Several months ago in 2017, Malaysia’s stock market seemed robust and full of potential, however, today there are rumours of an impending slump in the market due to various factors. On that note, Malaysia’s first quarter performance in 2018 has indicated a less than impressive earnings performance. Although investment experts explain that markets tend to rise and fall, it is always wise for one to be cautious and well-informed of how to navigate the volatile market place, while achieving positive outcomes.
To strike a good balance, the buzzword today is to consider goal-based investing which is to simply prioritise a series of key life goals and objectives, and duly put away funds with a view to accumulating these goals a somewhat complex affair.
“Recognising that our customers need help in navigating a complex market environment with the aim of optimizing returns from their investments, we have set in place a five-year strategy that is aimed at delivering greater value to our customers. One of the core areas of our FIT22 strategic direction to gain greater market share in the affluent segment through differentiated products and services which offer greater value and helps customers to strengthen financial portfolio and achieve their goals,” explains Dato’ Khairussaleh Ramli, Group Managing Director, RHB Banking Group.
Less than a year ago, the global investment environment was awash with positive sentiment. Technology stocks were the darlings of the fund management industry, and seemingly everyone wanted a piece of premium tech equity. Malaysia’s own stock market was rosy; for a while in the 2017 in- vestment climate, it almost seemed impossible to lose money.
Fast forward to today, and the conversation has turned distinctly from one of unbridled optimism in company earnings, to whispers of the next market slump. Malaysia’s stunning General Election results this year further threw a wrench in an already softening financial market. Malaysia has seen a less than impressive earnings performances in quarter 1 of 2018. But why is this relevant? Markets may rise and fall, but the need to fund major financial milestones is constant. The market may well be softening, but you can ill-afford the same fate for your finances.
Building the nest egg 构筑安乐窝
So, you’ve resolved to take the bull (market) by the horns and get your long-term finances in order. Well done, but the challenge is only just beginning. Goal-based investing, that is, prioritising a series of key life goals and objectives, and then putting away funds with a view to accomplishing these goals, can be a complex affair. Not everybody has the funds to accomplish all of their goals, so prioritising is key.
In this regard, Encik Nazri Othman, Acting Head of RHB Group Retail Distribution opine allocating different weightages according to the urgency of these goals. Once you know how much you’re willing to commit to which goals, start working on these goals as early as possible, and let the compounding interest do all the hard work. As a general rule, a goal with a longer-term horizon can have a more aggressive investment allocations, while shorter-term goals should ideally be played more safely. Short-term investing typically lasts no more than three years or so, which means you’d need a larger than normal initial investment amount. Alternatively, one might have to commit to fairly frequent top-ups in order to achieve the goal, if there is any shortfall. However, being short-term does not mean being reckless; over a shorter-term investment horizon, your allocations should mainly go into defensive as- sets such as investment grade bonds with shorter maturity dates, as well as resilient blue-chip equities with strong dividend track records.
Advise from the experts is always welcome, but even so, investors should never take their eyes off the prevailing investment climate. Managing volatility can mean all the difference in terms of having enough for your children to take their pick of the top universities. It may be understandably tempting to make a play for a bit of alpha and go bargain-hunting in the current softening environment. However, undervalued equities should not be the sole reason for diving headfirst back into the current equity market. So, what is a person to do in this softening environment?
In the view of Calvin Goon, Head of Affluent, WM & Banca, RHB Bank, investors to stay invested, but to also periodically rebalance their portfolios in order to keep up with market forces and the overall outlook. After all, money hidden under the bed is money that isn’t working for you. Softening markets can offer alluring opportunities to bargain hunt, sure, but it is also a good time for goal based investors to strategize and go defensive with their portfolios. Calvin further explained that funds have flowed out from equities and the high yield space, into investment grade bonds. Investors would be well advised to revise their asset allocations to favour inflation-friendly commodities like precious metals, downside protected structured products, as well as investment grade bonds. These assets will be more appropriate in late economic cycles or even periods of recession.