First of all, I agree with dreamer on the emergency fund and insurance. I believe one should take care of all his/her security matter before going after any investment. Assume 1 day you fall sick and lose your job, how are you going to survive the rest of your life ? The answer is your emergency fund and insurance will take care of you (and your family) in the worst possible scenarios.

Now on the investment part... Investing in USA... Let's try to make this a constructive post for everyone. I believe it's easier for us to see the big picture if we list down all the pros and cons for investing in USA comparing investing locally or emerging market.

Pros
1. Lower Cost for most UTs in USA (except for hedge fund... hedge funds dont really apply here since dreamer is going after conservative to moderate investment vehicles only)
2. Highly diversified portfolio

Cons
1. Barrier of Entry - How can one get started investing in USA ? Whats the minimum fund required ? How to get hold of the cheapest exchange rate around ? It raised a lot more concerns compared with investing locally. I do not have any experience investing in USA directly, perhaps dreamer can tell us more about it.
2. Forex Market - Its true that investing in a USA index can enjoy a more diversified portfolio. But does the risk adjusted return of investing in USA really bigger than the risk adjusted return investing in locally ? From what we have observed in the past 1 year+, USD has depreciated ~10%, and many experts believe that the USD is still going to depreciate even further. So, is it wiser to wait for the USD depreciates more before we enter the market ?
3. Economy Growth - USA is running at a <3% growth annually now, and they are having problem coping with the rising inflation rate. There have been many speculations on USA will be getting into recession soon. If some day, the inflation rate > growth rate happens, it would mean they will experience a negative real growth. With such economy prospects, is it worth to invest in USA in long term ? You can argue that its still possible to make money from USA as many of its firms is making enormous gain from foreign market. But.... wouldn't it be wiser you invest directly into the foreign market ie the emerging market ?
4. Almost always perform poorer than the index - An index fund will almost always perform poorer than a market fund because of its charges. Not by much, by 0.x% annually. For people who can afford to take more risk and wish to make above market return, what would you suggest ?
5. Worst possible scenario - If you have seen the historical past of USA market in their recession, they struggled A LOT more than we did with our market. So now both M'sian and USA market are at its peak. Someday they will fall, if both will be going through the deep recession, which economy will be suffering more ? How long would it take for USA market to recover compare with Msian market ? Given the current USA economy condition, it certainly doesn't look good if recession were to hit the country.

Investment method
I'm wondering what kind of investing method do you use to take full advantage of this highly diversified USA market ? A dollar cost averaging method ? A lump sum investment ? Purely passive investment or changing your equity exposure from time to time ? Different methods certainly would bring different outcomes.

I have a question on how did you get the 9% return over a USA portfolio ? Is it a raw gain or net gain ? Have you deducted all the expenses incured in forex, transaction fee etc ?

I personally believe in long run, investing in emerging market like china, hk , taiwan, s.korea, sg, msia would provide a better return (while it's possible to expose to slightly higher risk). The key is the investment method you pursue to get your return from these markets.

It's just the little thing I can think of atm, feel free to update the pros and cons list above.

This post has been edited by ejleemy: Jul 16 2007, 02:04 PM

Dreamer, a lot of unanswered questions from my previous post.....

Of course I do know the asset classes and potential risk-reward on different classes. I was expecting you could provide us your method that would allow a conservative investor to invest and go to sleep for 5 years (something you have mentioned repeatedly for N times) and gain a handsome avg return like 9% you've mentioned.

But now you are talking about active management is needed together with market speculation. How can someone go to sleep for 5 years in this case ? I don't deny vanguard has one of the best reputation in UT industry. If you were to invest in that fund, you are relying on the fund manager's skills to gain profit from the market and you have no guaranteed that the manager will be around for the next 5 years no matter how good he is. There are more and more high profile fund managers leaving these big firms to setup their own hedge funds and make billions of dollars. It makes not much difference compared with investing in a local or asian UT except you are swapping the cost of entry with other potential risk.

