The route to LONG-TERM Investment Success

Unit Trust Investors who hold their unit trust investments for the long term will achieve better return than those who engage in timing the market.

They should be focused and keep their emotions from influencing their investment decisions. A disciplined and methodical approach to investing is the key to success. This approach entails holding unit trust investments for the medium to long term period of at least three years with portfolio rebalancing done on a semi-annual or annual basis.

However, there are some investors believe they can achieve superior returns by timing the purchase and redemption of equity funds to profit from the stock market’s short term movement. They are tempted to engage in especially in an environment where equity markets are volatile. They who wish to make quick gains in the stock market by switching from one fund into another fund will often be disappointed.

Market timing strategies that are touted by so –called investment experts usually have not been proven to be successful. This is because stock markets are inherently volatile and are impossible to predict with numerous factors. Both domestic and foreign, affecting short market movements.

The buy-and-hold principle is based on the notion that a good investment will generate reasonably attractive returns over the medium-to-long term. This simply means ignoring short term movements in the market. Professional fund managers usually adopt this strategy. For investors, this strategy can also work by holding on to a well-selected fund over a period of at least 3 years.

On the other hand, market-timing strategies are subject to many risks. In order to profit from the short term’s trends, the investors has to correctly predict the market’s trend and its turning point. Without the appropriate skills to discern signals and time the entries and exits, the market timer may not only miss opportunities, but also potentially suffer the blow of rapid losses. Also with higher frequency of fund switching, investors will have to incur increased transaction costs

The advantage of using the “buy and hold” strategy in unit trust investment is that it is easy to manage your investments once you have made them. Over the time, the upward bias of the market will overcome and outweigh any temporary pullbacks in the value of your portfolio.

Investors who are concerned about market volatility are advised to practise dollar cost averaging as this strategy enables investors to focus on the long-term goals and not worry about the prevailing level of the market. Dollar cost averaging is simply investing a fixed amount of money in a financial asset (such as unit trust fund) on a regular basis regardless of the market cycle. By investing a fixed amount, investors will buy more units when the market is lower and fewer units when the market is higher. It will produce lower average cost of investment than the average market price over any given period.

In addition, investors are also advised to rebalance their portfolios regularly at least once a year to ensure that their portfolio allocation reflects their investment objectives and risk profile. Thus, as a result of an uptrend in stock prices, an investor’s equity exposure has exceeded a level consistent with his risk tolerances, he can trim a portion of the equity funds and switch into bond or money market funds to rebalance the asset allocation accordingly. Maintaining the target assets allocation reduces the risk that the portfolio becomes too much concentrated in a single asset class.

In conclusion, investors should have a disciplined perspective that focuses on achieving medium to long-term investment goals. The practice of dollar cost averaging and regular portfolio rebalancing helps investors to focus on the long-term horizon and keeps them from over reacting to the short-term movements of the stock market.

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