How to manage investment portfolios in a dynamic market environment?

"Risk" is unavoidable during the investment process. It is related to the difference between actual and expected returns, including the possibility of capital loss. Prior to making your investment, follow the three key principles below and learn more about diversification strategies to help reduce risk.

Three key investment principles

1. Diversify across various assets

• Market risks are influenced by market trends such as changes in interest rates or economic recessions. Even if a company is profitable or well-managed, its stock price may decline along with overall market conditions;
• When facing individual investment risks, you can minimize risk by employing a diversification strategy and allocating funds to different asset classes.

2. Allocate funds across different markets (or industries)

• Market fluctuations usually do not occur simultaneously in different markets, you may consider diversifying your funds across different investment markets;
• For example, factors such as the trends in international and local interest rates, local and international economic cycles, and fiscal and monetary policies of various governments may  influence stock prices;
• Market disparities reduce the correlation between stock prices, resulting in lower volatility for international stock portfolios compared to individual countries.

3. Portfolio investment in funds

• A fund portfolio includes various investment assets, such as stocks, bonds and fixed deposits from different regions and industries;
• Fund managers maintain a balance between portfolio composition and risk, reducing the risk of individual investment items while achieving desirable returns.

Building your investment portfolio

Investors should allocate assets based on their risk tolerance, select different proportions of stocks and bonds from the portfolio to create a suitable investment plan.

Conservative investors: Higher allocation to bonds and lower allocation to stocks
Aggressive investors: Higher allocation to stocks and lower allocation to bonds
Moderate investors: Balanced allocation between stocks and bonds

Refer to the following lists and determine how to allocate investment products from the two major asset classes of stocks and bonds.

• Stocks: United States, Japan, Europe, Asia (excluding Japan), Emerging markets, Blue chip stocks, Dividend stocks, Growth stocks, and Small cap stocks
• Bonds: High yield, Global, Asia, Emerging markets, Government bonds, Municipal bonds, Financial bonds, and Corporate bonds

Upon establishing an investment portfolio, regular evaluation is necessary. Especially when significant changes occur in the environment or market conditions, if the portfolio deviates from your set goals, adjustments should be made to avoid concentration in a single or multiple asset classes. To be simplified, portfolio planning should be continuously adjusted according to the needs of different life stages.