A good friend ask me if she should invest in China given the rapid economic growth there.
Before I even start to answer her (she’s just turned 50) I asked her what kind of risk appetite she has? She said she wanted something with low risk but has a consistent return. Because of her risk appetite I suggest she keeps most of her money in safer investment. For instance, among equity fund which has mostly blue chips (read: I want consistent return) Maybe the fund should also invest a large part of its investment in Malaysia (read: the further away from the country the higher the risk). Generally, the older a person get the less risky they become. I follow this simple rule for myself when it comes to risk/return and my age.
20-30 years: Accumulating stage: most people under this category can take a bigger risk. I would recommend 70% of investment in growth fund and the balance 30% on near cash investment. You can afford a higher risk for a better return for a quick gain.
31-45 years: Consolidation – Once you have accumulated you may want to consolidate your portfolio. It’s time to cut losses and concentrate on investments that you know best and learn to stick with them. Ideally you should have 40% of your investment in equity fund and the balance in near cash.
Above 45 years: Preservation – it is another 10 years to retirement and your kids need those money to pay for their colleges. You should avoid those risky investments. It is not the time to join your friends in investment scheme that promise quick return in short period of time. If you lose your money at this stage, it is not easy to bounce back. So keep everything that you have in some safe investment schemes. By the time you reach this age, you should have more money so even if you allocate about 10% to invest in some high risk investment, it may not break your bank or your child education saving. Then again why would you want to lose money if you want to invest!