Risk Tolerance Level: Part 2

This is a continuation of my previous article on risk tolerance level. This time, we will be having a look at real-life examples. A lot of people are sucked in by the potential high-returns that are often matched with aggressive funds. Sometimes, they do not understand what they are diving into. They just look at the rewards factor, not the risk factor. I will be using two products from Public Mutual to illustrate this. Let’s have a look at the first one, Public Asia Ittikal Fund, which is an aggressive fund.

Have a look at the chart below.

PAIF Since Inception

If you had bought in since the inception of the fund which was in August 2006, and kept it until now, obviously you’ll be making money. Imagine on the other hand, if you had bought units of the fund sometime around end of July 2007 (Arrow 1), where the returns are now at, give or take, around 34%. About a month later, the market went haywire, and the fund went down to a mere 16% return (Arrow 2). If you had bought in July 2007, within a month, your money would have been in the red by around 18%! I’m assuming, the chart doesn’t factor in the Sales Charges, which amount to another 6.5%. So, now, your money is at negative 24.5%. In dollar terms, if you had invested RM100,000, your investment is now worth RM75,500.

Key question to ask yourself is, how would you react to such situations. Will you panic? Will you just exit the fund and swore off unit trusts for life? Or will you buy some more? Take note that there are a few troughs in the chart. The fund did recover eventually but do remember that back during that time around August, you do not know where it’s heading.

Now, let’s have a look at the second one, which is a conservative fund that goes by the name of Public Islamic Bond Fund.

PIBF Since Inception

Looking at the blue line, you can see that the line is much smoother. Hard to see any significant peaks and troughs.

However, the keyword is that this is a conservative fund. Low risk equals low potential returns. This fund needed around 6 years to achieve 40% ++ returns while the aggressive one needed only about a year plus.

All in all, do determine your attitude towards risk properly. Understand what you’re doing. Don’t go into investments that do not fit your risk profile. I’ve read in forums across the internet about investors bitching about their unit trusts. The question to ask is, is it because of bad fund managers, or is it because of their expectations of wanting HIGH RETURNS but with low risk?

Before I end this post, allow me to justify myself that I’m not saying that aggressive investment vehicles should be avoided at all costs. What I’m trying to illustrate is the importance of understanding how much risk you are comfortable of tolerating.

Disclaimer: This article is not commenting on the quality of the assets stated nor is this a specific or general advice to invest your money. This article does not constitute a recommendation nor does it take into account your investment objectives, financial situation nor particular needs.
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Other related posts:

Back to Basics: Recovering from Negative Returns
Back to Basics: Asset, Liability, Equity
The Importance of Investments and Why You Should Start Early
Beginning your Investment/Trading Knowledge Journey
Expensive Trading Courses
The Importance of Cash Flow
Public Mutual : Public Asia Ittikal Fund & Public Islamic Dividend Fund

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