Takeaways: Understanding Your Asset Class Options

GJWHF$ is all about investing in You. Starting your investment journey may seem daunting at first, but, as the adage goes: “a journey of a thousand miles begins with a single step”. In this case, it starts with knowing your asset classes! Below are the key takeaways and notes from the GJWHF$ March Event, with investment insights direct from the GJWHF$ Founders. As per usual, the notes do not construe investment advice, offers or recommendations in relation to investments.

Asset classes – no one size fits all

Start with working out which asset class would best suit your needs and specific individual purpose for investing, specifically knowing your:

  • primary financial goals at this point in time;

  • current financial situation and whether you can support your financial goals, e.g. do you have sufficient rainy day emergency funds already set aside?

  • risk profile, do you have a low, medium or high-risk tolerance?

  • investment horizon, is the investment meant to be a short, medium or long-term play? What would be your preferred horizon? The investment horizon depends, to a certain extent, on your age and stage and where you are in your investment journey.

Overview of the conventional balanced investment portfolio

Diversification is key. A conventional balanced portfolio would generally be spread across the following four asset classes:

  • Equities are the most common of which are shares. If an individual buys a share they would be a part owner and would have a right to the profits. For publicly listed companies, the shares of the public company would be traded on the stock exchange. You know what you are buying as information is easier to obtain in relation to a public company and prices are transparent. Private equities are capital that is not publicly listed, where funds and investors can invest directly into the firm.

  • Fixed income are investments, most commonly bonds, that pay the investor a dividend payments or fixed interest until its maturity date. On maturity you would receive your principal, but with safety and lower risk may come lower returns.

  • Real estate and tangible assets are investments that you can lay your hands on and are longer-term investments. Real estate generally includes commercial, residential, land, office blocks etc. However, such assets are relatively less illiquid compared to other types of investments, which is something to bear in mind when deciding which asset classes works for you. Commodities are also another tangible asset class, but volatility can be high.

  • Cash includes money in banks accounts, term deposits and savings accounts. Cash may be considered as a “defensive asset” as cash may be less volatile compared to other investments.

There are some other types of asset classes that may not be considered conventional right now, but they could also be an interesting alternative investment option:

  • Cryptocurrencies – this is an asset class that came into being in the last 10 years. It is digital cash, decentralized digital currency such as Bitcoin and Ethereum or stablecoins such as Tether. There is the potential for high return, but there is also high risk involved and, as always, doing your own research and due diligence is required.

  • Alternative assets cover a wide range of assets, from foreign currency, insurance products to collectibles like art or wine and private equity. Some of these investments require storage and may potentially be illiquid.

With any type of investment, there are risks involved and any investor must do their own research, and conduct adequate due diligence as per their own risk profile.

Knowledge is power – but only if something is done about it

· As investors, we must source the information, do our own research and design an investment strategy that works for us. We can either invest directly, or indirectly via a fund which would allow us to diversify our holding, instead of owning a share in just one company. You might invest in a tech fund managed by a professional asset manager, which invests in a range of different tech companies. The key point is: knowledge is power, but only if something is done about it.

· With all the information gathered, apply the analysis, come up with an investment strategy which works to achieve your financial goals, apply the discipline to implement your strategy, and have the belief to stick to it.

Insights from the GJWHF$ Founders

Below GJWHF$ Founders share how they started their investment journey, and what is their current preferred asset.

Tanya Gan - My background is in the stock market and trading equities, but equities are not my asset class of choice. My passion lies in real estate and other types of investments. I started becoming interested in investment while in university and I made a pact with myself to get educated and I dabbled my pocket money in stocks. I gained experience in the overall trade process and how the market works. In order to achieve a diversified portfolio, I have recently increased my holding in ETFs. I am mindful to seek out opportunities where I have a competitive advantage, for example access to high leverage due to citizenship/PR status, or preferential interest rates. I do have some self-funding properties in a number of different countries. In Hong Kong, I have unfortunately missed the Hong Kong property boat, but a few years ago I wanted exposure to Hong Kong real estate, so I decided to invest in some motorcycle car parking bays as I could get leverage against it. In terms of other investments, along the way I bought a classic car that now retails twice the amount I originally invested. My key takeaway: Be brave and invest in yourself and take action.

Gemma Tregenza - I was a relative late-bloomer with regards to investing - it wasn’t something that I was raised to think about or prioritize. The penny dropped for me when I realized it was me, and me alone that had control over my future financial freedom (duh!) and in order to best capitalize on compounding interest, it was best I start ASAP. Being clear on my “why” and my investment objectives helped me to overcome analysis paralysis and option anxiety. I set to work learning about investing by building an ‘investing’ network and discussing the topic more regularly with friends – how did we never talk about this before?! My strategy is pretty simple: buy and hold, cash-flow generating, and capital appreciation. I am never going to be an active trader, nor do I want to be. To date, I have predominately invested in real estate in Australia, in order to take advantage of my access to leverage (allows you to scale your portfolio). I am now focused on further building out my ETF portfolio. My key piece of advice: don’t let emotions drive your investing decisions - take action based on facts and logic. Investing is a journey of continuous education. Good luck to you all!

