Asset Allocation For Investment

[chenchow]

I attended a seminar by Phillipa Huckle, who is an author in a number of magazines, including Personal Money, and she stresses a lot about asset allocation, and especially on the idea of rebalancing.

What is the opinion of fellow ReComers?

For those who are unaware of what it is, essentially asset allocation is about which type of asset we would park our investment in, for instance what percentage of our investment are going to blue chips, growth stocks/funds, mid cap, small cap, money market, bonds etc.

What would you guys think about rebalancing.

I personally would think that having diversification in terms of asset allocation would be a good thing to do. However, I would think that it would be hard for us (especially being human being), to sell portions of our portfolio, which has appreciated, to buy more in those portions of our portfolio that has depreciated, with the expectation that everything would work in a cycle. Phillipa Huckle advised for rebalancing once a year. This has got to do with behavioral finance too.

Any fellow ReComers have been thinking about such issues?

[weich]

i guess this only makes sense if you have more than > $200,000. Otherwise it doesn't make sense to diverse your portfolio when the transaction costs is too high.

I guess what she means is that you should look at the market conditions & such to see if there any situations that are changing e.g. the boom time for oil companies might be over soon and we should watch out for up and coming tech companies, etc.

[Schye]

Unless you are having tons of money, if not I believe its better to concentrate in just one type of asset and have diversification in the particular asset. Although the risk maybe higher but I think its hard for personal investors to apply asset allocation for their portfolio.

For those who either dont have the time or dont have the money, go mutual fund. I believe its the best way to have diversification and rebalancing being done from time to time.

just a beginner's 2cents...

[Salvation]

Yeah, for us students or young adults, I believe that investing in mutual funds that targets growth stocks/small caps is a good idea. As your investment horizen will be 30-40 years, investing just RM100 every month will make you an automatic millionaire. (not that being a millionaire 30 years down the road is going to mean much, taking into account inflation) As you get older, diversifying in blue chips and utility stock is a good idea as they are more stable. The thing not to do is to tinkle your stock portfolio every week or every month, the transaction cost will cause you more than the potential profits you can make in the short term. Speaking of mutuel funds, anyone knows a good one operating in Europe?

It's not true that it cost a lot to diversify. Especially in the US, it is possible to obtain very low cost mutual funds like those offered by Vanguard.

In fact, most academicians believe that asset allocation is the most important factor in getting good investment returns.

I would highly recommend reading David Swensen's recent book, "Unconventional Success: A Fundamental Approach to Personal Investment."

When doing investments, always understand what you're investing in, and if you're doing it through a mutual fund, understand what the fund manager incentives are (most of the time, they're out to make your money).

I've looked a little in the Malaysian financial markets, and it seems to me that it's quite difficult to get cheap financial instruments that allow for diversification. Unit trust, for instance, charge 5% fee upfront and 1% every fee (and that's crazy expensive).

If you know of funds that invest internationally (say in Singapore, US, Asia/Japan, or Europe) that are available to Malaysians, do let me know!