Sunday, September 19, 2010

Investing in Unittrust - My experience so far

This is a re-count of my UT investment journey. I am speaking from my own experience and it should not be taken as an expert advice.

I started investing in UT in the year 2000.During that period I made some advance in my career and had some spare cash, so I was looking for ways to invest the cash and prepare for retirement.

Seeing some of my friends got burnt badly from the 1997 financial crisis (especially from Clob), I thought that direct investment in the share market was too riskly for me and UT might be a better way. The first fund I bought was UOB Telecommunication Fund, recommended by my  bank RM. Soon after that I learned to buy UT online, and I started to invest in some Tech funds. When the tech bubble burst later of the year, I suffered some lost. During the same period I bought DBS Eight (D) and gave the bank a standing instruction to RSP monthly. Through my RM I also participated in StandChart's UT investment scheme. This is a unique investment plan where the bank will review my UT holding quarterly, and switch those non-performing UT to buy the "top performing UT"(forgot the scheme name) according to pre-set criteria.

I stopped the DBS Eight RSP in 2003 and sold the fund. Though the price has not recovered to the original price, I made a small profit of more than 10% due to RSP. StandChart also stopped the UT Savings schemen because they realised that most portfolios of their customers had become so messy that were difficult to manage. When the scheme stopped, I had more than 15 funds. With the help of the RM I consolidated them into 5. The profit after 3 years was around 20%.

Meanwhile, I bought other funds using the FSM platform. Believing that diversification was the way to go, I worked out a "asset allocation plan" based on geographical division and bought funds that invest in different region.

Things when on quite well and I saw my wealth increasing... until late 2007. When the global financial crisis sent the global equity tumbling.

As the global economy recovers from the crisis, my UT portfolio also recovered. The continuing buying of funds during the downturn help the recovery. Recently I did some adjustment to the UT portfolio, cutting down the number of funds in the porfolio, consolidate funds invested in similar regions. In order to do this, I did a comparison of performance of individual funds.

I have drawn some conclusions from this exercise.

1. In today's investment climate, diversification is less effective, as the world economy is so intertwined. UT itself is already a diversified investment, so there is no need to "over-diversified"

2. "Asset allocation" principle is good, but don't do it blindly.

3. RSP is a good way to protect against fructuation of market.

4. Out of the funds I have (and had), the most consistent performers are those which pay out dividends. Reinvestment of dividend itself helps to ride over the price fructuation.

As said before, this is only my own investment experience. Right or wrong, you decide.

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