. Anything above 8% will be more from sector-focused funds such as small-cap or tech funds,” he says.

Tang does not have any investments in ECF platforms because he is not sure if he has the capability to evaluate early-stage companies. His annual pre-tax returns from P2P financing platforms after two years stand at 13%.

“Overall, my portfolio is still heavily weighted with what I consider ‘safe’ assets, which are balanced by a couple of risky assets that could really grow. In my personal portfolio, it is something like 80% safe assets, which include low-risk mutual funds and robo-advisor platforms. The riskier items such as P2P financing, precious metals and bitcoin are still less than 20% of my overall investments,” says Tang, adding that he expects his safe assets to generate returns of 6% to 10% a year.

His exposure to bitcoin is due to his understanding of and involvement in the industry, he points out. “The idea is that even in dire economic situations, my safe assets would still allow me to be comfortable, whereas my high-risk, high-return assets will really help me grow my money.”




Cryptocurrencies are an alternative asset class that has gained in popularity among retail investors over the past few years, especially with the increased participation of prominent institutional investors and stricter regulations in many jurisdictions.

To most financial planners, cryptocurrencies are not favourable for one’s retirement portfolio due to their high-risk nature and lack of track record. Felix Neoh, a financial adviser and director of Wealth Vantage Advisory Sdn Bhd, says the issue with these currencies is that they are very volatile.

“Can investors be confident enough to invest in something so volatile, especially for their retirement? If they want to, I think it is best that they put in no more than 5% to 10% of their overall investable assets. If they are able to strike it big, then great. If not, it doesn’t really matter because it is only a small portion of their portfolio. It will not hurt their overall retirement planning,” he says.

Certain parties argue that cryptocurrencies provide investors with good diversification benefits. Digital asset management firm Grayscale Investments, for example, has conducted a series of portfolio simulations to see how an allocation to bitcoin and an equal-weighted mix of select digital assets may have impacted the risk-return profile of a portfolio comprising global equities and bonds from Dec 31, 2016 to May 31, 2018.

The firm found that by allocating 5% of a portfolio comprising 60% equities (iShares MSCI ACWI) and 40% bonds (Vanguard Total International Bond ETF) to bitcoin, it managed to increase the simulated cumulative return by 15.24%, without materially increasing volatility. The result is a 101% improvement in risk-adjusted returns.

Peter Sin, a cryptocurrency investor and co-head of the Singapore Cryptocurrency and Blockchain Industry Association’s digital currency subcommittee, is bullish on bitcoin — the cryptocurrency with the largest trading volume. This is the only digital asset he holds for the long term. While he does trade the others (such as Ethereum, Litecoin and Ripple), he only does so according to price action and not for the purpose of long-term investment.

Sin thinks there is room for improvement when it comes to bitcoin’s price over the long term. “Currently, one bitcoin is valued at about US$10,000 — half its value from its high of US$20,000 in December 2017. Despite the extreme volatility, from a medium to long-term investment perspective [taking the example of the cryptocurrency’s performance from Jan 1, 2015 to Aug 26, 2019], bitcoin has performed extremely well with a price appreciation of more than 3,000%,” he says.

As an investor himself, Sin thinks cryptocurrencies such as bitcoin can be part of the alternative investment portion of one’s retirement portfolio. However, investors need to fully understand the inherent and regulatory risks involved as they could potentially lose their capital.

“Investors should always maintain a well-diversified portfolio of assets according to their personal risk and tolerance profile and in accordance with their knowledge of investments and the underlying instruments. In general, cryptocurrencies should not be more than 10% of a retail investor’s total investable assets,” says Sin.

Cryptocurrency investor and freelance content creator Suraya Zainudin agrees. She believes that bitcoin has the potential to outperform in the long run. However, she does not think she will continue making investments in the alternative asset class for the long term.

“I do not think cryptocurrencies are a suitable asset class for one’s retirement portfolio. I am actually looking for an opportunity to cash out, but I do not mind waiting until the right time,” says Suraya.

