Financial Planning Q&A Part 1

Recently I was interviewed by a local Chinese women magazine - Citta Bella (January 2015 issue), and I thought I should translate the script into English to benefit more readers.

Question:

There are various investment products such as unit trust, bonds, equities, real estates, gold, and forex that are available to us, which type of investment is most suitable for lady beginners? What are the basic rules and myths that we need to pay attention to?

Answer:

To rank the risk level for the above investment products from low to high are: debt securities, real estates,  unit trust, equities, gold, and forex. The lower risk instruments such as bonds and real estates may require huge capital of investment, while higher risk forex requires smaller capital as forex is traded on margin. Does that mean beginners with small capital are forced to invest in those higher risk forex, futures and penny stocks? Not really!

I would recommend the greenhorn ladies to go for unit trusts, blue chip stocks and physical gold investment.

Firstly, let me talk about the unit trusts. There are a wide variety of them with different investment themes, the most common ones are the local equities funds that invest mostly in the Malaysian equity market. Since 1999, the Malaysian equity market has been performing steadily compared to the regional markets. There are also some unit trusts that invested in government bonds and corporate bonds with annual returns close to the fixed deposit (FD) rate, so I wouldn’t suggest you to invest too much into these funds, just put your money in the FD, as there is not much difference. 

Alternatively, there are unit trusts that invest in foreign equity markets, these funds are more risky. Although the potential returns may be high but I would suggest not more than 30% of your portfolio into this type of unit trust.

Next, let’s talk about stocks! I would like to emphasize that not everyone is suitable for the stock investing. I have seen too many bad cases, for example, many beginners when first entering into the stock market, they would think that they are the Warren Buffett type – value investor. They would choose some blue chip stocks for a start, hoping to win big money! 

Usually the biggest mistake is their attitude! They always wish that the stocks would appreciate within the short term, but in reality, unless we are in a strong bull run, otherwise these blue chip stocks hardly move, sometimes they may drop in prices. These inexperience greenhorns get panic and they would sell off these good value stocks, in returns, they would listen to rumours and bought into “penny” stocks. Hence, they lose even more in the end, and they ended up paying heavy price for that!

Finally, let’s talk about the gold and forex. I would suggest to the beginners not to invest in forex as it is high risk and prices fluctuate a lot, you may end up having sleepless nights!  However, I do recommend gold investment, especially gold jewellery for the ladies! Last year I did mentioned gold price was volatile and it’s price has fallen quite a bit, this year, I believe the gold price may fall to a bottom this year, and that it would be a buying opportunity for those gold bugs again! Start buying gold in the 2^nd half of 2015 or whenever you see a substantial fall in the gold price.