{"id":4664,"date":"2023-12-02T06:46:11","date_gmt":"2023-12-02T06:46:11","guid":{"rendered":"https:\/\/mcpg.org.my\/v1\/?p=4664"},"modified":"2023-12-02T06:50:52","modified_gmt":"2023-12-02T06:50:52","slug":"staying-the-course-in-the-face-of-volatility","status":"publish","type":"post","link":"https:\/\/mcpg.org.my\/v1\/2023\/12\/02\/staying-the-course-in-the-face-of-volatility\/","title":{"rendered":"STAYING THE COURSE IN THE FACE OF VOLATILITY"},"content":{"rendered":"\n<p class=\"has-text-align-center\"><em>Article by<\/em><strong> Areca Capital Sdn Bhd | 2nd December 2023<\/strong><\/p>\n\n\n\n<p>Ever get the feeling of d\u00e9j\u00e0 vu? Looking back, we\u2019ve been seeing a usual scene play out in financial markets over the past 4 or 5 years. It has usually been a tale of two halves \u2013 the Jekyll or Hyde phases of the market. Which personality ultimately turns up in the first half (or second half) is usually unpredictable. <\/p>\n\n\n\n<p>Looking ahead, the\nunpredictably and volatility will be something we have to learn to live with. The\npost-pandemic recovery, the damaging after-effects of supply chain issues, global\neconomic slowdown, geopolitical tensions were only some, to name a few. The\nquestion is how this translates to our investments and how do we deal with its\nrepercussions: &nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Making sure the Plan jives with our objective <\/strong><\/li><\/ul>\n\n\n\n<p>We can\u2019t stress\nenough the importance of having a portfolio of investments. For most of us, these\nwould comprise of investments like Fixed Income\/Bonds, Equity, Fixed Deposits\nand even Properties. How are these allocated\ndepends on the usual factors \u2013 Financial objective, appetite for risk and\npursuant to any liquidity needs. <\/p>\n\n\n\n<p>Mismatch occurs\nif 45-year-old Helen, aiming to live off her nest egg for another 40 years puts\na majority of her \u2018investments\u2019 in Fixed Deposit and Cash, or if 30-year-old Sam\nbuying his first property next year, decides to put his down-payment money in\nEquity. <\/p>\n\n\n\n<p>With her 40-year\ninvestment horizon in mind, a more appropriate investment allocation for Helen\ncould be a 50-50 weight in Fixed Income and Equity.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Diversify\u2026.reasonably <\/strong><\/li><\/ul>\n\n\n\n<p>What would make\nup the underlying components of the 50-50 basket for Helen? Given that she may\nnot be well versed with financial markets, Helen could go about adding several\nUnit Trust Funds to her portfolio to have some form of diversification. Generally,\neach Fund would be holding somewhere between 30-40 stocks or bonds for ample\ndiversification. Therefore, a reasonable number of Funds for a portfolio of\nbetween RM1 million to RM3 million could be 5 to 6. <\/p>\n\n\n\n<p>So no, Helen\ndoes not need to invest into 20 \u2013 30 Unit Trust Funds! Owning too many similar Equity\nfunds would not diversify away the risk of Equity investment. This is\nover-diversification or diworsification! <\/p>\n\n\n\n<p>The reason for\ndiversification is ideally, that the asset classes move in opposite direction\nof each other i.e., when one falls, the other rises. However, given how\ninvestments have moved in unison lately, even that may be a tall order. What is\nfor sure however, is that well-diversified portfolios would withstand market\nsell-offs better. These are usually ones with appropriate allocation to Fixed\nIncome and Equity instruments. <\/p>\n\n\n\n<p>The main\nconsideration to diversify is not to maximise returns, but rather, to achieve a\nmore reasonable risk-adjusted return. <\/p>\n\n\n\n<p>What happens\nwhen volatility or market sell-offs happen? <\/p>\n\n\n\n<p>It is admittedly\npainful whenever our portfolio (and our money) takes a hit. Nevertheless, here\u2019s\nwhen having a plan and knowing the \u201cWhy\u201d that we invest in the first place is\nimportant. <\/p>\n\n\n\n<p>Take a step back\nand review the actual objective of our investment. Taking Helen for example, if\nshe is ultimately investing for the next 40 years, any temporary fluctuations,\nfor example over a period of 4 days, 4 weeks or even 4 months in equity prices\nshould not matter much to Helen. She has time in the market. What is crucial\nhere is that Helen has a well-constructed plan in the beginning \u2013 and she\nsticks with it. <\/p>\n\n\n\n<p>Many of us know this, but the question is, do we follow through on our plan? Or most of us end up switching out or over-reacting at the first sign of \u2018trouble\u2019? Alternatively, what can we do? <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Filter or turn off the noise<\/strong><\/li><\/ul>\n\n\n\n<p>These\ndays, information can be made available at literally the touch of a button. Technology\noffers the dissemination of information, a level playing field; as it\ntranscends borders and regions. In our view, it is by and large, a double-edged\nsword. There can be too much information, even for a professional investor to\ndigest, what more for the individual investor. <\/p>\n\n\n\n<p>If you are reading some financial news headlines, take a step back, look at the subject in question from a different perspective before coming up with your own reasoning. Moreover, the world has never been short of news, but bad news sells. <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Re-balance your portfolio<\/strong><\/li><\/ul>\n\n\n\n<p>For Helen\u2019s\ninitial 50-50 portfolio, if her current allocation has diverged significantly,\nshe can consider re-balancing back the portfolio to its original weight. For\nexample, over time, her Equity\nfunds\u2019 growth may have outpaced the growth in Bond Funds, turning her portfolio\nto a 60-40 mix. It may be prudent for Helen to switch some of the Equity\nportion into Fixed Income portion to re-align it back to the initial 50-50\nallocation. <\/p>\n\n\n\n<p>Conversely, following a market sell-off, the\nreverse would be true; due to the fall in prices, Equity\u2019s overall allocation\ncould fall to 40-60. Helen can now switch