You should invest in riskier assets if you’re young.
Hann and Sani discuss the fundamentals to building the best portfolio for you.
Gold, ASB/ASM, stocks, and FDs — What do these have in common?
They are all part of a well-diversified portfolio to help you maximize returns.
- But how do we know what percentage to allocate into each asset?
- Where else can we invest?
- Most importantly, when should we take profits?
These are the topics that I discussed with financial experts Hann Liew and Sani Hamid on Monday.
Scroll down for a written summary.
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This episode contains chapters to enhance your learning experience.
Quick Facts:
Gold up 15.48% since the start of the year, outperforming the US market.
The asset has broken its $2,200 resistance and made a new all time high of $2,430/ounce on Monday, spurred by the escalating tensions in the Middle East.
Global central banks, most notably China, have been stockpiling gold heavily to diversify its foreign reserves and reduce the reliance on the US dollar.
At the end of March, China’s gold reserves hit 72.74 million ounces (or $171.1 billion), representing a monthly increase of 160,000 ounces.
This is the 17th consecutive month for the central bank to increase its holding in the asset.
Q1. What’s happening to Gold? Is it up only because of the rising tensions in the Middle East?
Hann: Gold is going up not only because of escalating geopolitical tensions.
Central banks (not only China) are buying heavily to rebalance their treasuries to gradually shift away from the dollar.
There is also clear evidence of physical gold buying from retail investors, especially Chinese. They are stockpiling the asset to defend themselves from the declining Chinese economy.
Since 2021, the Hang Seng index has fallen by 48% while China’s property market crumbled. Seeking alternatives to preserve wealth, the Chinese turned to physical gold.
China’s Hang Seng Index performed poorly in the past 3 years.
Q2. Will gold’s rally continue? What are your price predictions?
Sani: Looking at the charts and considering the current sentiment, gold is likely to continue its uptrend for the rest of the year.
“I’m not surprised if it rallies to the $2,600 range or even breaks through $3,000 in the next few months.”
Hann: Despite the predictions, you should never allocate more than 5–10% of your portfolio in gold.
So if you have:
- RM1,000 = RM50–100 in gold
- RM5,000 = RM250–500 in gold
- RM10,000 = RM500–1,000 in gold
The precious metal is only used as a hedge against inflation and is sort of like an insurance policy for your portfolio.
You can generate better returns elsewhere.
Q3. How to build a good portfolio? What’s the first most crucial step in this process?
Hann: Determine your risk profile and time horizon.
Rather than focusing on returns, you must understand what you’re investing for and how long you plan to grow your funds.
For example, if you’re saving up for a wedding in the next 3 years, you cannot afford to invest too much in high risk assets (ie. equities, aggressive mutual funds, crypto). This is because you wouldn’t want your money to be worth less when you need them.
However, if you’re young and are investing for retirement, you should take more risk in the markets. Accept the possibility of a 20–30% drawdown in a week, with a high chance of making a 30–40% profit over the year.
Q4. What about portfolio ratios?
- Conservative (4–6% pa): 70% fixed income, 30% equities.
- Moderate (6–8% pa): 50% fixed income, 50% equities.
- Aggressive (>8% pa): 30% fixed income, 70% equities.
Sani: Fixed income includes save assets like Fixed Deposits, Cash Apps, ASB/ASM, bonds, etc..
Equities include Malaysian stocks, US ETFs, mutual funds, etc..
These percentages are not fixed. You should adjust them to your own targets accordingly. Retirement, wedding, downpayment for a car, etc. are all SEPARATE goals with their respective risks because they have different time horizons.
Q5. Why should we take higher risk if we’re younger?
The Rule of 72 is a great way to visualize the significance of higher returns.
It determines how long it takes (in years) for your funds to double, assuming no capital is added.
So, if you’re 100% invested in ASB, ASM, or EPF, the average return rate that you’ll get is 5% per year.
In this case, it will take 14.4 years for RM10,000 in ASB to become RM20,000, excluding inflation.
But by exploring higher risk options and increasing your returns by 2%, your funds will double 4 years quicker.
Q6. What about crypto? How do we position ourselves in this asset?
Hann: A 1–3% exposure in crypto will tremendously increase your returns and decrease total risk.
This is mathematically proven. You can ask any Chartered Financial Analyst (CFA) to construct a Markowitz Portfolio and they’ll tell you the same thing.
For high risk investors, you may go up to the high single digits, but beyond this percentage, the risk goes up exponentially. ⚠️
Q7. How do we know when to take profits without feeling guilty about timing it too early or too late?
The key lies in your allocations.
If your goal is to have a 60/30/10 portfolio (60% equities, 30% fixed income, 10% crypto), you should rebalance it frequently as the market moves.
When crypto rallies and your holdings exceed 15%, it is a signal for you to rebalance your portfolio back to the 60/30/10 ratio.
You can do this by selling crypto or funneling your monthly DCA amount into the other two assets, prioritizing whichever that has a lower dominance.
This method removes the need for speculation and timing the market, since you’ll be investing based on your own risk preference.
This written summary does not fully encapsulate the ideas shared by the speakers during the session.
DISCLAIMER: The information contained in this article is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The opinions of this blog are solely that of the publisher.
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