Investment Basics…

Assalamualaikum and peace be upon you,

First of all I would like to thank “Zai” on the request to what to invest? Whilst investment is an easy word to say, yet there are few things that we need to consider before making an investment anywhere. I like to remind everyone reading this blog that the information I am going to give you is based on the basics of investment taught in investment discipline. For now I like to highlight what we have to know before we invest. Before that I need to warn the reader that this blog is for educational purposes only so that you know the basics of investment, and if you want to make real investment you better consult professional advice.

In financial theory, there is a positive relationship between risk and return meaning the higher the risk the higher the return. Examples of higher risk higher return is debt financing investment such as in banking. If we see any bank offering higher return meaning that they are involve in higher risk investment. Another example of higher risk investment is gambling (but for the purpose of fearing God the Almighty we must abstain from this kind of investment). Further, currency exchange investment is also considered as high risk high return type investment because it depends on the volatility of American dollars vs foreign currencies in the world stock market. This type of investment is cumbersome to explain in one breath, nevertheless, if we have time I will touch on this issue in the future. Also there is special case of real life example that is Skim Cepat Kaya (Easy Rich Scheme), this kind of investment is very persuasive, and many people easily trapped on this kind of scheme because they are blind-folded with the rate of return shown to them. I strongly advise those people to avoid this kind of scheme because there are several cases that this kind of investment turns out to be a hoax.

A low risk investment on the other hand tends to yield lower return. Yet, this kind of investment is safe and guaranteed return. Examples of lower risk lower return investments are, fixed rate of saving (Banks called this term deposits).

In between we have investment instruments such as shares, debentures and bonds. In Brunei Darussalam shares can be obtained from private companies (please see the company’s article A and B on the right to get shares in the private company), shares issues using cross-listing such as those offered by previously known as IBB (Saham IBB). Also new evolution of shares is those shares issued by cooperatives such as KOWIRA, SOAS College cooperatives, Persatuan Pemilik Stesen Minyak and so on. If you have access to this group, it’s your opportunity to invest because it’s a guaranteed return, for sure every year we’ll get some amount of dividend from the business.

I’m not sure in Brunei Darussalam the practice of debentures is done openly, because it is only offered to some key people in the company. This is because debentures are the backbones of the company to ensure that the companies stay alive. They are the first one to receive some percentage of profit if the company makes profit and if the company’s goes bankrupt, the debentures statutory rights will not be affected. In other words, the company must pay them first.

Finally is the Bond. It’s not 007 or James bond. It is one type of investment product normally issued by government or big companies who borrow money from us. If we have bond it means that the government or company make promise to pay us what they have borrowed. Bonds is written in a paper containing promise from the government or big company to repay us back the amount they borrowed plus some interest or profit rate. So if you find an opportunity to buy bond whether from the government or big companies it’s a good way to expand your investment pools.

There is a way to balance risk and return in investment. That we called as pooled investment. This is done by combining (pooling) higher risk investment and lower risk investment into a pooled investment. However, this strategy requires higher dedication, so if we do not have time we can hire fund managers. I think banks nowadays have the service of fund managers for those who wish to make pooled investment. The advantages of pooled investment are since we have fund managers we don’t have to worry about our investment because someone is looking after it. However, there is some amount of service charge billed to us because no one does business for free. But its better than troubling ourselves thinking about the performance of our investment. A word of advice, in choosing the fund managers make sure we look at their expertise, background and make sure they are transparent to us on what they do. After all it’s our money.

Last but not least, first for the Muslims we must have faith in Allah that the “rizq” comes from Allah. Secondly I advice for the Muslims to recite Surah “Al Waqiah” every night because our prophet Muhammad (Peace be Upon Him) used to say “ Who ever reads surah Al Waqiah Allah will not let him/her in the state of poverty”. Return on investment does not necessarily come in the form of money, sometimes it comes in the form of happiness, tranquility and health.

To be continued…See you in the next issue…Wabillahi Taufik Wal Hidayah, Wasalamualaikum Warah Matullahi Wabarakatuh.