Points to Remember

Leslie's New Know-how

Leslie Lee Foong

Age: 54
Occupation: Real Estate Agent

“Diversification doesn’t mean some money in Bank A’s mutual fund, some money in Bank B’s mutual fund and a little more money in Bank C’s mutual fund. Unless they’re specialised funds, rest assured that in Trinidad, the banks have pretty much invested in the same companies.

I sell real estate so nobody had to bend my arm to see the value of land as an asset class, but I did need some coaching from my financial advisor to realise what I just spoke of – that diversification goes way beyond ‘where’ you invest and is really all about ‘what’ you invest in and ‘how’ you balance those different investments.

The ‘how’ of the balancing act depends largely on your personal risk tolerance and your life stage. I’m not married, I don’t have any dependents and I’m 54 years young so I’m extremely comfortable with an asset portfolio that’s heavy in land, mid-cap stocks and alternative investments with very little income producing vehicles or cash equivalents.

It’s hard to find people willing to work with you on your financial goals without shoving in-house proprietary products down your throat. I wanted to expand my investment capabilities beyond the regional stock market and Firstline has helped me do that.”

FIRSTLINE POINTS TO REMEMBER

ASSET ALLOCATION

One of the most important features of a successful investment portfolio is its asset allocation – its mix of cash and cash equivalents (e.g. money market accounts); fixed-income investments (e.g. bonds); equities that provide growth and income (e.g. growth & income mutual funds); equities that are growth oriented (e.g. stocks & stock mutual funds); and real estate.

No single investment type performs well under all conditions. Balancing your assets among a variety of high quality securities ensures that your portfolio’s success is not tied to one type of investment or as we will soon learn, one company. If this were the case, if the value of an investment was to drop unexpectedly and your portfolio was skewed disproportionately towards it, your financial security would be jeopardised.

A well balanced portfolio will have investments that don’t all track each other so if something dramatic were to happen to one part of the market, due to the low correlation between the asset classes, you will still be benefiting from good returns in other parts.

DIVERSIFICATION

Diversification is the balanced allocation of your money among different investments within each of your major asset categories. It can be done in many ways:

  • Equities example: you choose local and international stocks; large, mid and small cap stocks; different industry and market sector stocks or their mutual funds; alternative investments.
  • Bonds example: you spread your money among securities with varying maturity dates and this will help protect your income when interest rates fluctuate.

WEIGHT ALLOCATION

Though it seems counter-intuitive to sell an investment that has brought you great returns, you want to avoid any one investment representing too large a portion of your holdings. You increase your susceptibility to risk when the performance of your portfolio becomes too closely tied to the fortunes of any one company. This may happen if a stock you hold appreciates in price significantly more than others.