Exchange-Traded Funds, or ETFs, have become increasingly popular among Malaysian investors for good reason. 

These investment vehicles offer a simple, cost-effective way to gain exposure to a diversified portfolio of assets, all through a single investment. 

For beginners especially, ETFs are an appealing choice because they combine the best features of stocks and mutual funds, providing both flexibility and variety without the high fees often associated with traditional investment funds.

 

In Malaysia, ETFs are particularly attractive because they allow investors to tap into both local and global markets with ease, providing opportunities to diversify and grow wealth. 

This guide is crafted to give you a straightforward, beginner-friendly overview of how to get started with ETF investing in Malaysia. 

Understanding ETFs

What is an ETF?

An ETF is a fund that trades on a stock exchange, just like individual stocks. This means you can buy and sell ETF shares throughout the trading day, unlike mutual funds, which only trade at the end of the day. 

ETFs are designed to track the performance of a specific index or sector, such as the S&P 500 or technology stocks. 

Because they follow a pre-set index, most ETFs are passively managed, resulting in lower management fees compared to actively managed funds.

Types of ETFs Available in Malaysia

In Malaysia, you can access various types of ETFs, each serving different investment needs and objectives:

• Stock ETFs: These ETFs hold a portfolio of stocks and are typically designed to track a specific stock index, such as the FTSE Bursa Malaysia KLCI or international indexes like the S&P 500.
  • Example (US): SPDR S&P 500 ETF Trust (SPY) or iShares Core S&P 500 ETF (IVV)
    • Description: These ETFs track the S&P 500, which includes 500 large-cap U.S. companies like Apple, Microsoft, and Amazon. 
  • Example (Malaysia): FTSE Bursa Malaysia KLCI ETF (FBMKLCI)
    • Description: This ETF aims to track the performance of the FTSE Bursa Malaysia KLCI, which consists of the top 30 companies listed on Bursa Malaysia by market capitalization. 
• Bond ETFs: Bond ETFs invest in a collection of bonds, providing exposure to fixed-income securities.
  • Example: iShares Core U.S. Aggregate Bond ETF (AGG) or Vanguard Total Bond Market ETF (BND)
    • Description: These ETFs offer exposure to a diversified portfolio of U.S. investment-grade bonds, including government, corporate, and mortgage-backed securities. Bond ETFs tend to be more stable than stock ETFs and can provide steady income, making them ideal for conservative or income-focused investors.
• Commodity ETFs: These ETFs track the price of commodities like gold, oil, or agricultural products.
  • Example: SPDR Gold Shares (GLD) or iShares Silver Trust (SLV)
    • Description: Commodity ETFs track the price of physical commodities like gold or silver, providing investors a way to hedge against inflation and diversify beyond traditional stocks and bonds. 
• Thematic ETFs: Thematic ETFs focus on specific industries or trends, such as technology, healthcare, or clean energy.
  • Example: Global X Robotics & Artificial Intelligence ETF (BOTZ) or ARK Innovation ETF (ARKK)
    • Description: Thematic ETFs focus on specific trends or industries, like artificial intelligence, renewable energy, or biotech. BOTZ, for instance, invests in companies involved in robotics and AI, appealing to investors interested in tech-driven growth themes.

Each type of ETF has its own risk and reward profile, so it’s essential to choose the type that aligns with your financial goals and risk tolerance.

Read my article on 3 Easy Ways to Invest in S&P500 as a Malaysian

Why Consider Investing in ETFs?

ETFs offer a range of benefits that make them an appealing choice for investors, especially for those new to the world of investing. 

Below are some key reasons why ETFs are worth considering as a part of your investment strategy:

1. Diversification Made Easy

One of the primary advantages of ETFs is the instant diversification they provide. When you invest in an ETF, you’re buying a share in a basket of assets, rather than putting all your money into a single stock. 

This allows you to spread your investment across different companies, sectors, or even countries, reducing your exposure to the risk of any one asset performing poorly. 

