There are 3 common strategies used in unit trust investment.
1. Ringgit Cost Averaging
Regularly invest a fix amount in a unit trust fund regardless of market trend is called the Ringgit Cost Averaging strategy. The actual market performance is fluctuating. When the equity market is high, you buy less unit with the same amount. When the market is low, you buy more unit. For long term, you will get much more unit in the lower price range.
2. Portfolio Re-balancing
Portfolio re-balancing is the process of bringing the different asset classes back into proper relationship following a significant change in one or more. More simply stated, it is returning your portfolio to the proper mix of stocks, bonds and cash when they no longer conform to your plan.
Example:
You start investing 50% in equity and 50% in fixed income fund.
1 year later, the equity rises and now your portfolio consist of 80% equity and 20% fixed income fund.
To re-balance your portfolio, you should sell 30% of your total fund in equity and invest it in fixed income fund so that the portfolio is maintained.
This is the simple principle of buying low, and selling high.
3. Switching
Switching will lock in the gain you made in your unit trust investment. Switching fees are low and definitely lower than the upfront service charge. When you are making profit from an equity fund, you can switch it to some lower risk fund to lock the gain instead of selling it for cash. When the market turn low, you can switch it back to equity fund.
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the 2nd and 3rd points sounds a bit overlapped, and also a bit contradicting to each other.
Maybe it would be helpful if you write about their difference and similiarities in another article.
I think these rules are quite helpful but switching too much will sway away from original portfolio and investment goals, don’t you think so?
Hi Relax,
You are right. Switching should be integrated into portfolio rebalancing. It will avoid the timing risk.
Since switching will cost the investor, so i think if the investors want to do switching, must ensure the amount that they switch is more than the transaction cost, if not the profit will all belong to the mutual fund company. Other than avoid the timing risk, investors also need to avoid the transaction cost of swtiching. Therefore, before investing in unit trust, investors must look for a good consultant or agent that provide the timing switching skills.
@Eng Hua,
Thanks for commenting constructively here
Cheers!
I still owed the outstanding housing loan around RM52000.00.Is it good for me to refinancing my house from UOB bank to maximun full loan to longer period?my age is 45 year old now.
Is it good to take housing loan money to invest in ASB bumiputra unit trust scheme.My spouse is bumiputra.Can I get better benefit in return or is it worth?thanks
Hi Chee Jin,
You are referring to using debt to invest. In fact, it depends on how confident you can get the return that’s higher than bank interest charges.
For the time being, looks like ASB is giving higher return than bank interest.
HI Chee Jin,
You can do that as long as it gives you better rate, without penalty.