5 Investing Strategies

5 Investing Strategies

If you read all the books on investing strategies, you would be thoroughly confused. There are just too many. Here we would like to outline just 5 broad ways of looking at investing in unit trusts.

1. Don't do anything

Don't do anything. Don't do anything. Don't do anything. Reason:

i. Cost savings. Every time you decide to sell a unit trust and replace it with another, you incur additional costs - initial sales fee for the new fund, switching fees from the old fund and so on. Add these costs together and you would be losing quite a bit.

ii. It's hard to catch the right timing. If you're buying and selling, it must mean that you are trying to time your investments, hoping to catch the momentum of each unit trust. The truth is that it is very hard to catch market timing.

iii. You won't be able to maximize your returns.

Unit Trust XYZ has raked in 20% in 3 months.

You think "Lets Sell".

You sell and 2 months later, discover XYZ has performed up to 60%.

You think "$@#!"

• Invest regularly
• Compound
• LET TIME BE YOUR ALLY

2. Actively Pursue Growth

You want some excitement in your investing life and insist on timing the market. You CAN make profit...but if you are a novice like me...DON'T. As mentioned earlier, Unit Trusts are mid to long term investments. Minimum recommended period to stick to one is a year.

If it adds more stress to your life consider other strategies. I only recommend it if you find it exciting and fun to chase growth.

3. Do the opposite

When other sell, you buy. Why? Prices will fall and you can purchase more units for $1000.
For example, if each unit had cost $1.70, and the prices fell to $1.00 during the down market cycle, you would have purchased 1000 units.
Remember, markets work in cycles. So when the prices go up...you can sell and make a tidy profit. For example, when the prices go back up to $1.70 during the up market cycle, you can sell it for $1700. That is $700 profit.

4. Investing in a Recession.

With unit trusts, there is a way to make money even in a recession, and that is through Bond Unit Trusts. This is how it works. Recall that interest rates falls lead to higher bond prices. In a recessionary environment, interest rates generally tend to fall. This is because borrowing activity decreases dramatically, and banks have to lower their interest rates in order to attract loans. Consequently the rates which they pay out have to be lower as well. In such a scenario, bonds which pay a fixed coupon become extremely attractive.

Managers of bond unit trusts will sell a part of their bonds when there is a huge capital gain to be made, thereby return handsome rewards to the holders of such unit trusts. In recessionary times, bonds have been known to give 20% - 30% returns in a year.

If you are a long term investor employing strategy 1, you would have a small exposure to bonds in your portfolio. If you are a growth investor employing strategy 2, you would shift all your money out of equity funds and into bond funds when a recession starts to hit. If you are contrarion investor, employing strategy 3, you may increase your bond exposure when everyone in the market seems to be euphoric, and you think a recession might be coming.

So isn't it great investing in unit trusts? There's always something to do!

Probably the best strategy of all

Dollar Cost Averaging (Highly Recommended)

You start a savings plan with a unit trust and you devote a fixed dollar amount towards purchasing it every month (or week, or quarter, whatever the predetermined period may be).

Month 1: 1 unit =$1.80 You buy $200 = 111 units

Month 2: 1 unit =$2.00 You buy $200 = 100 units

Month 3: 1 unit =$1.50 You buy $200 = 133 units

Total Spent: $600

Total units bought: 344 units

If you had spent all $600 in the first month, you would only have purchased 333 units.

Make Volatility work for you

So instead of stressing out over the volatility of the market, you can rest assured knowing that your savings plan actually works for you in those volatile conditions! That's what unit trust investing is meant to do. Give you more money and less stress!