Investment Strategies

Investment is a vehicle for you to gain wealth. If you put your money in fixed deposit with annual interest 2%, the 2% that you earn is the wealth. If you do not invest it, then you’ll not earn the wealth. However, investment has its risk as well. During economic downturn, the values of shares will drop and you might suffer loss from your investment. Therefore, it is essential for you to decide your investment strategies.

In this post, I’ll share the investment strategies which are suggested by Alan Inn, the co-head of CIMB Private Banking. Although Mr. Alan’s suggestion is targeting on the institutional investors, I do think that individual investors can adopt the strategies as well. There are 3 recommended investment strategies. The first strategy is the investors should pace their investment in equities. Technical price charts suggest that in the short term, equities markets are headed for some corrections. This is because major markets are technically overbought temporarily. In order to understand this, you need to understand the theory of demand and supply. If the demand is high and the supply is low, the values of the things will increase. So assuming Share A is demanded by many investors but the supply is less, the price of share A will increase. However, there is no such thing as the share price will keep increasing infinitely. Once it reaches its peak, then it will come down. Therefore, the investors should pace your equities investments along with possible corrections to minimize the risk.

The second strategy is do not overlook China and Asian equities. According to some of the economists, China is expected to take the lead with US to lead all countries in the world to the road of recovery. With China’s strong fiscal-driven growth, rapid expansion of bank credit, low level of government debt, high household and corporate savings and the government’s willingness to adopt aggressive stimulus policy, these are the evidences that the China will be the first few countries to recover from global economy. Cooperation between China with other Asian’s countries, stronger growth rates and healthier financial position are the factors that Asian equities are expected to outperform the developed world.

Diversify portfolio via superior actively managed funds is the third strategy suggested by him. The investors are advised to diversify the portfolio and do not put all eggs in one basket. Once the basket drops, all eggs will be broken. Therefore, the investors can invest in conservative investment partially, moderate investment partially and aggressive investment partially. This will help to reduce the risks that are face by the investors.



Reference
Still not too late
Second half 2009 market analysis and investing ideas

Rich

According to one of the industry player, comparing the amount you have tucked away with that of individuals of your same age simply to gauge how “successful” your savings strategies are is not a good benchmark.

From the saying above, we can say that there is no need for you to compare yourself with others. Everyone has different income levels, different financial goals and different lifestyles. For example, if monthly salary of Person A is RM 2000 and monthly salary of Person B is only RM3500, the amount of savings for both persons might be the same. But in most cases, the saving amount of both persons will be different. Besides that, if one person likes to socialized around while another person prefers to stay indoor, their monthly expenses will be different and this would differ the saving amount for them. The status of life is also another contribution to saving amount. The living expenses for those staying in cities are different from those staying in villages. You can see it clearly when you compare the price of the food such as chicken rice, nasi goreng, noodles and others in both places. Of course if you compare the Gardenia bread in both places, you won't spot any difference. Generally, Malaysia enjoys one of the highest savings rates in the world at 34%. But do you know how much savings rates in US? According to the reference, during the economic boom that took place between 2005 and 2008, a credit-fueled consumer spending craze effectively brought the US savings rate to zero. So does this means we are richer than those in US? Then who is Bill Gates and Warren Buffet?

This concept applies to richness as well. Many people are pursuing richness in their life. But do we know how are we classifying as rich? If I have 1 million, is it means I'm rich? To Bill Gates, 1 million is nothing to him. But to those poor people, 1 million means a lot for them. There are a lot of people working very hard to earn money in order to become rich. But to most of them, they do not set a target amount for them to reach or even overpass. They just want to be richer than the person next door, the person they dislike and others. They end up working and working, working for their whole life in order to become rich.

Comparing your richness with others might be a good motivation for you to work hard. However, is it necessary??


Reference:
http://biz.thestar.com.my/news/story.asp?file=/2009/7/25/business/4381424&sec=business

Opportunities in Islamic Equities

Islamic Finance is getting more and more popular nowadays. Many investors are talking about Islamic equity market. So what is Islamic equity market? Islamic equity market is the equity market that is managed using Syariah laws, which means that the market is managed using Islamic rules. Although the market is managed using Islamic rules, this does not mean the market is only for those who are Muslims. The market is opened to all. With the effort of Malaysia to become a major Islamic hub, this has brightened the future of Islamic equities in the country. The raising of other Islamic countries such as those Islamic countries in the Middle East has attracted investors.

Tan Sri Zarinah Anwar, Securities Commission chairman, strongly believes that the Islamic equity market offers strong opportunities for growth. In her speech at the London Sukuk Summit 2009, she shared with the audience that the instrument such as Syariah-compliant exchange-traded funds, real estate investment trusts (REITs) and structured products are attracting strong interest. The interest is so strong that there are some conventional REIT had converted the conventional structure to one that is Syariah-based.

