Avoid This Mistake in Investment

Let me share with you the greatest mistake average investors make. 

In general, average investors will jump onto the bandwagon hoping to sweep off highest return possible from their investment portfolio. In most cases a big quantum of them fail and from that point of failure comes the feeling of displeasure. Subsequently, their investment skill changes to defensive mode and if possible, they will withdraw all their funds at a below average return. Thereafter, if they were asked to invest again, they will stay away from investing. 

This bias in investment will then create a negative scenario that will cause a dent in the growth of capital investment environment. Investors of this kind, will picture a thorny issue and their words of mouth will thread through every segment of investment society and eventually will puncture a mutating hole in the health of Malaysian capital market.

Okay, enough of the consequences and now let me tell you how to avoid being in a situation mentioned above. 

Identify your risk profile.

Not all funds are for everyone. If you are a conservative type of investor, do not dream for higher returns. Likewise, if you are an aggressive type, you got to accept the high volatility generated in the net asset value of the fund, in pursuit to higher future return.

Mark your investment period.

Irrespective of your risk profile, it is a MUST to identify how long you wish to hold on your investment. Redeem your position when portfolio achieve its objective. Alternatively, you may exercise switching into a low loaded funds to lock in your profit. Real life cases have taught me that prices may go down as well as move up.

Managed Fund

Unit trust funds are basically a managed funds. There will be times where NAV of funds will go south and times where it may head north. It is advisable to make regular top ups during declining market scenario in order to collect greater units. The concept applies here is "BUY LOW and SELL HIGH".Greatest mistake investors make is "BUY LOW and SELL LOW".

Premature redemption of positions are actually resulted from the misaligned risk-reward profile of investors.

So, avoid making premature redemption of funds, avoid ignoring your risk profile and do mark your investment holding period.

Happy investing!

Vijaya Devan

When You Invest, Think Like An Investor and Be An Investor.

Here, i would like to share a real time experience i had with my Unit Trust clients.

6 years ago, i helped my client to invest RM 100000 to purchase an Unit Trust fund. This fund is categorized as Equity and focused primarily on capital growth. Dividend payout is incidental! The fund's NAV (Net asset value) has an asset exposure in South East Asia markets. Client required an above average return on his investment.

The client has conveyed that his investment holding period is at long term period and he was told that there would be volatility in the NAV along the investment period before achieving above average return. He also been told about the strategy of optimizing return via "Buy Low, Sell High" concept.

Okay, here comes the miserable part!

6 years down the road, his return had reached about 6% to 7% annual return. However, due to the pullout of investors funds from domestic capital market, this fund's NAV dropped and the return was now about 4%. 

Client has indicated to me that he needed to withdraw all units due to this sluggish return, but i told him that the drop is only temporarily and he should leave the units untouched. I suggested to him that he should wait for the NAV price to surge back before withdrawing. The volatility is normal but my advice was unheeded.

The client had withdrawn all at a small annual return of 4 %. (The client could have exercised to redeem all while the return was at 6% to 7% earlier, but he decided to wait).

This case is a classical example of avoiding to adhere to the basic optimizing strategy as mentioned above, i.e. Buy Low , Sell High!

I LEARNED ONE IMPORTANT LESSON AND IT IS , WHEN A CLIENT CONFESSED THAT HE UNDERSTOOD ON THE APPLICATION OF VARIOUS UNIT TRUST INVESTMENT STRATEGIES, HE ACTUALLY NOT!!

When you invest, think like one and act like one!

Vijaya Devan