2. Cost-Effectiveness

ETFs are generally more affordable than other investment options, particularly actively managed funds. 

Since most ETFs are passively managed and track an index, they don’t require costly management fees. These lower fees mean you can keep more of your returns, which can make a significant difference over time, especially for long-term investors. 

3. Transparency and Liquidity

ETFs offer a high level of transparency, as their holdings are publicly disclosed every day. This means you can see exactly what assets are in the ETF at any given time, unlike some mutual funds that only disclose holdings periodically. 

Additionally, since ETFs are traded on stock exchanges, they are highly liquid, meaning you can buy or sell them at any time during market hours. 

This flexibility is beneficial if you need to access your funds quickly or adjust your investments as market conditions change.

4. Accessibility for Small Investors

ETFs provide access to a wide range of asset classes and markets that might be challenging or costly to enter directly. 

For example, as a Malaysian investor, you can easily gain exposure to international markets, commodities, or specific sectors like technology through ETFs. 

Many brokers allow you to invest in fractional shares, meaning you can buy a portion of an ETF even if you don’t have enough to purchase a full share.

5. Tailored to Different Investment Goals

Whether your goal is long-term growth, income, or capital preservation, there’s likely an ETF that aligns with your investment strategy. For example:

• Growth-focused ETFs target fast-growing sectors like technology or emerging markets.
• Income-focused ETFs may invest in dividend-paying stocks or bonds, providing regular income for investors seeking cash flow.
• Stability-focused ETFs could include a mix of bonds and low-volatility stocks, appealing to conservative investors who prioritize capital preservation.

This range of options allows you to build a customized portfolio aligned with your unique goals and risk tolerance.

How to Start Investing in ETFs in Malaysia

Getting started with ETFs in Malaysia is relatively straightforward and accessible, even for beginners. 

Here’s a step-by-step guide to help you kickstart your ETF investment journey.

Step 1: Choose a Broker

To invest in ETFs, you’ll need a brokerage account that allows you to buy and sell ETFs on the stock market. 

In Malaysia, there are several online brokerage options to consider, each with its own strengths:

• Rakuten Trade: Popular for its low fees and user-friendly platform, Rakuten Trade offers access to both Malaysian and U.S. markets, making it easy to invest in local and international ETFs. Read my article on my review of Rakuten Trade Malaysia
• StashAway and Wahed: These robo-advisors offer diversified portfolios that may include ETFs, providing a hands-off option if you’re looking for automated ETF investing. Read my article on StashAway vs Wahed
• International Platforms: Some platforms like Interactive Brokers allow access to a broader range of global markets, which can be useful if you’re interested in ETFs from different regions.

Things to Consider: Look into each broker’s fees, minimum deposit requirements, available markets, and trading tools. Selecting a broker that fits your budget and investment goals is key.

Step 2: Open an Account

Once you’ve chosen a broker, the next step is to open an account. 

Most brokers today offer a streamlined online account-opening process, where you’ll need to provide personal information, identification documents, and financial details.

• CDS Account: For Malaysian citizens investing on Bursa Malaysia, you’ll need a Central Depository System (CDS) account, which holds your investments.
• Nominee Account: Malaysian brokerages will use them to buy shares on your behalf. 
• Required Documents: You’ll generally need a valid identification document (e.g., MyKad or passport) and proof of residence, along with your bank details.

After submitting your application, the account approval process may take a few days.

Step 3: Fund Your Account

Once your account is open, it’s time to fund it so you can start investing. 

Most brokers allow various funding methods, such as bank transfers, FPX (online banking), and even e-wallets. Check the specific funding options and minimum deposit requirements for your chosen broker.

Tip: Start small if you’re a beginner. It’s usually a good idea to invest a manageable amount initially while you get comfortable with how the platform and markets work.

