Issue No.


Back to index

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561

This article is copyright and no part of it may be reproduced in any form without the prior consent of Normandy Advisory Services

In most cases, the first-time investors are young executives and college students who wish to make as much profits as possible from their often limited amount of money. Many in this age group hope that current investments will form a very strong foundation for their portfolios in the future. But in reality, it is very difficult for this group of people to build a diversified portfolio of directly-owned securities or investments with a small initial capital base.

For illustration, take a look at the case of Mr. Boon, a young executive who hopes to tap the ever-growing investment opportunities.

Mr. Boon, a single young man, is an executive working in a computer firm earning approximately RM 2,300 per month and wishes to build his own investment portfolio. After deducting the monthly expenses of RM 1,500, he has a net monthly income of RM 800. With a personal savings of RM800 per month, how can he possibly construct a diversified portfolio of directly-owned securities?

With little investment knowledge and relatively low capital power, Mr. Boon would be investing through a unit trust as an initial solution. A good suggestion would be to invest in "aggressive" growth trusts which are normally equity-driven, managed by professionals to generate superior returns (which normally implies higher risks).

As an inexperienced investor with small capital base, Mr. Boon is unlikely to "gamble" by investing directly in highly speculative issues on the Second Board in order to make a fortune in a very short time (contra period). Although the returns are attractive, smaller stocks on the Second Board carry extremely high risks. Normandy has always stressed that one should only invest in speculative issues like those on the Second Board only if he or she has spare cash.

Growth trusts concentrate on buying shares with potential for strong earnings growth and in turn aggressive capital appreciation. These trusts normally perform well in a rising market. In this case, capital appreciation, and not income growth, should be the priority for Mr. Boon although it would involve higher risks.

If Mr. Boon is the conservative type and is worried if a unit trust which concentrates only on small selection stocks is much too risky for him, then he should select a fund that includes a sizable holding of large, medium and small companies, hence, less risk.

Normandy feels that it is reasonable for first-timers with little family commitment like Mr. Boon to take on a higher level of risk. Low risk investment menu which provides low and stable return such as the fixed-deposits and bonds should be left out at the initial stage of his portfolio development. In addition, it is not productive for him to hold a large sums of cash. Mr. Boon is also likely to rule out property and foreign investments at this stage due to his limited capital base.

At year end where he receives his bonus, he could add another unit trust into his "pocket". Managers with different styles perform differently under the same market cycle. By buying a few more rather than investing heavily in one unit trust, Mr. Boon can effectively reduce unforeseen market volatility associated with his investments. Historical records have shown when investment styles are mismatched, volatilities are reduced. In addition, young investors without any need for immediate income should reinvest dividends when available.

As agreed by most financial experts, it is important for first-timers as well as experienced investors to spread their investment risk. Do not simply put all the eggs in one basket. Lastly, investors should seek professional advice for better investment planning.


back to index