So you agree with me on the potential USD forex risk... if we look at the recent record, the person who has invested in a global index has gain less than the person invested in an emerging market index. One could just avoid the direct risk of USD forex if the person goes for an emerging market indexes in a more stable currency. There's no absolute right and wrong on investing, just wise or not wise. It's wiser to invest in only the good market segment.

Aha... I see the min investment for the fund is USD 3k equivalent to about RM 10k+, work out to be about 3 month income from an average Msian household. It's too much risk for an average Msian to put 3 month income to try out this US investment if there's no guarantee it would be as good as you've mentioned.

Doh, stop trying to avoid my questions already.

My post was referring to the link https://flagship.vanguard.com/VGApp/hnw/fun...&FundIntExt=INT you given on the actively managed fund. That's an actively managed fund. ISN'T IT ? I would believe investing with warren buffett could gain a higher risk-adjusted return than with this actively managed fund you mentioned as long as warren buffett still take charge of his company. Do you realize there's skill needed in selecting actively managed fund ? Don't simply point an actively managed fund out then divert the attention to another index fund.

We do not have a complete KLCI index fund, but we do have a FBM30 ETF that has covered on major leaders from various sectors in Msia.

And that fund is an USA market fund.... gotta expose to high forex risk. Why would someone follow your advice to invest USD 3k in this USD index fund then ? You need enough reasons to convince people to do so. Therefore I listed out all the pros and cons.

What other funds you have got ? Please list all of them out. And how do you recommend someone similar to your risk profile in investing these funds ?

Dreamer, have you got any idea on how to measure risk at all ? I've never seen you provide any useful data on assessing your risk with USA investment at all.

Oh, I just found out a good chart from your recommended site. Perhaps you could start working from there. Do it scientifically, go get the latest 10 year data along with the forex. And show us how much risk there really is in investing in USA. Who knows it might really be a good undiscovered deal right ? Prove it. If it's really that good, I will be entering the US market next month.



We survived the 1997 crisis. Didn't we ? Again, please prove your statement... My view is opposite. As stated in my previous posts, if both USA and Msia were to go thru recession, USA will be the one trouble recovering given my rough analysis on current and future of USA economy.

I thought this topic is on USA investment. There's nothing to do with sales. In fact, have you realized you are paying to the fund manager to invest in any actively managed fund like the one you mentioned ?

Dreamer, I hope you can wake up to see the big picture after you done with the risk assessment.

This post has been edited by ejleemy: Jul 16 2007, 10:33 PM


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Well, he has admitted on his biasness on Msian market. I just knew he's a USA PR. Hence investing directly in US market is a very reasonable thing to do for him. But is it for a typical Msian like myself ? I am eager to find out, because I would like to take advantage of it too if the market there is really that good. I do not deny the possibility in the future I might start an online investment account in USA and could use some of his advice. Therefore Im here to find out. Understand ?

One can just view a stock market as a mathematical model with many variables and each of them carry a different weight and has different impact on short/mid/long term. It would be a more appropriate way for us to view the attractiveness of this market if we see it in mathematical way.

For the recession discussion, one can refer to the great depression happened in USA. Use it as a reference. When a deep recession were to come, both bonds and stocks will lose its REAL VALUE. Only RESOURCES (like gold, oil) will have its real value intacted in such circumstance.

I send my apology to dreamer and anyone here who I might offended in my previous posts in my attempt to pinpoint all the reward-risk with this market.

SO WRONG, they always do the benchmarking. Refer to public mutual website performance chart you will see the benchmark. Same goes with OSK and other company funds. If you find that's still not enough, morningstar has it all. And Msia has been one of the outperformer in our region and did better than the global average in the 1st half of 2007.

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Added on July 18, 2007, 11:46 amCheck this out ! See what does SG think about our market.

http://www.fundsupermart.com/main/research...?articleNo=2243

This post has been edited by ejleemy: Jul 18 2007, 11:46 AM

LOL seriously I think you are the one who doesn't get it or you are just too ignorant to learn how does a local mutual fund works and what really is a benchmark. They benchmark against the KLSE which is better than an index fund as index fund pricing is almost always lower than KLSE because of its charges.

http://www.publicmutual.com.my/application...erformance.aspx

Play around with it, for ex: select PSF and this year date => you see how it is benchmarked against KLSE.

