Asset diversification remains key investing strategy

Investors should have transparent investment goals that can navigate through changes in the market


ASSET diversification remains a vital investing strategy even during a pandemic as a means to reduce portfolio risks.

With the uncertainty of Covid-19 still lingering after a year, experts said investors should have transparent investment goals that can navigate through changes in the market.

MIDF Amanah Investment Bank Bhd VP and head of research Imran Yassin Md Yusof said at the start of the pandemic, investors should look for defensive qualities in investments.

As the economy moves into a recovery phase, investors should also shift their focus towards undervalued assets such as cyclical stocks that have been sold down during the beginning of the pandemic.

“We believe that diversification of assets is an essential investing strategy regardless of the situation. This is in order to limit any downside risk, as the diversified assets will average out any losses from one asset class with the profits of another performing asset class,” he told The Malaysian Reserve (TMR) in an email reply recently.

He opined that equities remain a popular asset class given that trade participation among retail investors continues to be robust.

Another investment that is also popular amid a global pandemic is gold.

“Of course, mutual funds have also increased in popularity given that investors can have exposure in the equities and fixed income without having to actively manage their portfolio. For more sophisticated investors, there is also fixed income,” he added.

Last year saw greater participation from retail investors in Bursa Malaysia, and it was at a 10-year high of 35%.

The local exchange’s securities markets division director Azhar Mohd Zabidi had recently said retail investors are expected to continue driving volumes on the local bourse this year albeit the uncertainty.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said although diversification of assets has been the key factor for successful investing, investors should be clear on the types of assets they want to venture into as each asset class carries its own risk-reward profile.

“Therefore, it is a combination of many factors before one could really diversify into different assets. This may also include your financial goals and the liquidity requirement,” he told TMR.

He said gold, Bitcoin and cryptocurrencies in general are popular assets among investors during a pandemic, while stocks and properties are also gaining some traction.

He added that when investors have carefully thought of the types of investments they want to dabble in, it will determine the timeline and holding power of the investments made.

The most common mistake among investors is that they have the tendency to “switch hats” without realising the actions and consequences that have taken place, said Mohd Afzanizam.

“More often than not, they would switch and become traders when there is a lot of excitement. This will obscure their timeline, leading to costly mistakes,” he added.

Last year, gold rallied due to its safe-haven status especially amid the uncertainties in the markets. Analysts had anticipated for gold to trade at new highs of US$2,000 (RM8,219) in the early part of this year as the US dollar is expected to weaken substantially through the year.