Wednesday, August 12, 2009

How to protect your fund when market down?


Usually when stock rally, those who bought at low or almost bottom low would feel very happy as they realized now the asset become more in terms of value. But the only worry is how to protect those fund from being hint by sudden market down turn?

There are many strategy can be used, one of them is switch the fund to some other asset type which could provide some protection against market down turn. For instant, say initially one have investment portfolio of 100K and he started to buy at some where near the market bottom. (Though we may not know exactly the market bottom, but with certain tools or chart, we can catch some good fish in the calm water near the bottom) Since we have caught the fish near the bottom, usually market will start to move up in next few months. We will notice our portfolio value increase with paper gain, say 130K or 150K.... Since now market already up for 2 or 3 months, we may want to think of the way to protect our fund from sudden market swift down. In the same time, we do not want to lost opportunity to enjoy the rally or bull run, then we can consider to maintain the original value of our portfolio of 100K by selling some holdings. Say now the value of investment portfolio is 150K, then we may consider to sell 50K and let the original 100K to remain the equity market.

One common mistake done by investor, they try to invest the additional 50K in equity market again by searching for others stock to buy. This is not the correct way, since the purpose is to protect our fund from market sudden down trend, if we invest in some other stock, then our portfolio is going to move down as well if something unexpected happen. We would suggest to swift the fund to some other investment class which we foresee will go up or at least maintain the value when equity market move down. The are many choice available in the market, such as Gold, Money market fund, bond fund or fix deposit.

For those Malaysians, they are very lucky, since there is one Malaysian (1Malaysia) fund available where the NTA is always 1, at any time, no matter market up or down. (you can not find any fund else where in the world) Another added advantage, there's no up front charge involved. Hence, if you foresee there's a need to buy an insurance to protect additional gain, then this fund could be a right choice for you to part it for the time being. When the market down again, one can consider sell the fund and invest in equity market again. In the worst case, if we are wrong and market continuously to go higher, we still have the original 100K of investment plus 50K of the fund size which will provide reasonable return!

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