Step 4: Select Your ETFs

With funds in your account, you’re ready to choose the ETFs you want to invest in. Here’s a quick guide on how to select:

• Malaysian ETFs: If you prefer to invest locally, you can consider ETFs listed on Bursa Malaysia, such as MyETF MSCI Malaysia Islamic Dividend or FTSE Bursa Malaysia KLCI ETF, which provide exposure to Malaysian stocks.
• Global ETFs: For those interested in international exposure, you can look at U.S.-listed ETFs like the iShares Core S&P 500 ETF (IVV) or Vanguard Total World Stock ETF (VT). Many Malaysian brokers offer access to U.S. markets, making it easy to diversify globally.

Read my article on my review of Rakuten Trade Malaysia

Things to Consider:

• Research each ETF’s holdings and performance history.
• Check the ETF’s expense ratio (annual fees), as lower fees mean more of your returns are retained.
• Look at the ETF’s risk profile to ensure it aligns with your financial goals.

Step 5: Place Your Order

Once you’ve selected an ETF, it’s time to place your first order. 

ETFs can be bought and sold throughout the trading day, just like stocks, so you have the flexibility to choose your timing. 

Here’s how to place an order:

• Market Order: This type of order buys the ETF at the current market price. It’s quick and straightforward but may not be optimal if prices are fluctuating.
• Limit Order: A limit order allows you to set a specific price at which you want to buy. If the ETF’s price reaches that level, the order will execute. This gives you more control over the price you pay.

Step 6: Monitor and Manage Your Investments

Once you’ve invested in ETFs, it’s essential to monitor your portfolio and make adjustments as needed:

• Review Performance Regularly: Check how your ETFs are performing to see if they’re meeting your expectations. Remember, ETFs are best suited for medium- to long-term investing, so avoid making quick decisions based on short-term market fluctuations.
• Rebalance as Needed: Over time, some ETFs may grow faster than others, affecting your portfolio’s balance. Rebalancing involves adjusting your holdings to keep your portfolio aligned with your investment goals.

Tip: Consider using dollar-cost averaging, where you invest a fixed amount regularly, regardless of market conditions. This approach can help reduce the impact of market volatility over time.

Managing Your ETF Investments

Once you’ve invested in ETFs, effective management is essential to ensure your portfolio aligns with your financial goals. 

Here are some key strategies to help you manage and optimize your ETF investments over time.

1. Diversification Strategy

While ETFs are inherently diversified, managing the types of ETFs in your portfolio can further enhance stability and growth potential. 

Here’s how you can diversify with ETFs:

• Sector Diversification: Invest in ETFs that cover different sectors, such as technology, healthcare, consumer goods, and real estate. This helps reduce the impact of downturns in any single industry.
• Geographic Diversification: Spread your investments across local and international ETFs to reduce risks tied to specific regions. A mix of Malaysian and global ETFs provides exposure to different economies, helping balance returns.
• Asset Class Diversification: Consider diversifying across different asset classes, like stock ETFs, bond ETFs, and commodity ETFs. This balance provides potential for growth (stocks), stability (bonds), and a hedge against inflation (commodities).

2. Dollar-Cost Averaging (DCA)

Dollar-cost averaging (DCA) is an investment strategy where you invest a fixed amount regularly, regardless of market conditions. 

By consistently investing, you’ll buy more shares when prices are low and fewer shares when prices are high. 

This helps to smooth out the impact of market volatility and can reduce the risk of making emotional decisions based on short-term market swings.

I make it a point to invest in VOO every month as soon as I receive my paycheck, intentionally tuning out market news. I believe in the long-term upward trajectory of the market, which gives me the confidence to stick to my investment plan without being swayed by short-term fluctuations.

3. Rebalancing Your Portfolio

Over time, the value of your ETFs may shift, causing some to make up a larger portion of your portfolio than intended. 

Rebalancing involves selling a portion of the outperforming ETFs and reinvesting the proceeds into underperforming ones to restore your desired allocation.

