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Having the Proper Mindset for Investing

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Website article – 2020 March
Having the Proper Mindset for Investing
Unit trust investors need to ensure that they are investing with the
proper mindset to ensure they have a realistic perspective of their
investments.
Having the proper mindset when investing in unit trusts will allow
investors to obtain a realistic perspective of their investments. Due to
misconceptions about investing, some investors may be disappointed
when their expectations and needs are not met. Investors who have a
realistic expectation to their investments are more likely to achieve their
long-term financial goals.
Below are several misconceptions about investing which investors
should be aware of in their unit trust investments:(A)
QUICK GAINS
One of the biggest roadblocks to successful long-term investing is
impatience. Investors need to remind themselves that unit trusts
are for the long-term. As such, gains made from investing in unit
trusts may take some time to be realized. Impatient investors, in
their quest to chase returns, may not give their investments
enough time to perform adequately. Some investors view unit
trusts like stock trading and attempt to time the market by moving
in and out of their funds.
In contrast, unit trusts are more suitable for investors looking for
reasonable long-term returns. Being prepared for at least five
years or more enables their funds to reap reasonable returns as
the companies invested by the funds have sufficient time to grow
their profits.
(B)
MISMATCH OF FUND’S RISK PROFILES WITH FINANCIAL
GOALS
Matching your fund’s risk profile with your investment objectives is
an important determining factor for investment success. Investors
need to first identify their risk appetite before a suitable portfolio
can be built. By identifying the level of risk that they are
Website article – 2020 March
comfortable in taking, financially and emotionally, they can then
decide the types of funds that are appropriate for them.
However, a common error that investors make is not assessing
their risk profiles properly. Because of this, investors tend to buy
funds that do not match their actual risk profiles. For example, for
conservative investors, their primary goal would be to achieve
regular income. As such, they should not select aggressive funds
but instead go for balanced or bond funds. Conservative investors
may not have the temperament to withstand the high volatility of
equity funds while investors who are looking to achieve high
capital growth over time may not be able to fulfill their long term
investment goals by investing in income focused funds.
Note: Unit trusts are more suitable for investors looking for
reasonable medium- to long-term returns.
(C)
EXPECTATIONS
OF
FIXED
RETURNS
AND
PAST
PERFORMANCE
Compared to savings and fixed deposits, unit trusts do not offer
investors fixed returns. The performance of a unit trust fund
depends on the investment portfolio held by the fund as well as
prevailing market conditions. In addition, historical returns do not
indicate future returns of a fund as market conditions may change
over time.
So, what should investors do instead? The following are several
pointers that will help investors to achieve their financial goals:1. Taking a long term investment horizon
Investors with a long term perspective need not worry about
short term fluctuations in their investments. Their investments
will have the time to recover if the market moves against them
in the short term. A bad year in the market can be compensated
by a subsequent upturn in the market in the following year. The
reality of investing in unit trust funds is that the portfolio’s value
will move up and down in tandem with the market. Investors
Website article – 2020 March
who stay invested have a much better chance of riding out the
bad times or occasional setbacks and capitalising on the
periods when the market recovers.
2. Understand the principle of risks vs. returns against their
financial goals
All unit trust investments carry a certain level of risk, with some
being more volatile than the rest. Investors should know their
risk appetite and be able to tolerate fluctuations in the returns of
their unit trust funds. Sometimes, investors may have a
reasonable idea about their expected returns over time, but
tend to face difficulty in identifying their actual risk profiles. In
such a situation, they can consult their unit trust consultants to
assist in matching their risk profiles and financial goals with the
appropriate unit trust funds. By being aware of their personal
risk profiles, they would be prepared to accept the risk
associated with the selected funds.
3. Clear goal-based investing
Investors need to set a clear goal when it comes to investing.
There are three basic investment goals: a) to achieve growth, b)
to receive regular income, and c) to preserve the capital value.
After setting up appropriate goals, they should then find out
what type of unit trust funds can fulfill these goals. In general,
equity funds are managed to achieve capital gains, bond funds
are managed to provide regular income while money market
funds help investors to preserve capital while providing liquidity.
CONCLUSION
Unit trust investments provide a good foundation for individual investors
to fulfill their financial aspirations. However, investing in unit trusts with
misconceptions and insufficient knowledge often result in unnecessary
disappointments for investors when their expectations are not met.
Holding their investments for a sufficiently long period, understanding
risks and returns of their investments, as well as having a clear goal are
positive steps toward achieving their financial objectives. Unit trust
Website article – 2020 March
investments can be rewarding in the long run, requiring both their
patience and confidence in the investment process. Investors need to
understand the concept, benefits and limitations of unit trust investing
before they invest in a particular fund. Therefore, it is advisable that
investors strategies and plan ahead for their financial goals. In doing so,
they can have the proper mindset for investing and be able to establish a
realistic perspective of their investments.
Investing is not nearly as difficult as it looks. Successful investing
involves doing a few things right and avoiding serious mistakes.
This article is prepared solely for educational and awareness purposes
and should not be construed as an offer or a solicitation of an offer to
purchase or subscribe to products offered by Public Mutual. No
representation or warranty is made by Public Mutual, nor is there
acceptance of any responsibility or liability as to the accuracy,
completeness or correctness of the information contained herein.
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