some of her Fixed Income allocation\nto buy Equity at a relatively cheaper price. <\/p>\n\n\n\n<p>Being a disciplined strategy, re-balancing\nremoves the emotional aspects from your investment making decision. The selling\nand buying decisions are typically triggered by pre-determined factors, for\nexample, time-based (every quarterly, annually\netc) or target-based (if the equity portion crosses a certain percentage of\nportfolio). <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Deploying Cash \u2013 in tranches <\/strong><\/li><\/ul>\n\n\n\n<p>In fact,\ntaking the glass as half-full, times of turbulence or volatility could be\nopportunities to add to your existing portfolio when prices are low. &nbsp;<\/p>\n\n\n\n<p>Here\u2019s another harsh truth \u2013 holding out your investments in search for\nthe best entry point may turn out to be futile. There is no perfect moment to\ninvest: no crystal balls to foretell any market rallies or to catch the market\nbottom. Even the professionals get it wrong in timing the market. <\/p>\n\n\n\n<p>If you are\ntoo concerned about investing in one lump sum, try a staggered approach.\nIdentify the amount of unutilised or excess cash you can spare, and you can\ndeploy it through 2 \u2013 3 tranches.&nbsp; <\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Cost Averaging <\/strong><\/li><\/ul>\n\n\n\n<p>For some,\neven 2 \u2013 3 staggered investments may be too concentrated. Try adopting a Cost\nAveraging strategy. It involves a fixed amount of money being deployed\ninto the Target Fund at regular pre-set intervals. If the target is to\nultimately deploy RM100,000 over a period of 10 months, you\u2019ll be looking at\ninvesting RM10,000 every month, consistently \u2013 regardless of prices and market\nconditions. <\/p>\n\n\n\n<p>Whether it\nis through 2-3 tranches or Cost Averaging approach, these methods remove much\nof the market timing risk and replaces it with a more disciplined alternative. <\/p>\n\n\n\n<p><strong>Conclusion\n&#8211; Persevere through, stay the course <\/strong><\/p>\n\n\n\n<p>Despite all the negativity and bearish market sentiment around, we have to remain level-headed. Moreover, we can\u2019t extrapolate what is happening today, and project it to the future. <\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1400\" height=\"649\" src=\"https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/image-1400x649.png\" alt=\"\" class=\"wp-image-4667\" srcset=\"https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/image-1400x649.png 1400w, https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/image-800x371.png 800w, https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/image-768x356.png 768w, https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/image-1536x712.png 1536w, https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/image-600x278.png 600w, https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/image.png 1988w\" sizes=\"auto, (max-width: 1400px) 100vw, 1400px\" \/><\/figure>\n\n\n\n<p>If your\nlong-term goals are intact, stay the course. Don\u2019t rip out your investment\nportfolio just because of the peculiar temperaments of the market. <\/p>\n\n\n\n<p>Maintain the Asset Allocation of your portfolio and avoid making any drastic moves unless they are warranted, rebalance periodically and make small tactical adjustments when necessary. Let time or even the professionals do the heavy lifting in growing your money for you, and most importantly, don\u2019t let noise distract you from your ultimate objective.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/Areca-Capital-Logo-RGB-Original.png\" alt=\"\" class=\"wp-image-4668\" width=\"212\" height=\"54\" srcset=\"https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/Areca-Capital-Logo-RGB-Original.png 889w, https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/Areca-Capital-Logo-RGB-Original-800x204.png 800w, https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/Areca-Capital-Logo-RGB-Original-768x196.png 768w, https:\/\/mcpg.org.my\/v1\/wp-content\/uploads\/2023\/12\/Areca-Capital-Logo-RGB-Original-600x153.png 600w\" sizes=\"auto, (max-width: 212px) 100vw, 212px\" \/><\/figure>\n\n\n\n<p><strong>Areca\nCapital is a niche Malaysian Private Wealth Manager. We are a firm believer in\nthe advisory-based approach towards investing. <\/strong><\/p>\n\n\n\n<p><strong>We help our\nclients, who range from individuals to corporates, family and private trusts,\nfoundations and other institution to achieve consistent risk-adjusted returns\nover the long term. <\/strong><\/p>\n\n\n\n<p><strong>For any enquiries,\nyou may contact us at 03-79563111 or by email: invest@arecacapital.com<\/strong><\/p>\n\n\n\n<p><em>Disclaimer: The article is produced based on material and information compiled from reliable sources at the time of writing and it is for general information only. The article is not an offer, recommendation or advice to transact in any investment products, including the stocks or funds mentioned within. The contents of this document should not be considered to be legal, tax, investment or other advice, and any investor or prospective investor considering the purchase or disposal of any securities or the Fund should consult with your consultant or advisers as to all legal, tax, regulatory, financial and related matters concerning an investment in or a disposal of such securities or Fund and as to their suitability for such investor or prospective investor. This article does not consider any investor\u2019s particular objectives, financial situation or needs. As such, Areca shall not be liable for any misuse of this document, other than the purposes stated herein.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Article by Areca Capital Sdn Bhd | 2nd December 2023 Ever get the feeling of d\u00e9j\u00e0 vu? Looking back, we\u2019ve been seeing a usual scene play out in financial markets over the past 4 or 5 years. It has usually been a tale of two halves \u2013 the Jekyll or Hyde phases of the market. 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