March 24, 2009

Know your needs and risk profile

While fund houses and investment banks said the time is right to re-invest in a diversified portfolio after markets have corrected 30% to 60% this year, investors should know their investment objectives and focus on long-term investments.

Knowing their own needs and risk profile was important in looking for a suitable asset allocation strategy, financial advisers said.

For those with excess cash but were not invested, CIMB Wealth Advisors Bhd’s chief executive Tan Beng Wah said without jeopardising their lifestyle, they should take the opportunity to have a diversified portfolio of investments in equities, fixed income and properties.

He said this was because investment valuations were at historical lows.

“They can also buy real estate as an investment. However, if the funds are limited, one may want to consider real estate investment trusts (REITs) or property stocks of funds, depending on what is available,” he added in an email reply to The Edge Financial Daily.

Tan said it was better for individuals with immediate pressing concerns and no cash cushion to keep greater allocations in cash and fixed-income instruments to cover short-term needs rather than investing in equities or other higher-risk assets, and debts should be settled first.

He added that young individuals with a high earning power and disposable income in relation to their lifestyle could stomach higher risks and opt to invest more aggressively now to take advantage of the current market selldown.

“Value averaging is a better strategy under the current market environment. If the individual has an investment time horizon of two years and above, we would suggest to the individual to gradually invest in markets adopting a well diversified asset allocation approach.

“The risk/reward ratio from investing in the markets at this juncture is too attractive to ignore,” Tan said.

Expressing a similar view, HwangDBS Investment Management Bhd (HwangDBS IM) chief investment officer David Ng said while no one could predict when the market would bottom, cost averaging was the better approach compared to lump sum investments as it took much of the emotional aspect out of investing and lowered the investment cost, especially in the equity markets.

“It is oftentimes best to start investing when one feels most uncomfortable with the outlook of the economy. However, we are not advocating investors plough all their savings into the market, but rather, to gradually inch their way into the market whilst it continues to languish at levels that are deemed to be attractive,” Ng said.

He added that it would be wise to exercise prudence in the current environment.

VKA Wealth Planners Sdn Bhd managing director Javern Lim suggested a 30:70 model for its clients, whereby 30% of the investments would be put into aggressive asset classes and the remaining in conservative assets.

“Aggressive assets including stocks, equity mutual fund, such as exposure to Greater China and US financial market-related counters, property (taking advantage of current low BLR rate) that give you chance to benefit from the recovery of the economy in the next few years,” he said.

“Conservative asset classes would involve fixed deposits, bonds, Employee Provident Fund (EPF) scheme, insurance, annuity and money market instruments that would protect your capital.

“Most importantly, it is to provide peace of mind. After all, money is not everything in life. You deserve to enjoy your life,” he added.

Local investors are moving into money market funds (MMF) since the global financial crisis took hold in 2007. Nevertheless, financial planners said MMF, which has a high degree of liquidity, was a short-term parking facility in times of uncertainty while waiting for the next investment strategy and decision.

MMF includes treasury bills, bankers’ acceptances, certificates of deposit, commercial papers and repurchase agreements (Repo).

Lim said MMF was an ideal alternative cash management instrument for corporate investors due to reasons of tax exemption, capital preservation, same-day redemption, liquid underlying investment, no penalty for early redemption, monthly distribution of income as well as higher return compared to fixed deposits.

Financial planners said local investors could grow their wealth by accessing overseas markets through offshore funds launched by financial institutions and fund houses in the country.

Lim said not many local investors would invest directly in overseas equity markets as they lacked the knowledge and related research information.

Nevertheless, Tan said local investors were increasingly aware they could easily invest in overseas markets. While some investors go through private bankers, individuals who invested on their own had the capital capacity, knowledge and access to stockbrokers overseas or opt to invest online.

Source: TheEdge Financial Daily, March 19, 2009

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