Investing in different assets

Once in a while I will post articles of investment, because its for me to read after and tell myself you got to do this, I am such a noob when it comes to investing? totally clueless and have not experience putting money where it should have been.

Some people say why keep your money but live for today as you will never know when you are going to leave this World for good. Well that to a certain extent cause when I think of Steve Jobs, he has all the billions and yet he never get to enjoy it, but dont go out and spend all your money and live paycheck to paycheck , that will only kill yourself as you have no reserves for an emergency. Check this article out written by Mindy Tan where 5 wise one gives us tips on where to put where our money is worth;

IT is one of the most important decisions an investor can make, and yet, one of the most difficult strategies to pin down.

Asset allocation, essentially a strategy taken on by investors in an attempt to balance risk and reward by portioning one’s portfolio’s assets, is intimately tied to one’s goals, risk tolerance and investment horizon.

In this issue, we provide you with a variety of insights from experts in academia.

1. Dr Douglas Rolph, senior banking and finance lecturer, Nanyang Business School:

Younger investors should allocate 100 per cent of funds for retirement in a well-diversified international equity portfolio. Even with the recent turmoil in financial markets, over long investment horizons the risk-adjusted returns of equities are higher than other asset classes. For example, investors under the age of 35 have around 30 years till retirement; they stand to greatly benefit from the higher returns of long-term equity investment strategies.

Some younger investors are naturally more apprehensive towards potential investment losses, and may be inclined to invest less of their retirement funds in equities. While investing in stocks with the intention of selling in a year may expose investors to substantial losses, the higher growth rates of equity dominate risk over long investment horizons.

But as they get older, say around age 35, they should gradually decrease the amount of investment funds allocated to equity.

Instead, these funds could be invested in lower-risk assets like short-maturity bonds.

2. Fong Wai Mun, associate professor of finance, NUS Business School:

Asset allocation is one of the most important factors that determines the returns to an investment portfolio. Put simply, it is the way you divide your portfolio among different types of assets. Cash, bonds and stocks are examples of popular asset classes.

Others are real estate, investment funds and even collectibles like art and wine.

Some asset returns are more risky than others in the sense that the likelihood of you losing money from these assets is greater than safer assets.

For example, in general, the returns on stocks are much more volatile than the returns on bonds. Many collectible assets such as art are nice to have but may take a while to find buyers. The value of art and wine is also more subjective.

Is holding cash in the bank the answer? Surely not, because cash normally provides meagre returns and easily loses its value to inflation.

The most sensible approach to asset allocation is to hold a diversified portfolio consisting of different asset classes: cash to provide money when you need it in a hurry, bonds to deliver stable returns, stocks to provide higher returns in exchange for greater volatility, property as an inflation hedge, and perhaps collectibles as “passion investments”.

Generally, young people should allocate more money to riskier assets since they have a longer investment horizon than older people. In other words, young investors have more time to recoup short-term losses for long-term gains compared to older investors. Investors with substantial wealth can also hold riskier portfolios at any age.

The important thing to remember is to design an asset allocation that meets your investment goals, risk appetite and financial constraints such as your investment horizon or the importance of providing a stable income relative to capital gains.

As in all aspects of personal finance, you must first invest time to “know yourself” before getting to the task of building a portfolio. Doing so is not only prudent, but will also provide you with a guiding investment philosophy that is uniquely yours.

3. Associate professor Annie Koh, vice-president – business development and external relations, and dean, office of executive & professional education, Singapore Management University:

Many young investors have a tendency to pick stocks and feel that’s the way to attain knowledge in investments. As all investment advisers will recommend, however, sufficient evidence has been gathered that you can’t beat the market with stock picking all the time and the best investment strategy is to understand the benefits from diversification.

As our young investors grow in confidence, they should also learn about asset allocation as a channel for increasing their education.

At a recent private wealth management programme, many investors found that to maintain their lifestyle, their investment strategy entailed an asset allocation strategy structured with 60 per cent equities, 25 per cent fixed income, 10 per cent alternatives and 5 per cent cash. The idea of having some cash is to ensure that you have liquidity to make decisions when great investment opportunities come along.

With the current low interest rate environment, too much cash works against you unless you are very conservative in your risk profile. The 60 per cent equities can involve a portfolio of shares or even a passive styled index fund.

For the alternatives – there’s a whole range of possibilities, from currencies to commodities to real estate.

The idea here is not all asset classes are perfectly correlated and so you can manage the risks and returns a lot better with diversified assets. In addition, this is a good way for young investors to learn about different types of assets without taking unnecessary risks.

You cap your allocation and do not over-invest in alternatives which are usually more esoteric, and require higher learning and greater monitoring.

4. Associate professor Sundaram Janakiramanan, head of finance, UniSIM School of Business:

Asset allocation is important because the return from the portfolio will depend on how much is invested in different asset classes and the return expected from each asset class.

In the current situation, the return from fixed income securities is quite low. I would suggest young investors who are more interested in long-term investment rather than short-term investment to take on equity 70 per cent; bonds 15 per cent; Reits 15 per cent.

With the equity market doing badly, it is a good time to enter the market as most stocks are selling cheaply. In the short run, the market may go down further but once the uncertainty is removed, the markets will bounce back. Thus in the long run, the return from equity will be high.

Investment in Reits is good because the property market is likely to pick up when the economies improve in the future and it is good to have exposure to that market.

Bond investment is also good because it provides a known return, even though it is low. A small percentage is given for bonds because the value of bonds may drop when the economies improve at which time it is likely that the interest rates would increase.

5. Dr Dipinder S Randhawa, deputy head of finance, UniSIM School of Business:

Equity markets are undervalued and likely to be volatile, but for investors in for the long haul, they offer promising returns.

In the medium term, investment in gold provides a useful hedge against inflation and market volatility. Sing$ money market assets should provide liquidity and the safety of parking money in a stable Sing$.

My recommendation is 50 per cent equity portfolio diversified across emerging markets, the US and Singapore; 20 per cent in inflation-indexed bonds; 20 per cent in gold and related assets – a hedge against sustained uncertainty in the medium term; 10 per cent in Sing$ money market assets.


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