Definitely there are reasons why Syariah-based structure is adopted in the company. According to Axis REIT Managers Bhd chief executive officer-cum-executive director Stewart LaBrooy, the Syariah-compliant status will enable them to broaden the pool of investors. Besides that, it will help to attract the investment from Middle East countries. China-based Xingquan, which is the first company from China to list on the Malaysian stock exchange also applied for and receive pre-initial public offering Syariah-compliant status for its shares. This will attract those individual or institutions investors who are seeking Syariah-compliant investments. If we look around, we can see that there are many companies are going for Syariah-based structure. For example, Public Islamic Bank and Takaful are the companies which are Syariah-compliant.

The companies have seen the future of Islamic market and they are targeting on it. Certainly they have analyzed the opportunities and risks before they make any decision. They will not make any decision that jeopardizes the company. If you are still new to the market and have the intention to invest, why not consider investing in Islamic equity?


Reference
Opportunities in Islamic equities, The Star. (7 July 2009).

Investing in China

As we know that the world is facing the economic crisis currently. One of the questions arises is which countries will be the first few countries to recover from the economic crisis. Many people would like to know so that they can invest in those countries for long term investment. According to the reference, China economy is among the top 10 world powers whose economy has expanded in recent months. This has been proven by its Gross Domestic Product which grew by more than 7.1 percent in the first half of the year. With its strong growing GDP, this has made it the first major country to emerge from the current global slump and it is poised to take over Japan as the world's second-largest economy perhaps by late this year. Besides that, the BRIC (Brazil, Russia, India, China) concept introduced by Goldman Sachs in 2001 again strongly suggested that investing in China is promising. According to Goldman Sachs, over the next 50 years, Brazil, Russia, India and China could become a much larger force in the world economy. If the expectation of Goldman Sachs is true, the future of investing in these 4 countries is bright.

However, another question arises. How can individual invest in other countries like China, India and others? There are many ways to invest in foreign countries. One of the ways to invest in those countries is through mutual fund. There are a lot of funds introduced to the market so that the investors can invest in other countries and these funds are professionally managed by the fund manager. If you are interested to invest in those funds, just contact any financial planners especially unit trust consultants for more information.

Although investing in China seems like a good opportunity, the investors should still be aware of the risks investing in the countries. For example, the exchange rate risk. In this example, we assume 2 RenMinBi (currency of China) can exchange for RM1. If RenMinBi appreciates and RM depreciates after certain periods of time, in this case we assume 2.5 RenMinBi can only exchange for RM1. Therefore, our profit might shrink or we might even face losses. There are other risks such as the rules and regulations that does not favor foreign investors, political risks, market risks and other risks that might affect our investment in foreign countries. There are even some economists who think the future of China is not promising.

If you read a lot in newspapers, then you can know there are many opinions from various parties. Thus, if you would like to invest in foreign countries, it is important for you to do some research before you make any investment.

Reference:
China economy growing again while US limps
http://biz.thestar.com.my/news/story.asp?file=/2009/7/26/business/20090726090400&sec=business

Three key elements in savings

In my previous post, I have actually discussed on Saving. However, I read this article and I think this post can be considered as an updated version of my previous post. :)

According to licensed financial adviser Jeremy Tan of Standard Financial Planner, everyone should set aside 20% to 30% of one's net income every month for savings. This is only a rough guide and it actually depends on each individual.

According to him, there are three elements in savings which each individual should have so that you will not face any problem in a rainy day. The three elements are emergency fund, life-risk fund and investment fund.

Emergency fund is set aside in case if you lose your source of income unexpectedly. For example, when the economic crisis hits the country, everyone has the possibility of losing the job. Therefore, it is always suggested that you have at least six months of your living expenses. So in case if you lose your job, the emergency fund will keep you going until you find another job.

Life-risk fund is the fund to be used when a person loses the ability to earn an income. For example, become paralyzed or ill. This can only be carried out by an insurance policy. Therefore, one should have insurance at least to reduce your financial crisis for a certain period if anything happens to you. According to Tan, one should ensure that the funds are equivalent to at least five years' annual income. For example, if you are earning RM 3000 per month, therefore, you should buy a RM 180,000 policy.

The third fund is investment fund. For investment fund, you should invest in the area which you familiar with instead of following what your friends say. Do some research before you invest because it is your hard-earned money. Invest in the investment that suits your risk preference. If you are a conservative investor, you should consider involving in conservative investment rather than aggressive investment.

Reference:

Three key elements in savings

http://biz.thestar.com.my/news/story.asp?file=/2009/7/25/business/4381424&sec=business