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.
HI Chee Jin,
You can do that as long as it gives you better rate, without penalty.
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.
KC Lau, my portfolio is 50%equity, 20% bond, 15% cash,15% property. I am not into the stock market, thus the closest I get into equity is via UT. Is this portfolio okay?
2. I am still at the accumulation stage, perhaps will think about switching when I reach 100k. Is it alright?
@Gavin,
You can rebalance your portfolio along the way.
UT is about accumulation of units. If we buy into a fund (equity)that has lower price, we will get more units.
If after some months, we switch to another fund (equity also) that is higher in price, will our accumulated total units remain the same? Thus when we sell at this new higher price, we can reap more profits. Am I right?
@Gavin,
the total of unit is always recalculated when you switch from fund A to Fund B, depends on the price.
@gavin, nope. When you must switch, you buy based on that fund price so your accumulated total units changed.
Sometimes looking into balancing/divesification based on asset classes is not enough. You should also have funds invested globally to migrate risks involving a certain country or continent.
switching has its pro and cons. unless u are sure that u are happy with the returns
and very disciplined to do the switch into bond fund when necessary. u may plan to switch but when your return hits the target of eg 20% ,emotion takes over and u want to wait a little longer to gain more. Then the market dips, and u are at 15%. Fearful that market may go down further u finally switch at below target. The same applies when u want to switch out into equity. Therefore u lose out both ends.
The safer way is to invest with affordable monthly standing instruction and have some cash to top up more when market dips. U will be doing forced saving, dollar cost averaging, growing your wealth and grabbing market opportunities to accumulate more units, all in one and less stressful. But before doing all that u must have at least 8 months emergency fund put aside in bond fund or fixed income
KC Re-balancing makes no sense what so ever. Its a buzz word used in the U.S. to avoid law suits. Its part of the Modern Portfolio Management process that is TOTALLY discredited. Re-balancing means selling the good things in the portfolio, those that have strong relative strength and are likely to stay that way for a long time and reinvesting those funds you get from selling the good and buying the bad. What would have happened in the Dot Com bust if you were selling Oil that did well for 7 straight years from 2000 and put the money into Internet Stocks. You killed the portfolio. This is only a buzz word to get people to buy into MPT. It is always best for the investor or adviser to be a craftsman at the investment process and tactically rotate the portfolio when sectors and asset classes actually move out of favor. Kind of like Produce in the market changing seasons. Tom Dorsey
hi….all unit trust senior,
i plan to invest in unit trust…but i don’t have any idea & i not really understand about 2nd and 3rd points given above.
1. how to do portfolio re-balancing???
2. why we need to do?
3. what is switching & why need need to switch it??
4. when & how to switch??
if all senior got any useful info or hints plz send to me …..thanks !!!
alvin,
have u invested in UTrust? well, for further understanding, its better to hv meeting personnaly as this issue tend to get mis interpretations!!
Greetings & G’Day,
Invest directly into stock market will be better returns. Of course, high risk high gain.If you are a long term player( 10 – 12 years cynical), you’ll notice for the past 30 years, stocks market DROP drastically for 2 – 2.5 years(VERY FAST DROP), and took average 7-8 years(STABLE & STEADY uptrend) to slowly moving upward.
1. Buy Dow Jones, Nasdaq or UK stocks will gives better currency exchange returns in long term.
2. Consider buying Brazil STOCK MARKETs NOW!! Why Brazil ?
FIFA 2014 WORLD CUP OLYMPIC 2016 BRAZIL
Bought NYSE, NASDAQ stocks during fallouts of Washington Mutual, Lehman Brothers, trouble of AIG & USA Banking credit crunch, Fannie Mae, Freddie Mac. Put Total Investment = RM60K and NOW VAlue at RM 400K .. Per history chart, it will worth few millions if you got patience to keep and hold stocks for 5 – 8 years from now.Beside that, the quaterly PAYOUT dividend is in Higher Currency Exchange..
Bank Of America(BAC), CitiGroup(C), Las Vegas Sands(LVS), XL Capital(XL), E-Trade(ETFC), MGM Mirage(MGM), General Electric(GE), Alcoa(AA), Beazer Home(BZH) ..
Mr. KC Lau,
Can I invest a lump sum (RM100K) in one fund ( example : index fund) just to collect dividend in January 2010. When dividend collected then I do switching to Regular Saving Fund, distribution in March 2010. After collected the dividend I do switching again to another fund (eg. P Ittikal fund) I will receive dividend in 31 May 2010.
Again I do switching to Small cap fund …………………………. till to Saving funds distribution in 31 Dec.
Is this a good practise to gain more or not ? please advice.
thank
Mary Tan