by Ang Kok Heng
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Everyone who invests is also an investment manager himself. Although professional investment managers are employed to handle investment decisions for most of the investment products, in many areas an investor himself has to make the crucial decisions. Some of these decisions include when to invest, which one is better, how much to invest, when to take profit (how about losses), when to switch, when to add, etc. An investor himself will have to make many decisions even though financial consultants, investment advisers, financial planners and fund managers may provide advice from time to time. The final decision of an investor will very much be influenced by his risk appetite, expectation, cash flow needs, investment history, investment experience, etc Simplest investment needs decision Even the simplest investment, ie putting your excess money in fixed deposits (FD), requires a decision.
The questions that come to mind immediately are which banks provide higher interest rates, how long to place (one month, three months, 12 months etc), how to allocate between FD which provides a higher interest rate and the smaller interest-bearing savings account. Fortunately, most banks provide competitive rates and there is less need for extensive comparison. Furthermore, the interest differential between different maturity durations is small and as such, most people opt for shorter tenure of one-month maturity for FD. In view of the current low interest rates offered by banks, it may not be necessary to crack the brain to pick and choose, unless the amount is substantial. Complexity arises when some banks develop innovative products to lure customers, especially the high net worth individuals. Some of these are high interest rate foreign currency deposits, interest upfront deposits, etc.
Unit trust investment
Due to the poor performance in the stock market, many punters switch to unit trust investment.
Although professional fund managers are engaged to manage the unit trust funds, they will invest based on the requirements of the fund as stipulated in the trust deeds.
They do not have prior understanding on those investors who have invested in the fund in their investment decision process, such as how much of their assets were invested in the fund, their timing of investment, etc.
Unfortunately, most unit trust investors in Malaysia were convinced to invest by agents or financial planners.
Very few have actually conducted their own analysis to determine which is the better fund to invest in terms of investment risk (which include the type of investment, the investment decision-making process, expertise of designated fund manager, investment style, etc) and the risk-adjusted performance.
Many unit trust investors went through the ups and downs of the market and the performance of their investment also went through similar roller-coaster rides.
They might have made handsome profit during certain periods and they may also experience rapid falls in their profits during the course of the investment.
The worst experience is probably from a profit to a loss position. Some financial planners who try to help their clients may end up doubling up as “fund managers” by advising the clients to switch out or to take profit.
Whether investors ultimately benefit from this type of market timing advice is difficult to determine in the absence of statistics. Some investors may gain from such advice, but some may end up worse off.
Some may benefit in the short term in avoiding a temporary market downturn. However, they could lose out in the long run when the market eventually rebounded.
As investment is generally a long product (ie buy with the hope of price appreciation) and the role of a fund manager is to invest the money which has been allocated by investors for such purposes, market timing is generally not the duty of fund manager.
In this way, a unit trust investor becomes the first level de facto “investment manager” who will decide on the timing to invest and asset allocation as to how much to invest in the fund.
On top of the timing and asset allocation issues, a unit trust investor would most likely be shown several funds such as pure equity funds (aggressive, conservative, dividend, small cap, syariah etc), mixed assets funds (eg balance fund), bond funds, guarantee funds, country funds, regional funds (eg MENA, Greater China), commodity funds (eg gold fund).
On top of that, there are feeder funds and fund of funds to consider. Furthermore, investors may have to consider similar funds offered by several fund houses.