Tips for novice investors

WEALTH CREATION

THE economy is picking up and most believe the worst may be over. If you’ve been hiding your hard earned money under your mattress for the better part of 2009, than now may be a good time to invest it.

GETTING STARTED

For the first-timers, or those not too familiar with the world of investments, jumping in head first into something without careful research can be costly, especially when it involves losing money. Speaking to an experienced financial planner is not a bad place to start.

“The first thing we recommend a first time investor to do is to develop a portfolio. This can be done by working with a financial planner or an asset manager. We also recommend that you carry out fundamental research first before investing ,” MyFP Services Sdn Bhd financial planner Robert Foo tells StarBizWeek.

RISKS and RETURNS

Knowing how much you’re willing to invest, and how much of a risk you’re willing to take, is the next step. Unfortunately, risk is inseparable from returns, as every investment involves some degree of risk.

Licensed financial adviser Jeremy Tan of Standard Financial Planner says: “You will need to know your investment goals and how long you want to continue investing.”

For the non-risk taker, Tan advises placing money in a fixed deposit account, but cautioned that wasn’t a very good option.

“In an environment of high inflation and low interest rates, if you are just going to leave your money in the bank, eventually you are going to lose out,” he says.

Naturally, the bigger the risk, the better the returns. The following are in no way a comprehensive and ideal list of what to invest in, but a simple guide of what our financial planners feel are natural choices for the eager investor.

UNIT TRUSTS

Unit trust is a good way for small investors to invest for their future. For those who are unable to divest a lot of money, unit trusts are a good source of returns, says Tan.

“Investing in unit trusts is good for beginners because you can invest with limited funds.

Unit trusts also offer a broader choice of funds. If you invest in a stock, the options are limited to that company’s core business. Unit trusts investors can also redeem their investments at any time.

“In a downturn, if you want to sell off your shares in the stock market, there are risks you may not find a buyer,” Tan says.

Financial planner Wilson Low says people who invest in unit trusts also have the advantage of being advised by professionals. “Their expertise ensures that the investment decisions made are structured and well planned. With the stock market, you don’t get that luxury.”

GOLD

CTLA Financial Planners Sdn Bhd financial planner Mike Lee claims that gold is a “good investment bet” for 2010. With the US dollar forecast to remain tame for 2010, a lot of investors would be turning to the precious metal for a more secure investment, he says.

“If the dollar weakens, the price of gold will increase since it is denominated in US dollars but widely used in global markets and by central banks of foreign countries.”

Low says that gold was often considered a “safe haven” in a crisis. “If something happens to the world, like a global disaster and paper currency looses value, gold can become a valuable (alternate) tradable currency,” he says.

However, the stock market provides dividends and gold does not, Low adds. Gold futures rose Monday, boosted by strong Chinese imports data and after a Federal Reserve official emphasised that US interest rates are likely to stay low, pressuring the dollar. Gold for February delivery ended at US$1,151.40 an ounce, up $12.5, or 1.1% on the Comex division of the New York Mercantile Exchange.

PROPERTY

Regardless of whether you are a first time home buyer or an investor looking at property investments, the benefits are obvious.

While taking risks in the stock market may yield higher returns, property investment can provide a more stable, steady level of income and a more secured level of return on investment.

Property generally appreciates in value and rarely the reverse. But like other forms of investments, finding the right property requires a lot of research. “Property prices have been relatively stable but it all comes down to location,” Lee says.

An analyst from a local bank-backed brokerage says 2010 is a good year to invest in the property sector. “Many developers held back their launches last year and there should be some level of oversupply this year. However, many buyers have also shied away from the market so there could be a surge in demand as well,” he says.

Tan says property is a good hedge against inflation, but points out that investors may need to bear additional costs like repairs or risk not having a tenant in a downturn.

STOCK MARKET

The stock market can be a great source of income. To relatively new investors, Tan advises that the stock market should be their “last option.”

“You have to be a specialist if you want to excel in the stock market. You have to understand the fundamentals of the stock, price-earnings ratio, yield, etc. Unless you’re an expert and understand the stock well, this isn’t for you.

“If you do invest, the natural choice would be to invest in blue-chip companies, which tend to be more stable. If you’re a small-time investor, you can’t expect to earn much by investing in penny (small) stocks,” he says.

Foo shares a similar sentiment when advising newcomers: “We discourage stocks and shares if you don’t have experience.”

DIVERSIFICATION

Given the broad options above, Lee says the best way to maximise returns is to diversify one’s investment portfolio.

“Investors should diversify their investments and not place all eggs in one basket. If the market goes down, then you risk losing everything.

“If you’re willing to take risks, you should invest in a mix of equities and unit trust funds. And if you have the money, you should look at your portfolio and invest in something that you have not done so already,” he says.

Tan also concurs that diversification of investments is the best option. “To invest in just one area, you must be a specialist,” he says.

Foo says an investor should continuously review his portfolio to ensure that everything is “on-track,” adding that one could also try “diversifying offshore.”

“People today are not just spending in ringgit. A lot of them are sending their children overseas, like Australia. If you’re planning to send your kids overseas, than it’s best to start early and place your money in a foreign investment,” he explains.

He cautions that one should thoroughly research before diversifying into unknown territory.

“In diversifying, you need proper information. So work with planners that have the right tools that can help create the proper portfolio for you.”

By EUGENE MAHALINGAM