Everyone who invests is also an investment manager himself. Although professional investment managers are employed to handle investment decisions for most of the investment products, in many areas an investor himself has to make the crucial decisions.

Some of these decisions include when to invest, which one is better, how much to invest, when to take profit (how about losses), when to switch, when to add, etc.

An investor himself will have to make many decisions even though financial consultants, investment advisers, financial planners and fund managers may provide advice from time to time. The final decision of an investor will very much be influenced by his risk appetite, expectation, cash flow needs, investment history, investment experience, etc

Simplest investment needs decision
Even the simplest investment, ie putting your excess money in fixed deposits (FD), requires a decision. The questions that come to mind immediately are which banks provide higher interest rates, how long to place (one month, three months, 12 months etc), how to allocate between FD which provides a higher interest rate and the smaller interest-bearing savings account.

Fortunately, most banks provide competitive rates and there is less need for extensive comparison. Furthermore, the interest differential between different maturity durations is small and as such, most people opt for shorter tenure of one-month maturity for FD.

In view of the current low interest rates offered by banks, it may not be necessary to crack the brain to pick and choose, unless the amount is substantial.

Complexity arises when some banks develop innovative products to lure customers, especially the high net worth individuals. Some of these are high interest rate foreign currency deposits, interest upfront deposits, etc.

Share investment
For the more knowledgeable ones, direct investment in the stock market could be more profitable. In this case, retail investors are investment managers of their own right.

They have to decide on market timing, which stock to buy, how much to invest, when to take profit or cut loss, when to go aggressive and when to lie low, what stock to trade and what stock to invest in. A lot of home work is needed to make a good investment decision.

Individual investors who have full-time jobs and double up as “part-time investment manager” managing their own investment will face difficulties to allocate time in monitoring the market and analysing stocks.

Most of them neither have the knowledge to analyse nor the skill to invest. Those who have some knowledge or skill may not have the time to do so due to their job commitment.

With such constraints, it is difficult for the average retail investors to excel in stock investment.

Unit trust investment
Due to the poor performance in the stock market, many punters switch to unit trust investment.

Although professional fund managers are engaged to manage the unit trust funds, they will invest based on the requirements of the fund as stipulated in the trust deeds.

They do not have prior understanding on those investors who have invested in the fund in their investment decision process, such as how much of their assets were invested in the fund, their timing of investment, etc.

Unfortunately, most unit trust investors in Malaysia were convinced to invest by agents or financial planners.

Very few have actually conducted their own analysis to determine which is the better fund to invest in terms of investment risk (which include the type of investment, the investment decision-making process, expertise of designated fund manager, investment style, etc) and the risk-adjusted performance.

Many unit trust investors went through the ups and downs of the market and the performance of their investment also went through similar roller-coaster rides.

They might have made handsome profit during certain periods and they may also experience rapid falls in their profits during the course of the investment.

The worst experience is probably from a profit to a loss position. Some financial planners who try to help their clients may end up doubling up as “fund managers” by advising the clients to switch out or to take profit.

Whether investors ultimately benefit from this type of market timing advice is difficult to determine in the absence of statistics. Some investors may gain from such advice, but some may end up worse off.

Some may benefit in the short term in avoiding a temporary market downturn. However, they could lose out in the long run when the market eventually rebounded.

As investment is generally a long product (ie buy with the hope of price appreciation) and the role of a fund manager is to invest the money which has been allocated by investors for such purposes, market timing is generally not the duty of fund manager.

In this way, a unit trust investor becomes the first level de facto “investment manager” who will decide on the timing to invest and asset allocation as to how much to invest in the fund.

On top of the timing and asset allocation issues, a unit trust investor would most likely be shown several funds such as pure equity funds (aggressive, conservative, dividend, small cap, syariah etc), mixed assets funds (eg balance fund), bond funds, guarantee funds, country funds, regional funds (eg MENA, Greater China), commodity funds (eg gold fund).

On top of that, there are feeder funds and fund of funds to consider. Furthermore, investors may have to consider similar funds offered by several fund houses.

Property investment
Apart from FD, share and unit trust investments, there are limited investment alternatives for the ordinary man in the street.

For those who can afford, property is also another popular class of investment. The typical properties available for investment include linked houses, flats, apartments, condominiums, office units, commercial shop lots. For the more affluent ones, semi-D, bungalows and shophouses are also popular.

Investment in property requires knowledge on the type of property, pricing, expected rental yield, the type of people to reside at the property, traffic flow, amenities in the neighbourhood, etc. Astute investors will definitely be able to pick a better property than those who are less savvy.