• When to Rebalance: Many investors rebalance annually or when any asset allocation drifts significantly (e.g., by more than 5-10%) from their target. By rebalancing, you can ensure your portfolio remains aligned with your risk tolerance and investment goals.
• How to Rebalance: Some brokers offer automatic rebalancing, while others require you to make manual adjustments. Consider rebalancing only periodically to avoid excessive trading fees.

After deciding to focus my strategy on the S&P 500 and cryptocurrencies, I took the decisive step to rebalance my portfolio by selling off all other assets. This approach not only simplified my investments but also significantly reduced my anxiety about investing. 

Read my article on my experience with Lifestyle Creep

4. Tracking Performance and Adjusting as Needed

Regularly reviewing your ETF performance is essential to ensure your investments are meeting your expectations. 

Here are some steps to help you stay on track:

• Set a Review Schedule: Set a schedule (e.g., quarterly or annually) to review your portfolio’s performance. During each review, check how your ETFs are performing relative to your goals and consider any changes based on personal factors (e.g., nearing a financial milestone).
• Assess Each ETF’s Performance: Evaluate each ETF to ensure it still aligns with your objectives. If an ETF has been consistently underperforming compared to similar options, it may be worth researching alternatives.
• Stay Informed: Keep up with market trends and news related to your ETFs. Changes in economic conditions or interest rates can impact sectors and asset classes differently, so staying informed can help you make timely adjustments.

I typically review general U.S. market and economic news, along with my overall portfolio, on a monthly basis. This approach helps me stay informed without becoming overly emotionally involved, while still allowing me to monitor the performance of my investment decisions.

5. Managing Emotions and Staying Consistent

Investing, especially in the stock market, can evoke emotional responses, particularly when markets are volatile. Here are tips to keep a level head:

• Avoid Emotional Decisions: Making impulsive decisions based on market fluctuations can be detrimental. Remember, ETFs are generally long-term investments, and short-term market swings are normal.
• Stick to Your Strategy: Consistency is key. Stick to your initial investment plan, whether it involves dollar-cost averaging or regular portfolio reviews. This disciplined approach can help you achieve steady growth over time.

I used to check my portfolio every few days as a new investor, driven by the intense market volatility. This habit often led me to make impulsive decisions, such as buying hyped stocks without fully understanding their fundamentals. 

It’s essential to remember that investing is a long-term strategy. Taking a disciplined approach and focusing on the bigger picture can help you avoid knee-jerk reactions to market fluctuations and build a more resilient portfolio.

6. Tax Considerations

In Malaysia, certain taxes may apply to your ETF investments, especially if you hold international ETFs. Here are a few points to keep in mind:

• Dividend Tax: Some ETFs distribute dividends, which may be subject to withholding tax, particularly if they are U.S.-based ETFs. Consider this when estimating your net returns.
• Capital Gains: Malaysia currently doesn’t impose a capital gains tax on stocks and ETFs, making it an advantage for investors focused on growth.

In my case, as a Malaysian investor in the Vanguard S&P 500 ETF (VOO), here’s how capital gains tax and dividend tax would apply:

• Capital Gains: No tax in Malaysia or the U.S.
• Dividends: Subject to a 30% withholding tax in the U.S., but no further tax in Malaysia.

Understanding tax implications can help you maximize returns while staying compliant with local tax laws.

Conclusion

Investing in ETFs in Malaysia offers a unique opportunity to build wealth in a diversified, cost-effective, and accessible way. 

With a wide range of options, from local market ETFs to international funds, you can create a balanced portfolio that aligns with your financial goals and risk tolerance. 

By following a clear investment strategy—selecting the right ETFs, diversifying, practicing dollar-cost averaging, and regularly reviewing your portfolio—you’re setting yourself up for long-term success.

Now that you understand the basics of ETF investing, why not take the first step? I’d love to hear about your experiences and any questions you may have! 

Drop a comment below to share your thoughts, or feel free to reach out directly to me via email [email protected] 

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