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30-10-2010, 09:22 AM
Business Times - 30 Oct 2010
The 3Rs to investing in uncertain times
They are a few steps to help overcome any concerns and specific actions that may help you get back on track
By EDMUND TEO
WHILE Asia may be leading the global economic recovery, many investors are unsurprisingly still hesitant about equity investments. Investors today may have a range of concerns and fears which prevent committing to markets.
These include that the global economy has stalled, the markets are stacked against them, they won't have enough money to live on in retirement, or they are overwhelmed by choice in this increasingly global market.
Being apprehensive is understandable, given the volatile economic times we live in. What's worrying though, is letting fear drive your decision making. Short-term economic insecurities could put your long-term financial security at risk.
Fear-driven portfolio changes are often made in haste and haste can be the undoing of sound financial planning. There are a few measured steps that you can take to help overcome any concerns and specific actions that may help you get back on track.
First, talk to your financial adviser about the best course of action. For example, if you are out of the market, consider getting back in. Also, if you are in the market, muster the strength and discipline to stay the course. It may also pay to take stock and focus on the fundamentals of economic growth, factors which are driving long-term investment performance.
Recovery
The global economic recovery may not be as big and bold as we might like, but it is underway nevertheless.
A look at recent statistics should go some way to encourage investors. Globally, growth in 2011 is forecast by the International Monetary Fund to expand 4.2 per cent. That's still a historically strong level. Much of the growth is being driven out of China. The government statistics bureau reported in October that the economy grew 9.6 per cent in the third quarter.
The China growth story is not only encouraging globally, but locally as well. Here in Singapore, the government estimates expansion of 13-15 per cent for 2010. That's despite recent hiccups of growth falling back considerably in Q3.
Fundamentally, Singapore and the region are in good shape, which should continue to drive investment performance. Remember, Asia is in the midst of a structural change - including a shift to higher domestic spending, rising wages, and greater inter-regional trade - which should continue to underpin growth and corporate earnings.
Reassessing
The markets have changed, and so has the world. What you do next depends on whether you're still in the share market, or out.
If you are still in the market, talk to your adviser about rebalancing. Rebalancing helps ensure that a portfolio maintains its long-term focus by periodically eliminating deviations from its target asset allocation, deviations caused by natural movements in the market.
Significant deviations from the target allocation may create additional and - in most cases - unavoidable, unrewarded risk. This discipline is especially important in volatile periods and is designed to avert the potentially negative impact of our behavioural tendency to react hastily from overexuberance or fear.
Yes, the world has changed; markets are increasingly global. But instead of yielding to fear, consider the possibilities. Global strategies can provide additional diversification to portfolios, offer long-term excess return potential, help portfolios outpace inflation, and potentially help dampen volatility.
Today, there are many international and global strategies designed to capture opportunities created by the changing capital markets, such as global fixed income and credit strategies, commodities, and real assets. But global strategies aren't suitable for everyone. The rebalancing exercise is a good time to discuss with your adviser whether they are appropriate for you.
If you are out of the stock market, talk to your adviser about 'dollar cost averaging' (DCA) as a market re-entry strategy. DCA is a technique designed to reduce market risk through the systematic purchase of securities at pre-determined intervals and in set amounts.
Instead of investing assets in a lump sum, you 'work into' a position by slowly buying smaller amounts over a longer time period.
Thus, DCA makes it easier - in down markets, when stocks are cheap - to get over the psychological barriers to investing. Dipping your toe gently into the waters by using a DCA-like strategy may well be a better approach than either jumping in all at once or doing nothing.
Recommitting
Trust in your long-term investment strategy, and resist moving all your cash into stocks at the first sign of positive news for equities - or all of your stocks into cash at the first sign of a slump in the stock market.
An investment commitment should be for the mid- to long-term. This means the investor needs to step back and avoid being too swayed by short-term issues. It's fine to read the daily news and keep abreast of the latest data and earnings. It's another thing to base your long-term investment decisions on short-term data.
The secret of success to investing is not necessarily timing the markets, but rather deciding on your investment decision and committing. There will often be near-term temptations and investment 'fads'.
However, there is little substitution for sound advice, decisions based on fundamentals, and long-term commitment. That's the mix that successful investors generally agree are the best ingredients for rewarding returns in the future.
