I'm an employee of a private company that since last year has allowed us to choose our investment options twice annually _ once in March, effective in May; and once in September, effective in October. Last year, I chose the maximum 50% investment in equities. This provided a good return before but it has not been so good since the market's correction in this year's second quarter. Now it's time again for us to consider changing our investment option. I'm not sure if I should change it to 30% or lower. I can change it again next year but want to make good use of the choices they offer. Also, in times of wild stock swings, it seems too dangerous to put all one's eggs in a single basket. Gold is not my choice for sure, but what else is there that would allow me to optimise returns with a low-risk appetite?
ANSWERED BY... Teera Phutrakul, CFP, Chairman, TFPA For a retirement portfolio with a fairly long investment horizon, having only 50% in equities is considered quite small. I appreciate your concern that the Thai stock market and much of Asia have seen more than their fair share of volatility. But this is not the time to panic and scale back your equity exposure. Here's a to-do list to get you over this difficult period:
- Think long term: Since you don't need the money until retirement, you can afford to ride out short-term market swings. According to the investment tracking service Morningstar, the average one-year total return of the Stock Exchange of Thailand (SET) index from 2002-12 was 22.4% with a standard deviation (SD) of 33.3%. This is a fairly risky proposition, as the market could swing about 33% either way. However, if you can sit tight and ride out the current volatility, the 10-year rolling return is still quite respectable at 17.7% but the standard deviation has gone down to 1.26%. And believe me, no 10-year bonds can give you returns like that at such modest volatility.
- Diversify: In the first eight months of this year, the SET index fell by 8%, while the S&P 500 rose by 16%. Therefore, if your current provident fund manager can offer offshore investment choices, diversification will actually help to reduce your overall portfolio risk.
- Dollar cost averaging (DCA): By nature of investing in provident funds, you are already practising DCA on a monthly basis. This is a good way to average down your cost when the market drops.
The Thai Financial Planners Association is the Certified Financial Planner (CFP) trademark licensing authority in Thailand. It is a self-regulated, non-profit group of experts from various organisations set up to give advice to investors. Questions can be submitted through firstname.lastname@example.org or the TFPA webboard, www.tfpa.or.th
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Writer: Thai Financial Planners Association