Monday, April 18, 2011

Investments or eggs, don't put them all into one basket- Diversify

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Most people are diversifying their consumption of eggs, a practice which should also be applied when it comes to managing one's money.

THE recent fake eggs scare has lifted the sales of locally produced eggs for a while, until it was proven that they were genuine eggs, only of lower quality.

Although most people may have reverted to buying eggs at the supermarkets and hypermarkets, some continue getting fresh eggs from the local poultry farms.

They are diversifying their consumption of eggs, a practice which should also be applied when it comes to managing one's money.

If one puts all his eggs in one basket, he may risk breaking all the eggs should he drop that basket.

Same goes to investing one's money, where one risks losing everything by putting all the money into one plan or one asset class, should markets fall. 

The rule is to diversify the investments over several different assets and areas in order to limit the liability in adverse market conditions. Conversely, when the markets rise, investors will benefit from all the best performing sectors.

There are various savings and investment options which one could choose from, based on their respective risks. It is also useful to consider one's financial goals, including immediate and future needs.

With savings, one puts money aside without risk and earns interest on savings. With investing, there is potential for one's money to grow faster, but the returns are not guaranteed.

Safe investments include savings accounts, fixed deposits, government bonds, employees provident fund, and other savings schemes.

Moderate risk investments include mutual funds, property and gold. High risk investments are in stock market and forex (foreign exchange) trading.

Mutual funds or unit trusts are said to be the choice of passive investors who don't actively try to profit from short-term price fluctuations. Instead, passive investors believe that in the long run, their investments - based on a well-diversified portfolio will be profitable.

A unit trust fund builds a diversified investment portfolio that comprises stocks, bonds and other assets, in line with the fund's investment objective. Unit trusts, generally, aim to achieve returns higher than fixed deposits.

According to the Federation of Investment Managers Malaysia, the unit trust concept was introduced by Malaysia, ahead of its Asian neighbours. In 1959, two years after independence, a unit trust was established by Malayan Unit Trust Ltd.

Today, besides the privately-run mutual funds, there are various unit trust schemes managed by state-owned fund manager Permodalan Nasional Bhd (PNB).

The 1980s marked a significant development in the unit trust industry when PNB launched the Amanah Saham Nasional (ASN) scheme in 1981. The subscription by the public to the scheme was overwhelming and unprecedented.

The next decade saw the fastest growth of the unit trust industry in terms of the number of new management companies and funds under management.

Over the years, the unit trust industry has proven its resilience in adversity. During the global economic crisis, the industry's drop was less severe than the fall in share prices in Bursa Malaysia. This was due to the diverse nature of its assets.

PNB, through its subsidiary Amanah Saham Nasional Bhd (ASNB), operates a number of unit trust schemes. Some of the unit trust schemes are fixed priced, while some are variable priced.

After the launch of ASN scheme in 1981, there were several more unit trust schemes launched by PNB with the latest, Amanah Saham 1Malaysia (AS1M), launched on July 31 2009.

Most of the unit trust schemes are for Bumiputeras only, while a few are opened for non-Bumiputeras, including (AS1M). Other schemes under PNB stable include Amanah Saham Bumiputera, Amanah Saham Wawasan 2020, Amanah Saham Didik, Amanah Saham Malaysia and Amanah Saham Gemilang.

To date, Malaysia's biggest fund management company has a total of 10.38 million unit trust account holders.

PNB will hold its annual Minggu Saham Amanah Malaysia in Ipoh, Perak, starting Wednesday. The unit trust week, which has been held since 1999, is the group's social effort to educate the public on investment and encourage them to participate in the unit trust industry.

Maybe, that's where Malaysians should go this week in order to put their eggs in a number of baskets.

Source: Business Times, 18 April 2011

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