An often-asked question is how do I build my mutual fund or unit trust portfolio for my retirement planning and children’s education?

In this brief discussion, we will discuss the 4 most basic funds for investment planning. They are Equities, Bonds, Money Market and Balanced Fund.

  • Equities funds are funds that invest in stocks. In general, these funds’ objective is to generate long term capital growth. Of course, there are many different types of equities funds. That would be a topic for another discussion.
  • Bond funds are debt instruments issued by governments or corporates. It promises to pay a certain return upon maturity. Bond funds provide a steady stream of income for investors.
  • Money Market Fund is a short-term debt instrument. It is placed with financial institutions as deposits and in government bills. It is a safe investment vehicle for those who are extremely concerned with capital preservation. Money market funds do not earn investors high or substantial returns, but it still provides a return that would be higher than putting money in savings account or fixed deposits.
  • Balanced Fund, as its name suggest sought to provide a balanced investment spread for investors. It is primarily invested in equities, bonds and money market according to a certain asset allocation ratio. Its objective is to provide a steady stream income and generate capital growth over the medium and long term.

There is no perfect system or methodology to build an investment portfolio. It depends on our investment objectives, financial goals and investment time horizons. Understanding these factors would allow us to plan our assets allocation wisely. If we are planning for retirement, with an investment (time) horizon of 10 years and above, we have the time luxury to be a little aggressive in our approach. In this instance, we can invest in equities funds that would generate capital growth over the long term. Equities can help us to beat inflation and preserve the purchasing power of our Dollars or Ringgit. However, equities are more volatile and not good for those with short term financial goals. If we are planning for education, we may want to choose to balance it with equities and bond, and do not forget insurance. Education funds planning for our children is a different ball game. In this context, protection is as important as investment.

For mid-term financial objectives or goals, it is better to mix Equities, Bonds and Money Market.  Those already retired and more concerned with steady income, Bonds and Money Market funds would be a wiser choice.

In conclusion, building an investment portfolio depends on the following factors:

  • What are the objectives?
  • How much time do we have? What is the investment time horizon?

So, embarking on this journey requires us to know what we want in our retirement or the needs of our children’s education.

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