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Time to review your investments

Assess performance to rebalance portfolio or gauge need to change strategies

As we come to the end of the year, it is timely that we look back at what went well and what did not go so well in the year. Feasting and festivities usually dominate the last few weeks of the year, followed by New Year resolutions formed around that extra piece of Christmas ham and that additional glass of New Year's Day champagne.

From an investment perspective, it is also a good time to review how well your investments have done and consider if there should be any changes made to the portfolio. It is also a good time to assess if investment strategies that you might have changed for this year worked out.

While the investment markets don't necessarily follow the calendar year, the year end or the start of a New Year is as good a time as any to review our investments in a systematic way.

So how did your investment portfolio do this year?

If you are a Singapore stock investor, using the Straits Times Index (STI) as a benchmark, as of the end of last month, you would have made about 4.4 per cent for the year, including dividends.

If you had invested in a global portfolio of stocks, using the MSCI World Index as a benchmark, you would have been up about 5.6 per cent including dividends, as of Nov 30.

If you had invested in a globally diversified "balanced" portfolio of stocks and bonds, this is typically defined as 50 per cent in global stocks and 50 per cent in global bonds. You might have seen a return of around 4 per cent for the same time period.

So which investment did the best?

Disciplined trading strategies around loss-cutting and profit-taking can prove a good strategy in the sideways markets that we experienced over the last five to six months. At the same time, a lack of rebalancing of your investment portfolio or a poorly constructed portfolio can have a detrimental impact on performance.

Most investors would promptly point out that the global portfolio of stocks garnered the highest returns and Singapore stocks came in second. However, many might not recall that earlier in the year, both the MSCI World Index and STI were down by more than 10 per cent.

And the global bond index would have been up more than 10 per cent for the year, had we reviewed this a few months ago in August. Only after the United States presidential election did we see a renewed rally in equities and a strong correction in the bond markets.

So does this matter? Well, that is the question that relates directly to one's investment strategy.

Different investors use different strategies to make money. If you are well-versed in the wealth management concepts, you would definitely have heard about having a portfolio that is diversified across a number of asset classes.

This helps handle long-term portfolios and works on concepts of modern portfolio theory. The investment strategy works less on the short-term market movements and uses the diversified nature of different assets to create a slow and steady investment.

Other investors use shorter-term trading strategies that range from technical analysis to systematic trading programmes. In each strategy, investors use the market information and derive patterns to make a decision on when to buy and sell their positions.

While this sounds complicated, the strategy basically comes from assumptions that a certain price move is based on patterns that have been recorded or monitored.

An example of investing based on the assumption of price patterns could be something as simple as day-to-day grocery shopping.

For example, you buy groceries from your regular store on a weekly basis and today, there is a 50 per cent drop in the price of this particular fish that you like. So you decide to buy 2kg of that fish instead of your usual 1kg.

Your assumption is that the cost of the fish will revert to its original price because you have been buying this fish for the last year and it has always been that price, so you buy more.

In the same way, a technical chartist could notice that the price of an asset seems to keep rebounding when a certain stock drops to a certain price. Therefore, he would target that price point to pick up the stock.

Before I deviate too much from the topic at hand, let me try to offer some insight into the "best" investment strategy.

The answer is a Catch-22. Identifying the ideal investment strategy can be done only by having an understanding of what strategies work best for you.

While the wealth management industry does gravitate towards portfolio concepts, many investors have also found their niche away from these concepts.

Disciplined trading strategies around loss-cutting and profit-taking can prove a good strategy in the sideways markets that we experienced over the last five to six months. At the same time, a lack of rebalancing of your investment portfolio or a poorly constructed portfolio can have a detrimental impact on performance.

For those clients who are sophisticated enough to have used multiple strategies, a review this month would be a good way to gauge your proficiency using various strategies.

For those who have successful navigated the ups and downs of 2016 through trading, a good benchmark to compare against would be the broad market numbers highlighted earlier.

If you have not made 4 to 5 per cent on your trading portfolio, would you consider using an asset allocation strategy going forward?

An asset allocation strategy is a long-term investment strategy that combines different assets such as stocks and bonds to create a well-diversified portfolio which suits investors' risk and return profile.

If you currently have a well-diversified portfolio but you feel compelled to test your trading ability (perhaps because you attended a seminar on how easy it is to make money in trading), I would suggest using a small amount to test out the concepts and keep your portfolio intact.

Rome was not built in a day and neither will your skill set.

•The writer is head of investment advisory, strategy and managed investments, at Standard Chartered Bank Singapore.

A version of this article appeared in the print edition of The Sunday Times on December 18, 2016, with the headline 'Time to review your investments'. Print Edition | Subscribe