Quarterly Market Outlook
The age-old saying that prevention is better than cure has so much wisdom to it – why would anybody want to fix a problem that could’ve been avoided in the first place? That’s precisely why it’s important to always be on-the-ball with our health.
Is our muscle-to-fat ratio ideal for our body weight? Should we incorporate a new exercise to help strengthen our backs? Is it time to switch up the diet we’ve been following for the past few months? We depend on the expertise of our fitness coaches as they scan our bodies to keep us in the best bill of health.
Your investment portfolios are not too different from getting a fitness check-up. Have your asset allocations significantly changed over the last few months? Did your stock percentages increase after the GE14 shakeup? And most importantly… have your investments gone beyond your tolerance for risk?
One smart thing which you can do to be proactive in your well-being is to regularly see a fitness coach for an expert diagnosis. Similarly, you need to review what’s happening to your investment portfolio before you begin to rebalance it. You cannot expect your investment portfolio to be the same way it was a year ago.
Big events that happen in the financial world are akin to what goes on in your body. Prolonged hot days and you may need to hydrate twice more. A little too much greasy food and it would be wise to hit the treadmill before something goes wrong.
Likewise, big events like the General Elections or the Budget tabling are factors that will inadvertently affect how your investments are being made. Without the right advice, you may not get the expected return. So what would a fitness coach do? First thing’s first – scan your vitals and run you through a series of drills and tests to score your fitness levels. Then, he/she would review your lifestyle and diet, before finally advising you on how to be stronger, healthier, and further away from any illness or problems.
Similarly, you would first need to review your ideal asset allocation. Then, determine your ideal allocations, after which you can come up with a rebalancing plan that is in line with your financial goals.
How you balance your portfolio will largely depend on your lifestyle too. Let us illustrate with three simple examples.
Aggressive capital appreciation through equities
If you’re a young adult, it is likely that you’d want a nice house for your future family and yourself to happily live in. Because you have more years ahead of you, it’s easier for you to take higher risks. It wouldn’t be a bad idea to craft an aggressive, high-risk portfolio with the objective of getting capital appreciation through equities.
Balanced & steady growth capital appreciation through equities, stocks, bonds
If you’re in the mid-stages of your career, it’s likely that your income has exceeded your expenses, and all your major commitments have been sorted out. Now, you’re looking to build a secure retirement plan for when the day comes. Why not try a balanced, moderate-risk portfolio with a little in everything? Equities, stocks, bonds… these would give your money a steady growth through regular income and capital appreciation.
Stable fixed income from broad range of asset classes
And if you’re a retiree, you may be a little more sensitive to capital losses. At this moment, you want stability to carry you through your golden years, so it’s important that you don’t lose your capital in the investments that you’ve made. It would probably be a better idea to choose a low-risk portfolio with a fixed income derived from a broad range of asset classes.
You would take good care of your health because you know that prevention is better than cure. If you take heed of your fitness coach’s advice to exercise regularly, watch what you eat, and maintain healthy habits in your daily life, you will automatically get healthier and reduce the risk of falling sick.
Similarly, it is important that your portfolio is managed in the best way possible. When you rebalance your portfolio effectively, you get to manage risk according to your tolerance level. This also means you get to stay on track in getting your expected returns.
"It is important
that your
portfolio is
managed in the
best way
possible."
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