As I’m writing this, the Malaysian Ringgit is trading at a pretty low level: 1 USD = 4.46 MYR
It seems to be sliding lower and lower every week. And it’s getting worryingly close to its historical low: January 1998; 1 USD = 4.885 MYR.
If you can’t (or too young to) remember, that was back in the days of the Asian Financial Crisis. Malaysia and many of our Asian neighbours lost a lot of money (and confidence). South Korea, Indonesia and Thailand had to borrow money from the International Monetary Fund (IMF). Malaysia imposed strict capital controls, and fixed the exchange rate at 1 USD = 3.80 MYR for a couple of years.
The good news is that we have recovered from that bout of ringgit tumble.
The bad news is that the ringgit is in for another decline. And while we probably can’t do too much about it now, here are some ideas on what you can do to preserve the value of your money.
1. Park your money in “safe” local assets
On paper, it looks like we’re doing terrible. The ringgit dropped more than 6%alone in November 2016.
If you travel overseas a lot and use a lot of branded, imported stuff — I’m sorry for your pain.
Domestically though — it’s a less direct link between the falling ringgit and a painful life. For example, if you’re doing all your spending locally, on local products and buying from local producers — you won’t feel the impact of currency drops immediately. The RM10,000 you have in the bank is still RM10,000 — as long as it’s used within Malaysian borders.
If you’re still worried about your ringgit losing value though, you could consider holding less money in the bank, and investing more in good local assets.
Cash is always going to be affected by currency fluctuations and inflation. RM3,000 might have bought you a nice Coach handbag from Suria KLCC in 2015, but you might need RM3,300 in 2017.
But say, you buy an apartment to stay in. It’s a hard asset — it’s still your home regardless of currency fluctuations. You can still sleep in it at night.
(Unless things get catastrophically bad and there are hungry rioters trying to break into your apartment. But in that case, we’re all in serious trouble anyway.)
High property costs scaring you off? You can start by investing in Real Estate Investment Trusts (REITs) instead — where you get the benefits of investing in properties — but need less money to start.
2. Park your money in USD-priced assets
This probably doesn’t make sense right now, as the ringgit is trading near its historic low. (But you can use this point to protect yourself from currency fluctuations the next time 1 USD = 3.2 MYR.)
Unless, of course, you think the ringgit is going to drop even lower.
Say you own an asset that is priced in US dollars. When the USD strengthens against the MYR, your USD-priced asset is also now worth more in ringgit. So technically, you’ve made a profit.
What are some USD-denominated assets people can buy?
- Gold is commonly described as a safe haven by investors. Personally, I’m not a fan of it (Warren Buffett even said gold is almost completely useless.), but many investors have used gold to hedge against currenc risk. There are a few Malaysian banks that offer investment accounts where you can easily buy gold. Check them out here.
- Silver is the precious metal that I prefer to store some value in. I’m no expert, but a basic way to tell when silver is overpriced or underpriced versus gold is to look at the Gold/Silver price ratio. Right now the ratio is about 71 (1 ounce of gold costs 71 times more than 1 ounce of silver). For most of the twentieth century, that ratio has been about 50. So I’m speculating that silver would go up. You can buy into silver here.
- I told my boss that I owned some Bitcoin, and she asked me if it was some kind of new get-rich-pyramid-scheme. So yes, it’s really new — and not many people understand it. It’s also highly volatile. But my Bitcoin account holds its value in US dollars. You can find out more about Bitcoin here.
This applies to other currencies as well. For example, if you believe that the Euro or SGD holds its value better than the USD — you can invest in assets which are priced in those currencies.
3. Make money in USD
So far we’ve been talking about defensive strategies. So here’s an offensive one: take advantage of the exchange rate and start making money in international dollars.
It’s not as difficult as it sounds.
Most of us are very familiar with the Internet, online banking and the freelance “gig” economy.
What are some valuable skills you already have that you could offer online? Even better — which skills could you sell internationally to earn US dollars?
Here are some examples: accounting, bookkeeping, graphic designing, Photoshop editing, digital marketing, proofreading, writing, blogging, video editing, animation, programming, website designing, admin support, and business consulting.
If you do not have an existing network of clients, you can always register and offer your services on websites like Upwork.com or Freelancer.com. However, these websites do charge a commission for every job you take up.
A couple of my Malaysian friends already do this for a living. One of my friends who does freelance writing even made five figures last month. The “weak” exchange rate helped.
4. If things crash – buy low
If you’ve been well prepared, this one’s for you.
Yes, I’m just as upset as the general population that the economy is doing badly, and the ringgit is depreciating. But if you have reserves, this might actually be the “perfect” opportunity for you.
The theory goes like this: Assuming things continue to go bad, Malaysia might end up in a recession. Like back in 1997, if the stock market crashes, assets would lose value, and a lot of people would lose money.
It’s not a fun time and I really hope it doesn’t happen. If it does however, markets tend to overreact. So that expensive Nestle or Dutch Lady stock you’ve been eyeing might actually become cheaper. A lot cheaper. You might be able to pick up other assets like property at a discount too — because a lot of people would be wanting to sell.
Of course, all the above is speculation. No one — not even famed Wall Street analysts — predicts things correctly all the time.
But if you have sufficient cash reserves, and the country goes through a recession — it might be time to bring that cash out and get some valuable assets for cheap. Plus, it never hurts to have reserves.
– – –
I hate to be all doom and gloom, but it looks like we’re going to be in rough times for a while.
However I also believe that behind every challenge lies opportunity. While we continue to be alarmed at the painful slide of the ringgit, we can also do things to prepare ourselves for tough times ahead. Maybe it just needs some creative thinking and willingness to change.
As someone wise once said, “You can’t control everything that happens to you, but you can always control the way you respond.”
