With 2012 past, the Thai Financial Planners Association (TFPA) would like to wish all the readers of Wealth Care Happy Holidays and best wishes for the New Year. We look forward to your questions in 2013, and listed below are a few investment tips that may be useful to our readers.
Having a firm grasp of some investing fundamentals can help you to set realistic goals and stick to your financial plan. Here are six time-tested principles that can help you to establish your own personal investment approach in 2013.
- Keep a long-term view: Keep in mind the historical returns of different asset classes when setting your financial goals. For example, stocks and bonds have returned about 10% and 5% annually over the past 20 years. Treat any outperformance as a bonus. Remember, time is your ally. By focusing on long-term results, you'll find it easier to ride out short-term volatility.
- Be disciplined: Often the most successful investors are those who follow a proven investment process. The key is they choose an investment discipline and adhere to it. By establishing a clear financial plan or investment policy statement, you'll have a logical framework for your own financial decisions.
- Invest responsibly: Define your objectives and risk tolerance. While making big bets can sometimes reap big rewards, they often lead to steep losses instead. That's why many leading fund managers look to optimise the balance between risk and reward.
- Understand what you invest in: If you can't explain in simple terms why you're investing in a particular security, then you should rethink the investment. And you should always have a clear understanding of any risks involved. Risk should be your first thought, not an afterthought. Many investors often look at only one side of the coin when it comes to investing _ the potential investment return _ and never really bother to look at risk. This is understandable. A potential investment return of 5% or 10% per year is fairly easy to understand. But when it comes to analysing the investment's standard deviation, worst drawdown, beta, information and Sharpe ratios etc, it's a lot more difficult. Your financial planner should prove an invaluable resource along these lines.
- Stay diversified: No one can predict the next top-performing asset class. That's why the importance of asset allocation is virtually undisputed. To achieve broad diversification, you should invest your assets across different sectors and industries as well as different asset classes. Remember to rebalance periodically to ensure the proper mix.
- Know the value of professional advice: An increasingly complex investment climate has made it challenging for investors to try to go it alone. That's why more and more investors are turning to professional management.
And of course, a financial planner can help you to construct a solid financial plan, make sound investment choices and guide you through times of volatility.
Finally, our first letter of the new year comes from a young person looking to dip her toes in the investment pool:nnnI'm a 19-year-old student. I have 10,000 baht in savings that I want to invest, but I have no experience, so I don't know how to start. Where does one buy an investment and what type should I begin with? I don't expect a high return, but I prefer low risk, as I don't want to lose my savings.
_ Duangkhae Laohakulatham
ANSWER BY... Teera Phutrakul, CFP, Chairman, TFPA Since you are still very young with no experience and you require low risk and may not have a job yet, I suggest you start with doing investment research. The Maruey Library at the Stock Exchange of Thailand is a good first step. If you study your investment options in parallel with savings and risk management strategy, then you can maximise your chance of achieving your investment goals as you age.
I'm not sure whether you already have emergency savings. Generally, people should have emergency savings of 3-6 times their monthly expenses in a liquid account that allows withdrawals at any time. If you still have money left after setting up an emergency account and paying for normal expenses, use that for investment.
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 financial advisers and experts from various organisations set up to give advice to investors. Questions can be submitted to them through email@example.com or posted at TFPA's webboard at www.tfpa.or.th
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Writer: Thai Financial Planners Association