The writer is regional director, investment solutions, Asean, Hong Kong, Taiwan, India at Russell Investments
The 3Rs to investing in uncertain times
They are a few steps to help overcome any concerns and specific actions that may help you get back on track
By EDMUND TEO
WHILE Asia may be leading the global economic recovery, many investors are unsurprisingly still hesitant about equity investments. Investors today may have a range of concerns and fears which prevent committing to markets.
These include that the global economy has stalled, the markets are stacked against them, they won't have enough money to live on in retirement, or they are overwhelmed by choice in this increasingly global market.
Being apprehensive is understandable, given the volatile economic times we live in. What's worrying though, is letting fear drive your decision making. Short-term economic insecurities could put your long-term financial security at risk.
Fear-driven portfolio changes are often made in haste and haste can be the undoing of sound financial planning. There are a few measured steps that you can take to help overcome any concerns and specific actions that may help you get back on track.
First, talk to your financial adviser about the best course of action. For example, if you are out of the market, consider getting back in. Also, if you are in the market, muster the strength and discipline to stay the course. It may also pay to take stock and focus on the fundamentals of economic growth, factors which are driving long-term investment performance.
Recovery
The global economic recovery may not be as big and bold as we might like, but it is underway nevertheless.
A look at recent statistics should go some way to encourage investors. Globally, growth in 2011 is forecast by the International Monetary Fund to expand 4.2 per cent. That's still a historically strong level. Much of the growth is being driven out of China. The government statistics bureau reported in October that the economy grew 9.6 per cent in the third quarter.
The China growth story is not only encouraging globally, but locally as well. Here in Singapore, the government estimates expansion of 13-15 per cent for 2010. That's despite recent hiccups of growth falling back considerably in Q3.
Fundamentally, Singapore and the region are in good shape, which should continue to drive investment performance. Remember, Asia is in the midst of a structural change - including a shift to higher domestic spending, rising wages, and greater inter-regional trade - which should continue to underpin growth and corporate earnings.
Reassessing
The markets have changed, and so has the world. What you do next depends on whether you're still in the share market, or out.
If you are still in the market, talk to your adviser about rebalancing. Rebalancing helps ensure that a portfolio maintains its long-term focus by periodically eliminating deviations from its target asset allocation, deviations caused by natural movements in the market.
Significant deviations from the target allocation may create additional and - in most cases - unavoidable, unrewarded risk. This discipline is especially important in volatile periods and is designed to avert the potentially negative impact of our behavioural tendency to react hastily from overexuberance or fear.
Yes, the world has changed; markets are increasingly global. But instead of yielding to fear, consider the possibilities. Global strategies can provide additional diversification to portfolios, offer long-term excess return potential, help portfolios outpace inflation, and potentially help dampen volatility.
Today, there are many international and global strategies designed to capture opportunities created by the changing capital markets, such as global fixed income and credit strategies, commodities, and real assets. But global strategies aren't suitable for everyone. The rebalancing exercise is a good time to discuss with your adviser whether they are appropriate for you.
If you are out of the stock market, talk to your adviser about 'dollar cost averaging' (DCA) as a market re-entry strategy. DCA is a technique designed to reduce market risk through the systematic purchase of securities at pre-determined intervals and in set amounts.
Instead of investing assets in a lump sum, you 'work into' a position by slowly buying smaller amounts over a longer time period.
Thus, DCA makes it easier - in down markets, when stocks are cheap - to get over the psychological barriers to investing. Dipping your toe gently into the waters by using a DCA-like strategy may well be a better approach than either jumping in all at once or doing nothing.
Recommitting
Trust in your long-term investment strategy, and resist moving all your cash into stocks at the first sign of positive news for equities - or all of your stocks into cash at the first sign of a slump in the stock market.
An investment commitment should be for the mid- to long-term. This means the investor needs to step back and avoid being too swayed by short-term issues. It's fine to read the daily news and keep abreast of the latest data and earnings. It's another thing to base your long-term investment decisions on short-term data.
The secret of success to investing is not necessarily timing the markets, but rather deciding on your investment decision and committing. There will often be near-term temptations and investment 'fads'.
However, there is little substitution for sound advice, decisions based on fundamentals, and long-term commitment. That's the mix that successful investors generally agree are the best ingredients for rewarding returns in the future.
The writer is regional director, investment solutions, Asean, Hong Kong, Taiwan, India at Russell Investments
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/