When the decision to purchase the property is made, the next issue is to determine how much financing is needed. Longer tenure will require more interest but shorter tenure will need higher monthly instalment.

The expected cash flow from rental income matching the bank instalment could be a logical consideration on the amount and tenure of loan.

Next, there is tax consideration for property investment. Other than the consideration of which bank to borrow from, which loan scheme to take also requires certain amount of computations.

The various loan schemes include conventional mortgage, Islamic loan, flexi-mortgage, fixed interest rate loan and easy payment scheme. What more, some packages offer free legal fees and optional MRTA insurance. Even within the same bank, there could be several packages offering different benefits to evaluate and consider.

Asset allocation
One of the important factors that determines the total return of an investment is optimal asset allocation.

An investor who purchased a right stock or unit trust fund should be rewarded with handsome profit if the investment appreciates substantially. That is true provided that he has allocated a sizeable amount of investment in that particular stock or unit trust fund.

If he allocated only a small token of his asset in the right investment, the effective return to his entire investment may not be meaningful.

As such, getting right in an investment is one thing, allocating sufficient portion of the total available fund for the investment is also very crucial.

On the other hand, if the allocation is decent, with a substantial amount of investible asset invested in a moderate yielding asset, the return could still be sizeable (see Chart 3).

How much of the investible asset should one allocate in a particular investment requires a certain degree of knowledge on the risk and return trade-off of the investment. Asset allocation decided impromptu due to impulsive buying might end up in grief later on. The regret could arise from a wrong investment decision or inadequate asset allocation, or both.

Many investors invest because someone recommends them to invest and they trusted the recommendation.

This is investment by convenience as they do not need to perform the tedious task of analysing which product to invest in. The investment is with a hope that the recommendation is correct.

They trust that the agent or financial planner has done adequate homework and as such should be reliable.

But if the agent or financial planner represents only one fund house, the recommendation is definitely limited.

Without a complete picture of the investment risk and the investment mechanism, unit trust investors will have to rely substantially on luck to obtain optimum return.

Many a time, an investor invests just to entertain the agent or consultant for their effort spent. Such investment has little depth and the allocation is very shallow as the investor does it just to please the agent or consultant.

As the investment lacks of commitment, most of the time only a smaller amount is invested. More so, the amount invested will depend on the money available at the point in time.

It is unlikely the investor will uplift the FD just to invest in that particular product. The asset allocated for this type of investment is unlikely to have adequate weight vis-à-vis his total wealth. Even if the investment performs well, the return to the bottom line is unlikely to be meaningful.

If the product is truly superior and the investor is so convinced, he should even deploy his other assets including outstanding FD for that investment. A more serious investor will undertake a complete re-examination of his portfolio for the purpose of maximising the total return.

Adopt a holistic view
Investors should view their investment in a holistic manner. At any one time his assets are in various areas, and typically savings account for emergency use and immediate expenses, FDs for intermediate need and to earn higher return to partially cover for escalating inflation, unit trust investment for longer-term investment with an expectation of moderate return higher than FD rates.

Some may have share investment and/or property investment in their portfolio of assets.

The percentage allocation should be reviewed regularly and also immediately after a large asset is added into their investment. The review is necessary to match the risk profile as well as to ensure the asset mix is in line with the prevailing market conditions.

In computing the percentage asset mix, market value or estimated market value of each of asset class should be used. As such, in buying a property for RM300,000 financed by own cash payment of RM90,000 with a loan of RM210,000, the property should be taken as RM300,000 instead of RM90,000.

In this way, the actual impact of price fluctuation on the wealth of an investor will not be camouflaged.

Similarly, in analysing the proportion of unit trust in one’s investment portfolio, the market value of the unit trust investment should be taken and not the cost of investment.

In this way, if the value of a particular asset class has appreciated substantially and resulted in a lopsided asset allocation, it may be necessary to rebalance the portfolio mix by way of profit-taking.

Similarly, if a particular asset class has depreciated, the evaluation based on market value will highlight that a rebalancing may be needed.

Putting more money in a poor performing asset class requires the conviction that the asset class is an appropriate class of investment in the first place.

Rebalancing of portfolio is a very powerful investment process used by many fund managers to achieve optimum return. It is similar to buy low (by investing in poorly performing assets), sell high (profit taking on super performers).

The only thing an investor needs to bear in mind is that the asset class and the specific asset invested in is fundamentally sound.

Ang has 20 years’ experience in research and investment. He is currently the chief investment officer of Phillip Capital Management Sdn Bhd.