If you are too ignorant to visit a local UT website, you can find them on morningstar.com too.

Msia YTD return only around 23-24%. The reason for an american investor who would make 29.67% YTD in that Msian Index fund is because RM appreciated against USD. As you can see how powerful is the forex. Any fund that gained over 24% YTD is an outperformer measured in RM. Not 30% ok ? Please learn to calculate forex properly.

FBM30 is a good deal for those who don't speculate much and go for a long long term. For those who like to go in and out market all the time where it will seriously add up their transaction fee, they should consider a mutual fund.

Mutual funds initial service charge is hefty at first to a lot of people, but as long as they keep invested, switching is at minimal cost or even free, they could take advantage of bull run in every region of the world for life ! And the best part is they have the option to BEAT the market whereas an index fund will never do that.

The bottomline is if you plan to go for a mutual fund, go for a good one, go for one that can beat the market, and always take full advantage of what the UT company offers... else just invest passively for the index fund.

Thank you.

DO YOU KNOW HOW TO INVEST IN MUTUAL FUND AT ALL ? You go for long term. Yours only a half-year period comparison. People are suggested to go for a minimum 3-year period. If we are looking at 3 year period, see the chart. Compare a person who invested in USA with your index fund with a person invested in this PSF 3 years ago, tell me who would gain more ?

Another fact is Public Saving Fund is not even the best performing funds. It's just an old fund offered by Public Mutual with a good long consistent record. There are many many other funds that do much better. In terms of risk and adjusted risk return (you can get the data from morningstar), a good fund often enjoy LOWER volatility and HIGHER return than an index fund at the same time.

Dreamer, seriously you have to learn to see things objectively. Wake up !!! There are pros and cons for both index fund and mutual funds. No clear winner in every case for every investment vehicle.

To the people out there,

REITS is another big thing coming, the charges are moderate to high, but return is always better than FD in long run and very stable. While both index and mutual funds might suffer short term fluctuations greatly, REITS can get a stable return in most economy conditions. It could be a good investment choice for those retired people.

This post has been edited by ejleemy: Jul 19 2007, 08:44 AM


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Ok, good work Dreamer. That's the way to calculate net gain over 3 years. I think there's a typo somewhere, but nvm, the calculation is clear and close enough.

REITs are pretty new in Msia and there are not many REITs in Msia. There's a huge REITs market in Australia, HK etc.

As for local market, I believe Starhill REITs has the potential. The rental yield is expected to go up. It could be a decent stable investment. Risk and return wise should be somewhere between bonds and stock market.
However, I think REITs investors do not enjoy as much tax benefits as a mutual fund does in M'sia. Need to do more research on that matter.

Dreamer, I know your desire to invest with the highest possible diversification possible and do not care to outperform the market by picking any fund or region.

There are also other kinds of investors who would like to outperform the market. These people will pursue other methods like stockpicking, investing in a good mutual fund, investing in a selected good regional market etc.

There's no best investment method really. Every method has its pros and cons. Your method works well for a low risk taker who has no intention to beat the market. Other methods like stockpicking, mutual fund investment work better for a moderate to high risk taker with extra time devoted to study the market.

Hedge funds have gained a lot of popularity in USA lately, they are the fastest growing funds there. There's none in Msia. Since you have been investing in USA, I know you dont have any involvement with them, Im curious on how do you look at these hedge funds ? Do you think it could be a good investment choice for a moderate to high risk takers like some of us ?

Actually, I thought before investing with Warren Buffet but not now as majority of its subsidiary companies are still operating mainly in USA. Will wait till the USD fall to a reasonable level. But, he might be retired by then.

Warren Buffet stock is classified as a moderate risk stock whereas the hedge fund is at high risk. Can't really compare them directly. Statistically, some hedge funds do have a very high alpha value compared with other investment.

There are so many hedge funds out there and many good ones are charging insanely high. Some managers are getting paid for 1 bil USD per year to manage these funds. For the richer group in Msia, is it wise for them to give it a try ? Not to put majority assets into it of course, just a mere 5-10% portfolio value will do.