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In troubled financial times, wealth management needs smart management. One of the most important things expats in Asia can bear in mind when it comes to investing is to realise the importance of diversity in wealth management. The argument is most simply put in the age old adage ‘don’t put all of your eggs in one basket’. This simple premise is a key to managing your wealth effectively and protecting yourself against an unnecessarily high degree of risk.
It is extremely risky, not to mention foolhardy, to invest everything in one company or sector. Take for example the Lehman Brothers’ banking collapse. Investors believed they were buying shares in a rock solid financial institution, the fourth largest investment bank in the US but they saw the value of their shares wiped out. Tens of thousands of the bank’s customers also lost their entire life savings.
Scott Eyre, the Major League Baseball pitcher is another example. He made millions in a baseball career spanning two decades but lost it all after innocently investing virtually all his money in Allen Stanford’s illegal Ponzi scheme.
Investing for growth nearly always comes with risk; it is the nature of the game. That’s why investors are warned that the value can go down as well as up. The point of diversity is to mitigate the risk by spreading it over a number of different investments. This reduces exposure to one single investment losing money.
How then can diversity be achieved without becoming a financial expert and maintaining a regular watch on the financial markets?
One way is to invest in a Multiple Asset Portfolio (MAP) fund; the type Infinity offers through our partnership with the award winning fund manager, Bestinvest. MAP funds are designed to spread risk in a basket of different investments. A fund may mix up investments between equities, bonds, hedges and property, as well as maintain a holding in cash. The professional fund manager will then spread each of those investments again, for example investing part of the equity portion across different sized companies in different industries.
Investing in a MAP does not necessarily mean going for low growth. There are different funds to suit the risk requirements of different investors. There are a variety of funds ranging from the ultra-cautious to the very adventurous. However, within each of these funds there is still diversity – that is the key.
For investors looking for investment diversity as an alternative or in addition to a MAP, there are many other possible investments. Investors in Hong Kong could for example put money into a life insurance like the one we recently identified as offering an opportunity to take a position in the undervaluation of China’s renminbi. We think it’s a good investment, which could provide a healthy return and add diversity to a portfolio. However, we would never advise anyone to put all their assets in a policy of this type.
Investing a proportion of one’s wealth in property is another way to add diversity. A good property investment offers the opportunity of an appreciation in the capital value and to receive a regular income from rental. However, someone who had all their money in property in the wake of the subprime crisis would have seen the value of their holdings slashed. Many people who were over exposed to property investments backed by mortgages lost everything – another demonstration of the value of diversifying investments.
At Infinity, our advisers have a wealth of experience and can confidently advise you on how to best diversify your portfolio. There are many choices available according to the individual’s own needs and requirements. If you would like assistance with finding an investment fund that suits your needs or to discuss other means of investing, please get in touch.
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