Tuesday, April 23 2019

VietNamNews

Build a balanced portfolio in four easy steps

Update: March, 23/2019 - 07:00
Brian Spencer
Viet Nam News

Brian Spence*

Last month, I shared my thoughts on how to prepare for stock market investment. This month, we get more specific and explore how to build a balanced portfolio.

Use index funds to anchor your portfolio

As you embark on what hopefully will be a lifetime of investing, you’re likely to experience both anxiety and excitement.

Instead of fretting about what to do, consider index funds – which can be either of the mutual fund or Exchange-Traded Fund (ETF) variety. Index funds (for example, those tracking the VN-Index) are good first investments because they offer a simple way to gain exposure to the market without the need to buy all the stocks within the index.

Index funds are easy to buy, they carry low management fees (what’s known as expense ratios), and their returns are less volatile because they track the performance of an index overall. Finally, these assets offer diversification, which is key to long-term investing success. Owning a variety of assets decreases your portfolio’s risk exposure, ensuring you don’t get burned by any one investment.

You’ll need an account to get started with an online broker. I would suggest using an online Vietnamese comparison site such as https://brokernotes.co/vietnam/or perhaps buy your first shares via a personal advice service such as Rồng Việt Securities, part of the Viet Dragon S­­ecurities Corporation.

The difference comes down to personal preference. If you prefer selecting investments, an online broker or personal service is your best bet. If a hands-off approach is more appealing, go with a robo-advisor.

Vietnamese fintech start-up Finhay is targeting the country’s millennials with a new robo-advisor service that lets customers invest in top mutual funds in Việt Nam starting with as little as VNĐ50,000 (US$2.6).

They provide a platform connecting mutual funds with millennials. It provides customers with access to micro-investment opportunities and offers mutual funds the ability to tap into the growing demographic. For users, Finhay provides different portfolio strategies designed to suit all profiles of investors, who can consult their portfolio performance anytime, anywhere on their smartphone.

A quick refresher on robo-advisors: These offer automated investment advice using computer algorithms to build and manage customers’ investment portfolios. Robo-advisors will recommend a portfolio that’s typically constructed of low-cost ETFs and index funds.

Power up your portfolio with individual stocks

If you prefer the simplicity and low-cost nature of index funds or ETFs, add more of them to your portfolio. These funds offer plenty of opportunity to enhance your portfolio’s diversification, whether they track specific industries or different company sizes. They also make for an easy way to invest in international stocks.

Although investing in index funds is a perfectly fine strategy, your journey needn’t end there, however. You should continue investing money in these funds – they’ll serve as the foundation of your portfolio – but you can also begin venturing into more exciting direct investments.

To begin investing in individual stocks, you’ll need an account with an online broker, along with a sense of your risk tolerance (investing in stocks is riskier than index funds) and investment goals. Equally importantly, the time commitment involved means you should have a genuine interest in the task at hand. You should also familiarise yourself with the various types of stocks. As previously mentioned, you could use the online Vietnamese broker comparison site https://brokernotes.co/vietnam/ to choose the right broker for you.

Don’t be dissuaded by a lack of experience or funds; starting small is a prudent strategy and there’s no better education than first-hand experience. Make sure you have a solid understanding of the companies you want to invest in, some context about their stock price and the basics of trading before you begin.

Heed the advice of the world-famous investor, Warren Buffett: “Buy into a company because you want to own it, not because you want the stock to go up.”

Be hesitant when it comes to “hot tips”

If you find yourself getting tempted by a “hot tip” that your best friend heard from some guy, take a deep breath. While it’s good to feel comfortable investing, it’s bad to be overly confident. Even professional investors regularly get burned, and consistency, rather than a hot hand, begets long-term success.

Instead of chasing tips, dive into your portfolio. Are there holes in your diversification strategy that could use patching? For example, if you own numerous individual stocks within a specific industry (like technology), it may be wise to add ETFs that track other industries (say, healthcare).

Once you’ve combed through your portfolio, revisit your goals and objectives. If you’re looking for a more tactical investing approach, consider options. These assets have a smaller investment requirement and provide flexibility regarding the duration of the investment and downside risks.

Do you require income from your investments? If so, then many stocks provide a good yield as well as capital growth over the long term. You may be more interested in capital growth but don’t discount high-yield stocks as they can often outperform growth stocks, especially in a market downturn.

If you want to express a speculative view on the market, individual stocks or ETFs, consider futures. These contracts also require a smaller investment and obligate buyers to purchase a specific asset at a predetermined time and price in the future.

Whatever you do, stay on course

Regardless of what you decide to invest in, it’s important to maintain consistency by making regular contributions and tweaking your strategy over time, as necessary.

With any new investment you consider, make sure you understand how it works before committing money, and never sacrifice the pillars of your portfolio discipline in the process.

But by all means, have some fun, but always keep your long-term goals in view. Staying engaged in the management of your portfolio will ensure you stay invested for the long haul.

Next Month:

How the English speaking world view Vietnamese culture and finance

Happy investing.

* Brian Spence is managing partner of S&P Investments. He has more than 35 years of experience in the UK financial services industry as an investment manager, financial planner and M&A specialist. He is a regular contributor to the UK financial press and has a deep understanding of the financial services community. Brian’s column will reflect on all the challenges and opportunities within the Vietnamese market, bringing a fresh perspective to today’s hottest issues. The columnist’s email address is brian@sandpinvestments.com.

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