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BT Podcasts
Published: SEP 27, 2024
Spicy investments: A fresh look at assessing your risk appetite
This episode was brought to you by
Abel Lim
head of wealth management advisory and strategy, UOB
THE Federal Reserve's recent 50 basis-point rate cut has been a major topic of discussion. This monetary policy adjustment has significantly influenced market sentiment, driving stock prices to record highs. Although concerns about the durability of economic growth and interest rate policy persist, the underlying strength of the US economy remains intact. How should investors rebalance their portfolios?
In this episode, brought to you by UOB, correspondent Howie Lim speaks to Abel Lim, head of wealth management advisory and strategy at UOB about figuring out one’s risk appetite, building a resilient portfolio and core and tactical investment approaches.
Understanding risk appetite
A core theme in this discussion is the
UOB Wealth Insights
Wealth on UOB TMRW
UOB Personal Banking
Produced by: Howie Lim, Claressa Monteiro & Lee Kim Siang Edited by: Howie Lim & Claressa Monteiro
BTVisual: TEOH YI CHIE
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importance of understanding one's risk appetite. Abel Lim uses a compelling analogy comparing risk appetite to one's tolerance for spiciness in food. By knowing your risk tolerance, you can make more informed investment decisions and avoid the emotional pitfalls that often accompany market movements. Several factors influence an individual's risk appetite, including financial security, time horizon, and life stage. Younger investors, for instance, can afford to take on higher-risk assets due to a longer time horizon. Conversely, individuals nearing retirement should opt for safer, less volatile investments. He emphasises the importance of aligning investment choices with one's overall financial situation and life stage.
Tools for assessing risk
UOB offers several tools to help investors assess their risk appetite, including the TMRW app. These tools provide valuable insights into your risk propensity, appetite, and tolerance, enabling more tailored investment strategies. Engaging with financial professionals and using well-thought-out tools can significantly enhance your investment decisions.
Financial literacy is crucial for making informed investment decisions. Abel Lim argues that financial education should be a mandatory module in the educational system. Understanding market dynamics, investment principles, and financial planning are essential for long-term financial well-being. Investors should strive to stay informed and educated about the factors influencing their investments.
Asset allocation strategies
Asset allocation is another critical aspect of investment strategy. Conservative investors should focus on stable, consistent investments in the cash and fixed-income universe, while more aggressive investors might consider high-risk equities and sectorial plays. A balanced portfolio can offer a mix of safety and growth, tailored to an individual's risk tolerance and investment goals. As inflation gradually declines, investors can position their portfolios to benefit from falling interest rates. High-quality bond yields and dividend-paying stocks become attractive options. Additionally, as the US dollar weakens, emerging markets and Asian equities stand to benefit from increased fund flows and lower borrowing costs.
Trying to time the market is generally a poor strategy. Even professional managers often get it wrong. Instead, long-term goals and dollar-cost averaging are recommended. Consistent investments over time can smooth out market volatility and provide more predictable returns. Keeping some cash on hand for opportunistic investments during market corrections can also be beneficial.
Diversification and safe-haven assets
Diversification helps mitigate risk by spreading investments across various asset classes and geographies. Safe-haven assets like precious metals and commodities can offer protection during times of market uncertainty. Holding cash also provides the flexibility to take advantage of market opportunities as they arise.
Rebalancing portfolios
Regular portfolio rebalancing is essential to maintain alignment with your long-term goals and risk tolerance. Market conditions, lifestyle changes, and evolving financial goals necessitate periodic reviews. A six-month review cycle is often recommended to adjust portfolios in response to market performance and personal circumstances.
Core and tactical investment approaches
UOB employs a core and tactical approach to asset allocation. The core portfolio focuses on stable, income-generating investments, while the tactical portfolio seeks higher returns through selective, higher-risk opportunities. This balanced approach aims to provide both stability and growth, catering to different investor profiles. Understanding and managing risk appetite, staying financially literate, and employing strategic asset allocation are essential for successful investing. Regular portfolio reviews and a balanced approach to investment can help navigate market uncertainties and achieve long-term financial goals.
Disclaimer: Please note that the views expressed in this article do not represent financial, investment or legal advice.
Listen to the full podcast for more on UOB’s investment approaches. For more episodes, go to bt.sg/podcasts and if you have feedback or an episode idea, please get in touch at btpodcasts@sph.com.sg.
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Listen to the full podcast for more on UOB’s investment approaches. For more episodes, go to bt.sg/podcasts and if you have feedback or an episode idea, please get in touch at btpodcasts@sph.com.sg.