The 2022 World Cup has come and gone. But, there’s no denying that the strategies and tactics displayed have made the tournament all the more exciting. Life and football are a lot alike, which is why applying the right strategies and tactics for your investments can produce long term positive results.
In terms of strategy, investing isn’t that much different from football. There are defensive, holding, and attacking approaches which you can apply to your investments, depending on your risk profile and your investment horizon. And just like managing a team in a league, you can change your strategy as you go along, adjusting it according to the market conditions.
Think of the different classes of investments as your players and select them to build a portfolio with a long-term strategy. It’s crucial to remember that investing isn’t a one-off match; it’s a league.
Deciding on where to put your excess cash is the start of your investment journey. The next phase is to consider all options on the table and make an informed decision based on your risk appetite, time horizon and personal preferences. Your Relationship Manager will advise you on the best approach based on the abovementioned factors.
Once that is established, you can begin to allocate your personal savings to building your dream team - an investment portfolio with a diverse selection of asset classes based on geographical locations and sector preferences.
An investment portfolio typically consists of a basket of financial assets that includes forex, money market, equities, fixed income, and deposits. The weightage of each asset represents individual financial goal and risk tolerance.
Fixed income tools are your defenders that help you protect your investment goal. Your forwards are equity investments in higher risk and growth sectors, with occasional bursts of speed to boost your income. Funds with a bit of both in more stable sectors will hold the midfield and create opportunities to deploy your forwards.
Striking a perfect balance of fixed income and equity stock, balanced funds are your midfielders. Just like the playmakers who set the tempo for the game, balanced funds provide the setting for investors who are looking for safety, income and modest capital appreciation over the medium to long-term period. By spreading the money across a diversified portfolio of stocks and bonds, it affords investors the opportunity to cultivate more dynamic strategies for more aggressive or defensive approaches in getting the best out of annualised returns for your investments.
Like placing your players in a formation such as 4-4-2 or 5-4-1, there are several ways to allocate your assets, based on the weightage of equities or fixed income. The higher the equity portion, the higher the risk, or the more attacking the style of play. It depends on your risk appetite. These allocations, like formations, can change over time based on market performance, change in personal circumstances, and evolving financial needs.
After deciding on your asset allocation, you should expand your view to consider the weightage of different regions. For the occasional boost, you can consider a “satellite” allocation for proportionate and speculative short-term play.
Below are just some examples of ways a portfolio can be diversified, based on your risk appetite, but each is highly customisable. It’s best to consult your Relationship Manager or personal banker before making an informed decision.
There are 4 stages to your financial lifecycle, just like in putting together a new football team and challenging other team. There’s the development stage where you scout new talents and bring them up from your junior teams (accumulation and growing of wealth), the established stage during which you maintain your standing in the league, develop your star players and build a following (preserving and protecting your wealth), and finally the cup challenge stage (transferring wealth to the next of kin through legacy planning). Each phase needing to be managed comprehensively.
Throughout this journey there will be ups and downs as you bring your team to glory. Your investments will go through global financial crisis as well as market bull runs, the latter of which is also known as the “goldilocks economy”. A portfolio with a reasonable mix of different asset classes spread across multiple regions will both put your savings to work and protect your assets, while retaining a good position to capitalise on opportunities in any economic cycle.
You can make your team (portfolio) stronger by creating a passive income stream, like building a team around your strongest players. Adding fixed income assets is part of the diversification process.
A portfolio based on dividend-yielding stocks is a great way to get supplementary income, on top of your income from rental and your monthly salary. Products such as Dual Currency Investment, Auto-callable Structured Investment and Equity-linked investments are examples of products with pre-determined returns. Similarly, you can invest in government or corporate bonds to obtain the coupon rate for a fixed period.
But what if one of your star players is injured? That’s why you shouldn’t put all your eggs in one basket. While establishing a portfolio is crucial, protect yourself by allocating your money to different assets in multiple geographical locations, spread across a wide range of investment classes. That way, if your star player is injured, there is a backup. A diversified portfolio will help smooth out market instability, particularly in times of increased economic uncertainty.
Now that you have your team and strategy, you will need to monitor their progress. The process of building and maintaining a portfolio requires you to review your game plan and players from time to time, making changes in line with your expectations, strategy, and long-term market view. A change in your risk appetite is an example of a portfolio rebalancing point.
While it may be exciting to start an investment portfolio, investors must consider the risk associated with non-capital guarantee products. Risk in the investment context refers to potential losses that arise from unfavourable market conditions or poor performance from certain investments in the portfolio. In the football context, sometimes a top-ranked player just isn’t performing as expected so you’ll have to trade them for another.
The time horizon is also important in portfolio investing. You want a football team that can perform sustainably and provide a consistent challenge for the cup. Ideally, you should stay invested for at least 3-5 years to provide sufficient time for your investments to yield results.
For a more in-depth discussion on your portfolio and strategy, visit your nearest RHB branch to speak to your Relationship Manager and Personal Banker, or visit us at www.rhbgroup.com.