Monday, August 12, 2013

My Investment Strategy

I will have 2 portfolios of mutual funds, a money market fund to float my money and a savings account.

My first portfolio of mutual funds will be called my Tactical Allocation Portfolio. I'm going to call it my TAP fund!

Basically, it is going to consist of mutual funds which employ the tactical allocation method. This method allows the fund managers to invest in any sector or region that they see fit, with only a handful of rules to constrain them. For example, they may have a fixed percentage of asset allocation, or a maximum limit of allocation within certain sectors. The aim of the fund managers is to ensure returns and to try and take advantage of their freedom to take opportunities when it arises, and to scramble if they see trouble coming. The freedom given to the managers to just try and make money appeals to me.

The ideal portfolio will be defensive in nature, with average return.

The main aim of my TAT fund is long term, aggressive growth (well, as far as being defensive goes), with close to no effort on my part. My duty is to research well and select the right kind of tactical allocation funds that will suit me. After that, I will merely monitor the funds and top it up periodically through value averaging.

My next portfolio of mutual funds will be called the Active Portfolio, or AP for short.

In this portfolio, I have will a wide range of different funds. These funds will help me make up my desired asset allocation, sector allocation and geographical allocation. These funds will be handpicked by me, and I will continually monitor each specific funds performance and compare it to other similar funds. Should a fund continually underperform, I will replace it with similar funds, so that I will not skew my desired allocations.

Currently, the ideal portfolio will be 85/15 in equity and stocks, equally spread amongst all the sectors, not overweight in any particular country, leaning more towards emerging markets. The portfolio should have a high R2, but a low beta. Compared to benchmarks, it should overperform in the long run, and have reduced volatility.

This portfolio will require me to select my funds, consistently compare them to alternative funds, as well as monitor the entire market outlook so that I can adjust my asset allocation accordingly. I will have an asset allocation for different market outlooks, ie. increasing interest rates, recession, etc. Essentially, I will be my own tactical allocation fund manager! I will periodically top it up based on value averaging. Because of all the involvement and more work involved on a regular basis, I have to be disciplined and actively manage it!

Next, I will have my Money Market Fund (henceforth known as MMF), which I will have all my excess money which I am deliberating to invest. The money here will be safe, and generating returns better than in my savings account. Plus, it is easy to move the money here into funds once I have decided to top up a fund.

Lastly, I'll still keep my current savings account with DBS, just because it's the most convenient bank. Every month when my salary comes in, I'll transfer a large portion out into my MMF, which will then filter down into my funds once I've done my value averaging calculations. Soon, I'll come up with the exact numbers!

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