Finding the right solution
by HWANGDBS Column. Posted on November 20, 2010, Saturday
DISCOVER the key to long term financial success – through asset allocation.
Asset allocation seeks to find the optimal investment mix while minimising your risks to help you achieve your goals. It allows you to spread your money across the asset classes – shares, bonds, Exchange Traded Funds (ETFs), commodities, property and cash to name a few, as different assets behave differently under different economic environments.
Ideally, both asset allocation and diversifying your investments should be done with meaningful returns and not for the sake of diversifying as it may dilute your returns. Portfolio rebalancing is needed, at least, on an annual basis to ensure everything is on track.
The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk. Your goal should be to maximise your return for the amount of risk that you are comfortable accepting. To help you do that, you need a well allocated and diversified portfolio. Asset allocation can help you:
1.Ensure consistent returns over time. You’ll improve your chances of participating in market gains and potentially reduce the impact of poor performing asset categories by investing in several asset classes.
2. Reduce overall risk. Through portfolio diversification you can limit the volatility in your portfolio while improving its performance, by spreading the risk among different types of securities that don’t always behave the same.
3. Move forward towards attaining your goals. A well-allocated portfolio can reduce the need to constantly adjust investment positions in order to chase market trends.
Sorting out which works best
It’s important that your investments are allocated over a variety of asset classes as each asset class performs differently over time due to its unique balance of risk and reward. Over time and through your different life stages, the various investments in your portfolio may alter in value, due to changing market conditions.
Rebalance it regularly to effectively pursue your financial goals. This could mean realising your gains on portions of your investments or cutting your losses on others. The funds can then be used to purchase other assets in order to bring your portfolio back on track annually.
Discover your type
Which type of investor are you? Check out these categories on www.hdbsim.com.my
• The young and the restless. Managing your finances at such an early stage will allow you to reap the rewards of long-term planning, enabling you to comfortably afford things that are important to you like a new home, further education, or even a baby.
• Wonder women sexy, savvy and successful. You pride yourself on your accomplishments and there is no doubting your purchasing power. You understand that investing smartly is the key to reaching one of your ultimate goals: financial freedom.
• The family way planning and informed financial decisions requires time, effort and patience as well as access to the best investment solutions that will be the foundation for your family’s financial stability.
• Top of the hill. You are no stranger to investment risk. Your keen insight and uncanny judgment have brought you to where you are today. Isn’t it time you get everything you want?
• The golden years. Now that you are financially liberated and free of the encumbrances of your career, you can indulge in the things you love the most… but that is assuming you planned well for your retirement.
This article is brought to you by HwangDBS Investment Management
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