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Are you a passive or active investor?

Are you a passive or active investor?

Are you a passive or active investor?

Are you a passive or active investor?

That's what we discussed during BFM’s Ringgit and Sense Webinar - Stocks, Funds, and ETFs - What's Right For Me? with speakers Danny Wong, CEO of Areca Capital and Stephen Yong, Founder of MyPF.my & a Licensed Financial Planner with Wealth Vantage Advisory.

A passive investor will hold their investment without the intention of doing frequent trading and a good example of that is an ETF because it tracks a common benchmark or index where you ride on it for the long term. An active investor however likes to roll up their sleeves and get into the thick of things. They are active in their research and very aware of the market's dynamics.

But there isn't a one-size-fits-all approach to deciding if you're a passive or active investor because it all depends on your interests and strengths.

In terms of picking the right funds, there are five major asset classes to consider:

  • Cash equivalents, which includes money market funds and fixed deposits
  • Bonds, whether it's bond funds or direct bonds 
  • Equities like an ETF, unit trust or the use of Robo-advisors
  • Properties like REITS, buying physical or commercial properties
  • Alternative investment such as gold and crypto

What you need to realise is how to structure these five major asset allocations in terms of returns and performance. Remember, when you choose funds, you need to be aware of the risks involved and choose them according to your risk profile to help minimise losses.

In terms of stock picking, it's a skill that not everyone has but can certainly learn. Firstly, understand yourself and your risk profile. Secondly, understand the market. Thirdly, you need to invest time to do it. There is no way to study all stocks out there so the best thing to do is to shortlist twenty of them and pick a handful from there that you think suits your needs and lifestyle. It's important to diversify into different asset classes to 'diversify your risks away'. For example, the stocks you pick must have distinct features of risks so that when one of them underperforms, the other stocks are able to prop your portfolio up.

In conclusion, when investing, you need to:

  1. Know your asset allocation because that alone reduces risk volatility by ninety percent and accounts for forty percent of your returns.
  2. Have a personalised investment plan. Identify if you’re an active or passive investor.
  3. Consider working with a financial planner who will take care of your investment needs.

We hope you found the webinar insightful. From all of us here at BFM, we wish you well, and remember to adhere to the COVID-19 SOPs for a safer environment for all of us.

Best wishes,
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