Sin says there are four risks that investors should bear in mind when it comes to cryptocurrencies — volatility and market, regulatory, systemic and dependency. The cryptocurrency markets are still in their infancy and far too volatile. Such volatility, together with a lack of unified price settlements, is major hindrance to commercial and institutional acceptance, he adds.

Currently, regulators around the world are increasingly stepping up monitoring and establishing guidelines for the cryptocurrency sector within their jurisdictions. Sin says the key areas of scrutiny include money laundering, investor protection, credit risks and market functioning. “In the US, for example, cryptocurrency-related activities are regulated by the Securities and Exchange Commission, Commodity Futures Trading Commission, the Federal Trade Commission and the Department of the Treasury’s Financial Crimes Enforcement Network.

“While the use of digital currencies is not illegal in most countries, there have been many restrictions imposed on cryptocurrency-related activities — such as initial coin offerings, security token offerings and mining — in many countries. Increased regulatory oversight will be a major factor affecting the variability of many crypto-asset businesses and defining the ‘legitimacy’ of cryptocurrency-related assets and tokens as financial instruments for broader market adoption.”

There is usually some level of systemic risks associated with cryptocurrency markets that cannot really be diversified as the industry is too nascent, says Sin. Also, the scale and frequency of systemic risks are very hard to predict and are unique to the industry.

“Examples of systemic risks include cryptocurrency hard forks. A hard fork is when a single cryptocurrency splits in two. Hard forks occur when a cryptocurrency’s existing code is changed, resulting in a new and old version,” he explains.

“A notable example is the ‘forking’ of bitcoin in August 2017, when some evolutionary changes were made to the original bitcoin to make it more efficient and the creation of Bitcoin Cash, a bitcoin clone with several technical differences. Traditional investments do not suffer from such systemic risks.”

The last is dependency risk. Many cryptocurrency-related projects are interdependent, leading to what is known as dependency risk, which affects the value of the digital tokens. One example is the Ethereum-based ERC20 tokens, which are currently dominating the crypto economy in terms of trade volume and market capitalisation.

Sin explains that the ERC20 tokens ride on the Ethereum network, is hosted by Ethereum addresses and sent by Ethereum transactions. Consequently, the tokens are more vulnerable to attacks on the Ethereum network. “Furthermore, as layers of the ecosystem build up, the dependency risk deepens.”




Exchange-traded funds (ETFs) are touted as low-cost, passive investing vehicles, which some have proved can beat the performance of actively managed funds. These products also give investors diversified exposure to an entire index.

ETFs meet some of the crucial needs of those preparing for retirement, say some industry observers. “I think ETFs have opened up a whole new world [for investors] in that they have enabled the robo-advisory model and provide great savings for the retail investing public,” says Main Street Capital co-founder and CEO Julian Ng.

In Malaysia, there are 11 ETFs that cover commodities, equities and fixed income. Meanwhile, the Securities Commission Malaysia licensed two robo-advisors since last year, allowing Malaysians to invest in a portfolio of US-based ETFs.

“The advantage of an ETF is that it is based on an index. So, you just have to choose a few ETFs. If you want to invest in ETFs directly for your retirement fund, then you have to go into very broad ETFs that reflect the economic activity of certain regions. For example, you could invest in an ETF that tracks the S&P 500, emerging markets or developed markets,” says Ng.

Even Warren Buffett advises investors to put 10% of their cash in short-term government bonds and the rest in a low-cost index fund (mutual fund or ETF) that tracks the S&P 500, according to reports. For example, the 10-year return of the iShares Core S&P 500 ETF is 14.63% in net asset value (as at June).

Many of the ETFs listed in the US have low tracking errors and are efficient in tracking their respective indices, he observes. So, by including ETFs in your retirement portfolio, it frees you from having to do extensive research on markets and individual stocks.

“If you are investing through a robo-advisor, which is a vehicle for you to invest according to your goals, the service can do the heavy lifting for you,” says Ng. By heavy lifting, he means the extensive research required before investing in traditional and alternative assets.


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