Tips to investors
The Sunday Times
31 May 2009
While some investors rushed in when the Straits Times Index (STI) plummeted in March, others preferred to play it safe and stay on the sidelines.
With each passing day and with no major sign of the STI's rise abating, it is no wonder investors are wondering if they have missed the boat completely.
For those not invested in the market, Ms Carmen Lee suggests that it is prudent to wait for a pullback before entering into fresh positions, bearing in mind that the STI has recovered more than 50 per cent over a short period.
Mr Bob Mock does not think long-term investors have missed the boat as the stock market does not move up in a straight line.
He believes that a pullback is likely to occur in the next one to two months. When it happens, long-term investors can jump in to invest for the long term, while short-term traders would have to be nimble and set appropriate cut-loss levels to protect their capital.
His tip to investors is not to be fully invested.
'Investors must never be fully invested, that is, they should always maintain a cash reserve or balance, preferably 20 per cent, to take advantage of an unexpected market crash like the sub-prime crisis in 2007,' said Mr Mock.
Irrespective of whether you view the rally as bearish or bullish, Mr Gabriel Yap said that from now till the end of the year, taking any equity position is better than investing in bonds. This is because 'equities will perform fastest in any turning point and the turning point has been seen', he said.
Rather than take an all-or-nothing approach, Mr Albert Lam is suggesting that his clients continue to invest regularly in the market, while keeping some cash for investing when the market corrects.
'We think it is sensible for an investor to allocate 50 per cent of his capital to a regular savings plan into growth funds. These would be invested in Asia, BRIC (Brazil, Russia, India and China) and emerging markets. Allocate 20 per cent to regions like mainland China and Hong Kong that look like they have bottomed and are recovering on a firm uptrend,' he said.
'And hold the balance 30 per cent in cash as spare ammunition. This is to wait for the real bottom, in case the market has yet to do so. Using this strategy, investors will benefit regardless of whether this is a bear market rally or the start of the next bull market because you already have investment exposure.'
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