The Intricacies of Self-Managed Investing

Many expats undertake self-managed investing and in doing so experience varying degrees of results. It would be easy to measure these as success or failure but investment decisions do not really result in success or failure – they are simply subject to consequences.

One of the factors which has affected investors in recent years is the sheer volume of information available to them from the internet. Is this considered to be a good or bad thing, often slanted or biased? Does the typical armchair investor really understand how to decipher the information and use it properly? If not, investment decisions become arduous and very often confusing.

For example, many investors misinterpret their attitude to risk against the realities of markets. They tend to look very short term and expect to trade themselves into profit. In doing this they often use highly volatile assets and assume they will be guided by their instincts. This is a fundamental error. Your instincts will let you down in the majority of cases because they follow your emotions and investing needs to be as objective as possible.

You also need to align the risk you take with your time horizon for liquidity. If you are somewhere in your forties or fifties and have no intention of withdrawing funds in the near future, then a higher risk strategy is likely to produce superior results than a plain vanilla low risk portfolio.

If you are retired and wish to access some of your portfolio as income, it is really nonsensical to invest the entire amount in the safety of cash and bonds. You will not need to access all of it in the short term. Planning needs to be undertaken and your requirement for cash withdrawals carefully calculated so that you enjoy longer term growth and have access to cash as required.

Unseen risk factors and ignoring the global markets are also influences which can affect your portfolio a great deal. Many expats concentrate solely on their home country equity markets because they understand them better. This thinking is almost the norm among expats who may be losing out on opportunities in other established markets because their portfolio is far too concentrated in one area. Perhaps diversification into other mutual funds which spread the geographies wider will offer superior returns?

The Thailand SET index produced growth of minus -0.7%; 35.5% and minus -9.0% in the respective years of 2011, 2012 and 2013. Who would have known in advance? Philippines produced minus -4.4%; 49.2% and minus -19.7% over the same three years whilst the S&P 500 index results were 0.6%; 14.7% and 28.8%. This shows that volatility can be rife in any market but also that any market can make gains whilst others can perform disappointingly.

The Intricacies of Self-Managed Investing #3

Given these statistics it is easy to see that, in hindsight, investors will question themselves why they were not invested in Thailand, the Philippines or the S&P 500. But if you were able to rewind the clock and objectively reconsider the issues prevalent at the time, it is easy to see that specifics would have steered your thinking against investing in some of these areas.

Once you pick a winner and see your portfolio grow, an emotional and psychological effect clouds any memory from periods of poor performance, only recalling the good times. This then creates a false sense of confidence, often resulting in a number of investment decisions which produce disappointing consequences. Objectivity is something you simply must have to be successful.

These are just the basics of some simple principles which are suggested to all investors who undertake self-managed investing.  In order for you to successfully create growth it will take a great deal of effort and constant vigilance watching over the factors that affect our global markets on a daily basis. I have only discussed equity markets but there are a number of alternatives which can provide diversity and offer you more choices.

One other factor you will wish to keep your eye on is costs. Many investors falsely believe that they pay too much to an adviser for the running of their portfolio. They feel going it alone is best and will keep their costs down because they are in control. However, investing in holdings can be expensive and many expats have clouded judgment because adviser fees look too high. When you look at these issues and really understand the advantages of what can be achieved in terms of cost you would be most surprised. Advisers can achieve significant discounts of up to 95% on holding acquisitions, something that individuals are unable to attain for themselves. Very often these discounts alone mitigate the costs of your independent professional.

Questions to the author can be directed to PFS International on 02 653 1971 or email to enquiriesthailand@fsplatinum.com

Andrew Wood has been an expat in Asia for 34 years and is Executive Director with PFS International. He has been writing Net Worth articles for six years and has made a significant contribution to the PFS library of financial service articles dating back over nine years. These articles which cover the complete A-Z of financial planning are available to readers on request.

 

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