Should we have switching/cut loss strategy for unit trust investment? Below are some of the switching/cut loss strategies that i can think of:

Strategy 1: set a maximum loss % we can take. If the price dips further than the max loss %, we switch/sell off the fund, irregardless of the time frame we've been holding the fund.

Strategy 2: let's say our investment objective is to get 8% returns p.a. over 3 years period. so over this 3 years period, we dollar cost average our investment $ into the fund. However, upon 3 years time frame, we didn't achieve the objective and thus decide to switch/sell off the fund.

Strategy 3: through rebalancing of our asset allocation annually/half yearly, i.e. sell/switch the fund that performs well, and buy more of non performing fund.

so, which strategy is advisable for those who invest in malaysian unit trust funds? appreciate some feedbacks and comments.....

1. Switch to a more stable money market or bond fund yes; sell maybe no. As obviously even in other investment you'll hear ppl which pumps in more money when it falls. It's to recoup even more in the event that it bounced back.

3. Switch or sell funds performing well?! Sell annually? You do realise the unit trust is usually not for "short term" i.e. usually during the first 2 years you might get nothing back because of the service charge imposed when you buy 5%-6.5%.
Also, buy non performing fund? For what? Hoped that after all these years they do not perform so suddenly they would shoot up?! I would definitely go with the "bull" instead of the "bear".

You get "loaded" everytime you buy/sell/switch.

If you like to time the market, don't go into UT, go for stocks.
Otherwise, look at a longer horizon and stick to regular investment plan that has built in dollar averaging.

your strategy can be used in direct stock investment but NOT suitable for unit trust.

The right way to USE unit trust FOR you is to purchase a fix amount pereiodically. fix a target return year. forget all about it. then comes back and monitor price target +- 2 years. ie. I want return on 10th year, then I will start looking again at the 8th year until 12th year and decide to

1) stop the periodically invesment if needed
2) sell if needed
3) keep and set a new year for return

there is only 1 key factor to your strategy, unit trust load is 5-6% and stock investment is less than 1%. Why 4-5% more for something that should give you peace of mind and yet you do not enjoy it ?

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Added on April 15, 2008, 10:02 pmswitching among "CATEGORY" of funds is ok, ie. I switched all my equity funds to bond funds before CNY, and I am quite happy about that because I escape the recent months down turn ... now I have enough bullets to decide my next course of action ...

This post has been edited by mtsen: Apr 15 2008, 10:02 PM

To minimise the occurence of cuttting losses, try to avoid buying into newly launched funds. You should instead invest in a UT fund with at least 3-5 years track record. Then at least you can check on the unit price movements, dividends declared, stock holdings etc and also whether the fund is keeping to their stated objective. For example, if the fund's objective is to invest into dividend yielding stocks, then you must check that they don't invest into stocks that doesn't have a history of paying dividends.

A safer investment strategy is to pick a low/medium risk fund as your core investment. About 60% of your money should be in your core. The balance could be invested into higher risk funds, which will provide the upside potential. Once you decide on the ratio, you should re-balance your investments semi annually according to the set ratio.

Using DCA for the higher risk funds is advisable.

if we look into the case of asian financial crisis when KLCI dropped from ~1000 points to 200+ points, will you still hold on to your investment (whether it's your core or higher risk investment)?

if you hold on to buy and hold concept, you might still be in the loss after 10 years. that's why i think we still should have the max loss % threshold for unit trust investment for both core portfolio and higher risk funds, for cash preservation purpose. imagine how much $ you have saved if you have sold off all your UT when KLCI dropped to 850 - 900 points (assuming 10 - 15% max loss threshold).

Thus you switch to a lower risk funds like what I suggested - money market or bond. You do not sell or in the terms of UT, repurchase the units as you'll be losing money instantly.
Or you switch to another fund that is not dependent on "Stock Index". There's other equity funds that might not be affected by drops on stock market index as they invested in industry not affected by the downtrend.

So when you "hold" in unit trust, in a way you "switch" but you do not sell. That's unit trust; and be prepared to "hold" the fund for I would say at least 3 years.

Whether switch (buy/sell)... the winner is commission fees owner

In a way yes...
But I think in PM, whenever you switch to money market or bonds and within money market or bonds; there's no switching fees. Whereas the switching fees is RM25 per switch if you come back into equity or switch between equity funds but I believe no longer they are charged the initial 6.5% service fees.
Do not know about others though because I only have PM's funds.

jutamind, I do not know how well versed you are with unit trust, but the basic should be known by everybody investing in unit trust.
Unit trust is NOT stocks, thus cutting loss strategy is not very affective.
As mentioned before, once you purchase a fund, you instantly made a loss of 5% - 6.5%, so if you sell when market is unfavorable, you make greater loss.

During times of uncertainty though, we could always try to take the opportunity to average down our cost. This move will not only average down our cost, but if the fund rebounds in the future, you will increase your margin. Isn't this strategy better than cutting 'loss'? Remember, you don't lose if you don't sell

i think most of you misunderstood what i meant...what i wrote here is switching OR selling strategy. of course i agree with all of you that UT is for long term and we should average down during short term correction. as far as i know not all funds can be switched, there are some funds out there that the only way to exit is to sell off...

the discussion point is that are you willing to hold on to your UT investment even if the total value has dropped 15%? what if it keeps on dropping until 20%, 25%, 30% or even more? key question: when do you switch your funds (or even sell the funds if there's no option to sell)? any trigger point?

good thread! Please Sifu all give advise~

just my mind thought...
if funds are purchased based on risk profile, purchased at the right market valuation, portfolio are constructed based on the right risk profiles and invested with investable monies, then no trigger points to sell as UT has always been long terms.
found this on the web.
The Stock Market Is In A Correction. What Should We Do?
What history tells us about market crashes

As the very first incarnation of our local stock market only appeared in 1973, there’s a shortage of solid historical data as compared to the stock market of say, the United States. So, let’s take our cues from the Western economic giant.

My American colleague Morgan Housel once did a nifty piece of work by studying the frequency of stock market crashes in the country going back to 1928. Here’s what he found:
Magnitude of market crash and Historical frequency
10% Every 11 months
15% Every two years
20% Every four years
30% Every decade
40% Every few decades
50% 2-3 times per century
Over the past 85 years in the USA, its stock market has fallen by 10% from a recent high every 11 months – that’s more than once a year. When looked at through the lens of history, a market correction suddenly seems mundane and boring.
“One of the most common questions financial TV hosts ask their guests is whether they expect a pullback or a crash to hit the market. It’s an odd question, akin to asking whether they expect summer to occur. Of course summer will occur, and of course stocks will pull back.”

That’s snarky. But it’s true. And here’s the kicker: Despite the S&P 500 displaying ostensibly large amounts of volatility in the past 85 years, it has climbed by 10,000% to where it is today since the start of 1928.


http://www.fool.sg/2013/12/13/the-stock-ma...t-should-we-do/

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