Unit Trust is still the way to go!

At the current level of the KLCI, anyone who had bought unit trust in the past one year must have been feeling jittery right now. Generally, it has dropped off 20% of the value when they bought one year ago. So what now? Is it time to redeem for cash now?

Well, this question depends on the individual. If you need this money, of course you are forced to sell off your unit trust. Or maybe you have some investment ideas, or you foresee some great chances to increase your earning, by all means, sell off your units. Do not risk incurring opportunity cost.

But, if you sell off your unit trusts just to keep in the savings account, then the answer to the question above is a definite NO! The reasons are simple:

1) You suffer losses by selling off your unit trusts at current price.
2) You denied yourself a chance to recover back your losses.
3) Your money will lose out to the effect of inflation.

Investing in unit trust can be ANYTIME. Yes, even during the current financial crisis, as long as you are doing dollar cost average. Dollar cost averaging is a concept to minimize your risk, especially during the current crisis.

Of course it is possible that after you buy in, the price will continue to drop off. But with dollar cost average, you are picking up units at price lower than your 1st time to purchase, therefore covering your losses from your 1st investment.

Unless you are a stock market expert, normal people can never know exactly when the market will rebound, but we do know that historically, everything that fall down will climb back up again! So pick up the units gradually when the market is low (though no one knows whether this is the bottom or not).

For those who invested lump-sum and suffering paper loss now, if you don't need the money now, DON'T SELL. Unit trust has a better chance of recovering, with medium risk.

Consider this, even during this crisis, there are still investor buying into unit trust. These money enable the fund manager to do bottom-fishing, accumulate stocks at low price, and this will enable the funds to recover their price more swiftly when the market recover.

If you are buying into a blue chip stock, can you have this privileged? NO! Not at all, you can only hope it reached the price above your buying price, provided that the company's earnings and prospects remained positive. What if the counter you bought do another Transmile (a former blue chip counter who drop from RM13 to the current 55 sen at time of publishing)?

Therefore, unit trust remain the best bet for the general public to invest in, especially during the current crisis where we can get more units at less price.

strategy during falling market

There are good questions asked on unit trust recently.

"should I sell my unit trust now?"
"no."

"what if the market keep going down after this?"
"you will get more units."

"huh? but I'm not buying with the Dollar Cost Average method, I buy one-time only."
"Although you buy one-time, you will still get more units. If a company is making profit, it will distribute dividends to the shareholder right? Unit trust also invest in these companies, and the dividend distributed will be reinvest. If the market is dropping, when the dividend is reinvested, you will get more units, isn't it?"

Example: if you invest RM1000 on a RM0.25 fund, you will get 4000 units. If the price of the fund drop until RM0.20, when the dividend is reinvested (assuming the dividend is 10% of RM1000 = RM100), you will get extra 500 units.
(All calculations excluding service charge)

The Malaysian economy is doing well at the moment, with companies recording record earnings and dividend pay-out. The current drop in Bursa is mainly due to political reasons and the uncertain US economy. So don't panic if you are an existing investor, because with lower price mean more units for you when the dividend is reinvested.

Since unit trust is for a long run, you can sell at a higher price later on with more units. Buy low, sell high! But to ensure you will get better profit, do Dollar Cost Average!

Below is a very meaningful article for to read. Don't worry, be happy!

http://www.publicmutual.com.my/page.aspx?name=art_remaincalm_pg01

How To Select The Right Unit Trust Fund?

In today’s unit trust industry, there are a variety of different unit trust funds for you to choose from. But the 1st step perhaps is to identify your risk profile, or your appetite for risk

There are generally 3 types of risk profile for the unit trust fund, namely Aggressive, Moderate and Conservative. Do take note of the risk profile of the fund that you are going to buy, as this represents your investment objective.

If you want your money to grow a larger sum in the future and your risk tolerance is higher, you may choose a fund with a risk profile: Aggressive.

On the other hand, if what you are looking to achieve is an ongoing income stream to pay for expenses and your risk tolerance is low, you may choose the Moderate or Conservative risk profile.

Every individual may have different investment objectives, risk tolerance and time horizons at any one time, therefore the variety of different funds. So the fund you invested in must be one that suit your objective.

A logical next step will be to look at the past performance or investment results. Unfortunately, it is impossible to predict a unit trust’s future investment performance. This will depend on the type of fund, the general market trends and the investments which a fund manager picks. Past performance figures are no guarantee of the future. A fund that has performed well in the past may not do so in the future and vice versa.

The summary of Do’s and Don’ts of Choosing a Unit Trust Fund

Do

- Decide which type of unit trust fund meets your saving needs.

- Shop around for a reliable unit trust company

- Check past performance records

Don’t

- Don’t choose any unit trust fund just because its performance has been good, make sure it is the right fund for you.

- Don’t pay too much attention to short term performance, good consistent performance over all periods is the best lead.

- Don’t decide on a unit trust fund just because it has low charges, good performance is far more important

- Don’t borrow to invest in unit trust