This year, the global investment backdrop contains numerous positives for stock market investors.
The Year of the Rat has started. The rat is the first of all zodiac animals. According to one myth, the Jade Emperor said the order would be decided by the order in which they arrived to his party. The rat tricked the ox into giving him a ride. Then, just as they arrived at the finish line, rat jumped down and landed ahead of ox, becoming first.
Feeling good about the Year of the Rat? Will the Metal Rat be seen as a deliverer of good fortune? If you look at the world objectively and understand what is happening regardless what the famous Chinese fortune tellers or Feng Shui masters are going to sell to you, there are lots of good opportunities to be found around the world.
The view here is that the Year of the Rat will likely be bullish for risk assets although timing is always a tricky factor plus the expected volatility. The global investment backdrop contains many positives that remain in favour of maintaining a bullish outlook for stock market investors.
Don’t fight the Fed
“Don’t fight the tape, don’t fight the Fed.” It is never a good idea to fight the US Federal Reserve and other central banks, and that is one of the key reasons I subscribe to the overall positive outlook. It is a great policy if you are dancing until the music stops. I am flexible and can always adjust my thoughts and strategies along the way.
I sold a few positions and rebalanced one of my client portfolios which have made extensive moves and have gone parabolic during the latest rally. Let me make myself clear. The bullish position here does not mean complacency.
Can one actually make good money without lifting a finger these days? It is scary to find young professionals putting a majority if not all of their hard-earned savings into the stock market for quick money. I hope they really know what they are doing.
At the time of writing this missive, stocks are going higher around the world. With every tick up, the stock markets gain some more credibility with the public. Why not invest a little more? It is important for investors to avoid the temptation to buy blindly because of the tempting hot markets.
There is no need to get emotional in dealing with any asset classes or markets. Like most investors and traders, I like to make money in bull markets but one should always be disciplined and not get carried away.
Risk management vital
Please remind your spouse that anyone can make big money initially when everything goes up in prices but keeping it and staying in the game long-term requires risk management, which is one of the most important recipes in investing.
The global economy and markets continue to face old worries in the year of the Rat. The recent geopolitical situation in the Middle East shows there are always potential for negative surprises. I expect a more bumpy road ahead in the second half of this year.
We have always been told not to put all our eggs in one basket, right? Real diversification is important for medium to long-term investors who wish to load up stocks. On this note, are you someone who is still stuck with homegrown meat and potatoes ignoring other opportunities or are you an investor who has a diverse mix of asset classes around the world using different investment styles or strategies?
In my work over the years, I have always viewed investment choices as a global beauty contest. Chart 1 illustrates my model portfolio which is invested globally and can be customised for investors with different risk profiles.
Chart 1: Model Portfolio
Observations from Chart 1:
- Globally diversified asset class exposure with different investment styles.
- Maintain a minimum exposure to local assets.
- Exposure to a range of alternative investment solutions that promotes low volatility.
Chart 2 and 3 show the performance in US dollar of a balanced strategy for more risk averse investors with different time frames. Of course, past performance is not a guarantee of future results.
Chart 2: Balanced Portfolio (2019)
Chart 3: Balanced Portfolio (Since Inception)
I have observed that there is now a new appreciation among some investors that not all opportunities for profit are home-made. For others, there are still concerns and questions in their minds. Even good old-fashioned patriotism.
There are many benefits of a globally diversified portfolio which I will discuss more in another article. Spare your venom please. I am not suggesting anyone to dump the local economy or markets.
Before I hit the send button, no matter what the Year of the Rat brings, I wish my readers a healthy, happy and prosperous Chinese New Year. In that order because without the first two, prosperity would have definitely less appeal.
The start of a new year usually comes with new resolution of goals that we hope to achieve. These include setting for ourselves financial goals.
For those who are “home-biased” when it comes to investing, one of the financial goals they should aim for in this Year of the Rat is learn how to invest globally.
YH Wong has over two decades of experience in the financial services industry. He is currently principle of Noble Hills Partners Ltd and is also senior partner of a licensed offshore investment platform. His clients include high networth investors and boutique institutions such as family offices and investment partnerships. He can be reached at email@example.com