Unit trust investing is an effective way of building long-term wealth. Successful investing involves having a disciplined mindset and a long-term investment horizon to help investors lay the proper groundwork to achieve their financial goals.

For this purpose, we have identified five pointers for investing in unit trusts:

Pointer 1: Have a clear investment objective

It is essential to have a clearly defined investment objective when investing in unit trusts. In the absence of a clear objective, investors may make impulsive decisions during periods of market volatility.

Hence, prior to making any investments, investors need to consider the following:

• Financial goals
  To choose the unit trust funds that suit their needs, investors have to be clear about their financial goals. For example, is the investor looking to achieve capital growth, regular income or capital preservation?
• Time frame / investment horizon
  Once investors have established their goals, they need to consider their investment time frame. Young investors typically have a longer investment horizon compared to investors who are nearing their retirement.
• Risk tolerance
  It is important for investors to take the suitability assessment test to gauge their risk tolerance levels before investing in unit trust funds. In general, younger investors can afford to opt for moderate- to higher-risk funds as they have a longer time horizon to ride out the highs and lows of market cycles. In comparison, retirees may be more suited for conservative and low-risk funds due to their shorter investment horizon and lower risk tolerance levels.

Pointer 2: Understand your investments

Prior to investing in any fund, investors need to take some time to understand the fund’s objective and key features, such as its distribution policy, asset allocation and risk exposure to ensure that these are in line with their investment needs and risk profiles. Investors should also take note of the fees and charges incurred when investing in unit trust funds.

Pointer 3: Avoid market timing

Unit trust investors should avoid timing their entries and exits from the market to achieve their long-term financial goals. Instead, they should stay invested for the long term and allow professional fund managers to navigate through different market cycles.

Not only are market timing decisions difficult, but frequent switching of funds will also incur additional transaction costs which could reduce the overall net return for the investor. Rather than attempting to time the market, it is time in the market that is the key to long-term investment success.

Pointer 4: Do not allow emotions to affect investment decisions

Successful investors are invariably highly disciplined in keeping their emotions in check. Investing under the influence of emotions often leads to poor investment decisions as investors who are overwhelmed by feelings, such as fear or exuberance, are prone to making rash decisions based on short-term market fluctuations.

Investors are advised to adopt the Ringgit Cost Averaging (RCA) approach to ride out market fluctuations. The RCA strategy involves buying a fixed Ringgit amount of unit trust investments on a regular basis, such as on a monthly or quarterly basis. This will help investors average out the cost of their investments as they will buy more units when the market declines and fewer units when the market rises.

Pointer 5: Diversify your portfolio

To diversify one’s investment is to spread the portfolio of funds across a range of markets (e.g. domestic, regional and global markets) as well as asset classes (e.g. equity, bond and money market funds). Typically, different markets or asset classes may perform differently at various stages of a market cycle. A decline in the performance of one or two funds can be partially mitigated by the steadier performance of other funds in the portfolio.

In addition, investors are advised to review their portfolios and rebalance their asset allocation on an annual or semi-annual basis as their investment objectives and risk profiles may change over time.

Conclusion

Unit trusts are convenient and effective channels for long-term investors seeking wealth creation and preservation. However, the value of unit trust investments may fluctuate depending on the financial markets in which the funds are invested. Thus, investors will do well to keep in mind these pointers that help them to be focused, calm and disciplined in their investing approach.

This article is prepared solely for educational and awareness purposes and should not be construed as an offer or a solicitation of an offer to purchase or subscribe to products offered by Public Mutual. No representation or warranty is made by Public Mutual, nor is there acceptance of any responsibility or liability as to the accuracy, completeness or correctness of the information contained herein.