29 May 2011

What makes you still stick to your investment strategy when market condition changes?

To those newbies in stock market, you may still try to figure out the best investment strategy even during Bull Market and Bear Market. For some one who is risk taker, they will still continue their 100% strategy in bull market. It is similar to some equity fund that benchmark against the Equity Index. For risk adverse guys, they will avoid to enter bear market as there is uncertainty in the market. However, from my observation, there are numbers of successful investment happened at the bottom of the market. If we look from portfolio management perspective, asset allocation plays a very big part in it. During Bull Market, while everyone is very bullish on the market, most of the investors will allocate most of their funds in the riskier investment products such as Stocks, Equity Funds, CFD, Forex, Futures etc. They will try to leverage on the bull market to earn more income. However, most investors do not have the exit strategy or so called portfolio re-balancing when market changes.

For me, I would construct an asset allocation plan during bull market and bear market:

  • Emergency Funds - 10% or 6 months living expenses (including loan payments)
  • Shares / Unit Trusts -40% - 60%
  • Real Estate (Could be REITs / House) - 40%-60%
The reasons why I allocate at least 10% of my money in emergency fund during
the bull market & bear market is that I have been gone through them since year 1998. So the lesson taught me that I must set aside a certain amount besides me, so that I can invest/utilize the emergency market whenever the opportunities arises or whenever there is really emergency.

How do I define emergency? Emergency I define here is a huge expense that we cannot foresee in the near future, that may force us to sell off our investment to cover that expense. So far, I didn't experience that I have to sell off my investment to cover some emergency expenses. But I know that it will happen one day. Especially after I get married one day. The emergency fund can be formed by Cash, Fix Deposits or Money Market Funds. I also categorize Foreign Currency Fixed Deposit as one of the emergency funds because I know a bit of forex and I know that over the long term, the volatility of the currency actually is small compared to the Forex Market volatility (as Forex market uses leveraging).

While I define Stocks / Unit Trusts as strategy to grow my capital, REITs / Real Estate is another strategy to grow my leverage to invest in the investment asset class. I am currently in the middle of managing my portfolio, to make it more dynamic and livable. So I would know that I can still 'survive' during Bull Market and Bear Market. 


Tell us your investment strategy when market condition changes in the comment box below.

2 comments:

  1. Something which really affect our investment is retirement. Most of the peoples are concern with the certified financial planner or taking online cfp training. However, most investors do not have the exit strategy or so called portfolio re-balancing when market changes. And of all its an nice blog Sir...

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