Thursday, July 3, 2008

Investing in Uncertain Market

Sharing a thought...You don't have to believe what I've penned here....

These past weeks have been a tough week for the Malaysian and the world's stock market. The Malaysian market has reached its lowest level of 15 months surpassing the historical 10 Mar 08 index of 1157 point with PE ratio of 15x yesterday. We have seen the worst in the 80s and 90s but we don't think the CI would ever come to that level again as we are now fundamentally stronger in terms of corporate earnings, stringent listing ruling, good economic policies, etc.

There are various contributing factors to the current situation but the most glaring factor is the unstable local political situation. Technical forecaster expects KLCI to dip to as low as 1120. Remember, it is just a forecast only. If we are to examine Malaysian political scenario, it usually is amicable and our PM has actually announced his plan to do a proper hand over. However, human being human with emotions especially when it comes to investment, any hiccups is construed as TB. So, how to invest in this yo-yo and uncertain market situation?

Foremost, investors should ask themselves, what's their investment objective (besides the obvious reason of making profit). Is it for quick profit which is short term or is it to accummulate enough wealth so that investors are able to retire comfortably and overcome the silent purchasing power zapper ie INFLATION?

Everyone has been focusing on the equity market situation but neglect to pay attention to the effects of inflation on their current and future wealth which affects their cash buying power. The global's inflation rate has increased in tandem with the increased in the crude oil's price but the rate has never been adjusted when the oil price dipped. Various countries' government gave various figures on their country's inflation rate but their citizen knew the rate published is beyond truth.

Less than a decade ago, I recalled having to spend on average RM35-00 each time I refilled my car but today at RM60-00 it's hardly half tank full! What has happened here? Does that reflect a mere 2% increased in our CPI? They must be kidding!

The question everyone should ask is; "Is my money's purchasing power getting better or worst in face of the ever increasing inflation rate? If the latter, how do I ensure that my hard earned money is able to sustain my living past my retirement age?" or "How do I ensure that I maintain my standard of living during my retirement period? Would I need to adjust my lifestyle during my retirement to a level that is lower than the current lifestyle?"

Investment is a necessity to overcome inflation and create greater wealth. But the big question is what investment vehicle to choose? When is the right time?

Forget the bank's fixed deposit interest please! It exists only to enable us to place our money safely (from theft not inflation) for a short period of time and is not meant to generate revenue for individuals as its too low to overcome inflation rate, or even appropriate for corporate's excess cash as its taxable in Malaysia.

For those who are too busy working, lack of know-how, insufficient capital for bigger investment vehicle (equities, property, gold, commodities, etc) or is risk averse, isn't it better to appoint someone who is professional, dedicated, has mission to generate income and preserve investment capital for their customers, has no emotional attachment as they are able to cut losses or exit at certain profit margin?

Mutual Fund is not the only investment vehicle available but it addresses the problems mentioned above. The beauty of this vehicle is that it is a basket of well DIVERSIFIED shares, picked by professional fund managers.

The keys to successful investment using Mutual Fund especially in this uncertain equity condition are as follows:

(1) Do regular savings to take advantage of DCA
(2) Do not time the market as no one has the crystal ball
(3) Suitable for mid to long investment period
(4) Review your investment objectives regularly with your UT Consultant
(5) Rebalance your investment portfolio with your UT Consultant
(6) Be a responsible investor by knowing what you are investing
(7) Let the professional fund manager do their work by observing all of the above.

The current market is actually an OPPORTUNITY to enter as it is cheap and the risk is much, much lower for those who have never invest and good for those who are already in the market as they are able to get more units at lower cost thus reducing their average cost per unit which translate to higher profit opportunity. Continue to pick those low priced funds / equities and remember, market always comes back.

Be a responsible investor, invest only when you are ready. The final decision is yours. Only YOURS to make.

Hey, I am not bias but am also an investor like you. ;)

May the good force be with you!

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