Sandy Wu – My day job was as a lawyer, but I have the entrepreneurial gene and I have recently established my own investment firm. I started investing in real estate while I was a student and my portfolio has since achieved double-digit growth. I build this portfolio by carefully researching my preferred types of properties as well as suburbs and countries. For me, real estate was a set and forget strategy, but as my investing experience grew, I realized I wanted to invest in something that would be life-changing and inter-generational. For me, the future is decentralized finance and non-fungible tokens. This asset class is here to stay and we can all learn more about it. If you want to challenge yourself, I would encourage you to conduct further research. My key takeaway: Get started by learning about your preferred asset class.

Caroline Kracht – I worked in investment banking for over 20 years and I am currently setting up a VC/PE investment fund together with several other senior executives. My investment journey started back in my home country Germany where retirement planning rests on the three pillars of government, employers and individual. So I signed up for a few tax-efficient retirement insurance plans. However, looking back, their high cost and relatively lacklustre returns did not make them particularly effective asset classes. I eventually branched out into equities (ETFs, single name stocks) and then into Hong Kong and European real estate. In my own experience, the top investment asset class is real estate, it is tangible, comparatively stable (compared to equities for example which can be quite volatile) and the potential to leverage (which I don’t like to use for equities) is incredible. In Europe for example, I was able to get 20 year fixed interest mortgages at below 2%. In terms of my risk profile, I would consider myself willing to take high risk. My key piece of advice: Never invest in anything you don’t understand, do your research.

Nancy Wang – I started my investment journey in equities while I was still in university, initially buying individual stocks on the ASX given it allowed me to enter the market in small amounts. I would say I'm pretty well diversified across asset classes, and that's by design. Presently I am about 50% equities and mostly in ETF as these are low cost and low maintenance and I do not need compliance approvals from work. About 40% of my investment portfolio is focused on property, capital growth is what I am looking for. Finally, about 10% is private investment and venture capital. Everyone needs to find their own motivator to invest and it's only in the last year or so, I found my motivation - aligning my portfolio with my personal values. Money is power and I realized that I can use my capital to achieve positive impact. I am now aligning my ETFs with equivalent ESG. My advice: If you want to invest in a socially conscious way, you don’t need to sacrifice returns. Stay disciplined and stay the course.

Christine YuMy investment journey started when I began my first job out of college: I had to fill out my retirement funds asset allocation forms and realized I had no idea which assets or funds I should be choosing. I resolved to take control of my investing knowledge by reading investing books like “Rich Dad Poor Dad”. A few years later, I worked at a bank on the fixed income desk. Since I was familiar with fixed income as an asset class through my work, investing in fixed income through my MPF seemed like a logical step. However, as I reviewed my MPF statements, I saw that my MPF fund performance was not doing as well as I had hoped. That was a second mindset moment for me: as a young person with many productive years ahead of me, I realized I needed to invest in equities to achieve maximum growth, so I switched to a 100% equities allocation. Now, I am an impact investor in for-profit and mission-focused companies. I am interested in investing for positive impact as it allows me to invest directly in early-stage companies to create positive impact while making a profit and ultimately shape the future. My risk profile tends to be on the higher side, but I believe in investing for the longer term. My key takeaway: Plan! Prepare! We cannot predict, but we can prepare (quote borrowed from Howard Marks of Oaktree Capital, a renowned value investor).

Key takeaways from the experiences shared by participants during the break-out group discussions

Group 1 - Equities

- Don’t time the market; make investing a regular habit.

- Manage your exit strategy and set your return goal, and when your investment accumulates you can consider diversifying.

·- When you choose your ETF, pay attention to the market cap to ensure there is sufficient liquidity when you exit.

Group 2 - Fixed Income

- Consider the impact of interest rates and what that means for the value of your bonds.

- Be clear on the returns you need.

Group 3 - Real Estate

·- You need to take the emotion out of it

- You can either “set and forget”, or flip the investment. However, flipping can lead to high transaction costs (legal, agency and real estate fees).

- If considering real estate in an overseas market, consider working with subject matter experts on the ground.

Some final questions for the GJWHF$ Founders

How would one invest ethically and obtain moderate returns at the same time?

In the GJWHF$ Founders’ experience, there are two ways to invest ethically:

  1. through the publicly listed bonds which have ESG ratings, which can give your current portfolio an ESG score; or

  2. directly in private equity of impactful companies if you are an accredited and/or sophisticated investor with assets valued at USD1M or annual income of USD200,000. With the latter approach, patience is the key since returns can come only after 5-7 years. In that regard, ethical investing would usually be a medium-term investment strategy.

Final considerations: How often should an investor review and rebalance their investment portfolio?

  • Generally speaking, it would be sensible for an investor to do this at least once a year.

  • Long-term investors can set themselves a target for the value that your investment should reach, you may want to hold onto the investment on a longer time period or find a way to manage the investment to make it easier for you every time.

  • Remember you need to be specific with your action!

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