3 Investing Lessons to Take into 2021
05 January 2021
Scary, Volatile, Challenging...

These are just some of the words that investors are using to describe 2020. From the COVID-19 pandemic, election and political coups, it’s been a year filled with thrilling market events.

Whilst 2020 may be a year investors would like to forget, it certainly has many important lessons that we all can take away from the year.

Here are 3 important lessons for investors to take heed in 2021.

Lesson 1 – Practice Diversification
If 2020 has reminded us anything, it emphasises yet again the importance of diversification and not putting all your eggs in one basket!

A pure global equity portfolio would be down 34.0% at the height of the market rout in March during the COVID-19 pandemic

However, a simple diversified portfolio with just 50% global equities and 50% in global fixed income would be down a more modest 18.6%.

Staying diversified across different asset classes, geographical and sector exposure can help minimise volatility and smoothen returns.

In turn, this will induce investors to remain invested and help them stay the course.

Lesson 2 – Don’t let emotions derail your investments

2020 also underscores the perils of market timing and investing according to one’s emotions.

When the markets plunged in March with the S&P 500 plunging by 33.6%, many investors may have panicked and resorted to shifting all their allocation to cash.

But just 6 weeks after the drop, the market began to recover with the S&P 500 rebounded back by 30.2% in April.

Not wanting to miss on out on the surge, many investors would then again shift back their exposure into equities. Which really does not make sense to you as an investor to exit and enter the market so frequently.

Contrast to this scenario, where if you had just stayed invested during this period, you would have narrowed the losses to -9.2% in end April and breakeven by the end of July.

As such, timing the markets can prove to be more costly than the actual correction itself, especially if you miss the best days in the stock market. 

Lesson 3 – Understand your relationship with risk 

2020 has been a rollercoaster ride for investors to say the least. But, don’t expect the scary highs and chilling lows to pause in 2021. Volatility is something that investors will just need to get used to and live with.

One way to do this is to really learn and recognise your own relationship with risk.

If you are taking on more risk you they can handle in your portfolio, this might cause jitters and lead you to making impulsive decisions that does not benefit you.
A good yardstick measure is to ask yourself if you can sleep at night. If you can’t… Chances are you are probably taking on too much risk in your portfolio.

In that case, you might need to rebalance or tilt your portfolio into more defensive asset classes like fixed income.

Set aside some time in 2021 to assess whether your portfolio matches your risk appetite.

This article has been prepared by AHAM Asset Management Berhad (“AHAM Capital”) (formerly known as Affin Hwang Asset Management Berhad) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to AHAM Capital and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of AHAM Capital.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, AHAM Capital makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions.

As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/or in connection with the financial product.

AHAM Capital is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers.

AHAM Capital and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities.

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