Investment 101 for Dummies

[Androider]

Hi All,

I have been in Thailand for a while and I think it is time to invest my spare cash (approx USD 3000 in my saving account plus another USD 1300 comes in every month). I was just wondering what other foreigners here do with their spare cash.

Can anyone please shed some light on how and what to invest my money? I am 27 so I am wiling to take the risk.

I have gone through various posts in this forum so I see the following investments are common:

• LTFs - Yes, I have bought some LTFs to get the tax refunds;
• Real estate - Yes, I do want it for nesting (not for investment) but I have not got enough money for it anyway.
• Stocks - (i) I have a busy job so I can not read the market updates everyday plus (ii) I have to follow my professional rules pursuant to which I have to report every time I buy or sell a share - too much hassle so it is not my first priority.
• Bonds - I understand how the bonds work legally but not commercially. Can anyone point me to the right books or websites to start with (i.e. on how to buy, what to buy, why should I buy, when to buy, etc.)?
• Investment vehicles - I was recommended to open an account with Gilt Edge to buy into various derivatives and funds. Does anyone have an account with them? what is your experience. The pros (as they informed me) are (i) the account will be in BVI/Cayman so I will not have to pay any taxes on the income and (ii) there will be an account manager who advises me on my investments (I talked to the guy and it seemed he is a very experienced investor). The cons are (i) the deposits which I make in the first two years will not be returned in 20 years and (ii) I have to transfer the money to an account in BVI/Cayman every month (in which God knows what will happen if they decide to close the company and run away with the money). Several sale "managers" from other similar investment vehicles have been in contact and offered similar services. They all told me that this is very common and a lot of foreigners use them.
• Others - please feel free to let me know if there is any other investment channels available.

Many many thanks to all.

[thrilled]

Some people invest in Thai stocks.Some people invest in bars and restaurants in Thailand .I think A risky choice.

I belong to an investment site schwab.I mostly invest in mutual funds that pay 3-6 % dividend yields.Um maybe just go on the net

And read and learn.

[isawasnake]

From what you have said, I would just put money in on a monthly basis into Thai mutual funds. This is easy, and you probably aren't going to do better given your limited time. Start off like that for a while, and from there you can wet your beak a little as other options will become more clear, and perhaps more attractive as well.

Edited April 17, 2014 by isawasnake

[DogNo1]

I'd like to suggest take you limit your investment in any particular fund /stock/bond etc to between 3-5% of your total portfolio. Any investment can go sideways when you least expect it. MSFT, INTC and Cisco were considered safe back in the middle to late 90s and some of us were too concentrated in them and lost a bundle!

[Androider]

Many thanks guys. Agree that I should concentrate on the mutual funds for now and explore other options later.

I have also found this very interesting topic which was well addressed by Fletchsmile and other guys (many thanks to them). Repost it here in case other people are here also looking for investment advice.

http://www.thaivisa.com/forum/topic/710306-investment-funds/page-2?hl=%20bond%20%20investment

[SheungWan]

I'd like to suggest take you limit your investment in any particular fund /stock/bond etc to between 3-5% of your total portfolio. Any investment can go sideways when you least expect it. MSFT, INTC and Cisco were considered safe back in the middle to late 90s and some of us were too concentrated in them and lost a bundle!

$4300 is hardly enough to build a portfolio as 5% = $21.50.

[Naam]

I'd like to suggest take you limit your investment in any particular fund /stock/bond etc to between 3-5% of your total portfolio. Any investment can go sideways when you least expect it. MSFT, INTC and Cisco were considered safe back in the middle to late 90s and some of us were too concentrated in them and lost a bundle!

$4300 is hardly enough to build a portfolio as 5% = $21.50.

a journey of 10,000 miles starts with the first step

[ezzra]

I'd like to suggest take you limit your investment in any particular fund /stock/bond etc to between 3-5% of your total portfolio. Any investment can go sideways when you least expect it. MSFT, INTC and Cisco were considered safe back in the middle to late 90s and some of us were too concentrated in them and lost a bundle!

$4300 is hardly enough to build a portfolio as 5% = $21.50.

a journey of 10,000 miles starts with the first step

Yes it dose, if you're the emperor Napoleon, who definitely had more than $ 3,000 in his saving account..

[AyG]

I was recommended to open an account with Gilt Edge to buy into various derivatives and funds.

Don't touch this with a barge pole! The only people who'll get rich are Gilt Edge and any financial intermediary.

The account manager isn't there to act in your best interests. He's a salesman trying to maximise his commission.

Given the relatively small amount you have to invest, you should invest in investments which give you a broad exposure to a range of bonds and/or equities.

There are three ways to do this: (1) open ended funds (unit trusts/mutual funds/OEICS), (2) close ended funds (investment trusts), (3) exchange traded funds (ETFs).

With options (1) and (2) you get a fund manager controlling the selection of investments. With (3) the fund just follows an index, so you get "average" performance. (But then most fund managers fail to be the index after fees are taken into account.)

With funds (options (1) and (2)) you have to spend time choosing the right funds. Effectively, you need to select the best manager(s) for each type of fund. After that, you only need to spend a little time monitoring the investments to make sure that the manager continues to perform well.

With ETFs there's even less checking to do - but you do need to make some checks.

Personally I use ETFs for bond investments since with bonds it's particularly difficult for a fund manager to outperform an index without taking on significant extra risk. I mostly use unit trusts and investment trusts for my equity exposure.

All these investments can be held offshore, tax free*. With a broker such as TD International (based in Luxembourg) you can buy all three types of investment online from a single account. (TD International are not the cheapest, but they're good for a novice. I recently opened an account with a similar operation in Singapore to save costs and find their web trading application daunting.)

* Tax free doesn't really mean completely tax free. For example, tax will be deducted at source from USA-sourced dividend income and can't be reclaimed.

[Androider]

I'd like to suggest take you limit your investment in any particular fund /stock/bond etc to between 3-5% of your total portfolio. Any investment can go sideways when you least expect it. MSFT, INTC and Cisco were considered safe back in the middle to late 90s and some of us were too concentrated in them and lost a bundle!

$4300 is hardly enough to build a portfolio as 5% = $21.50.

a journey of 10,000 miles starts with the first step

Yes it dose, if you're the emperor Napoleon, who definitely had more than $ 3,000 in his saving account.. width=32 alt=coffee1.gif>

I knew people would laugh because I want to start investing with only $3,000 in my saving account. Well, I have $1,300 comes in every month so I should have around $13,400 plus my annual bonus by the end of the year. I am young and just started working so I don't have much but I believe I should start as soon as possible. I don't think I can be Napoleon but I rather investing my money than doing nothing.

[55Jay]

I knew people would laugh because I want to start investing with only $3,000 in my saving account. Well, I have $1,300 comes in every month so I should have around $13,400 plus my annual bonus by the end of the year. I am young and just started working so I don't have much but I believe I should start as soon as possible. I don't think I can be Napoleon but I rather investing my money than doing nothing.

Excellent attitude.

[SheungWan]

A suggestion: each time your savings reaches $5000 invest in a single stock until you have 5 stocks. Confine yourself to blue-chip stocks paying minimum 4% dividends. Reinvest the dividends towards achieving the next $5000 target. Once you are investing each quarter broaden the portfolio to maybe 10 stocks. Any variation on this will be OK, but if you do then there is a requirement that you learn something about the companies you are investing in. Stay away from 'hot tips'.

Edited April 18, 2014 by SheungWan

[isawasnake]

$4300 is hardly enough to build a portfolio as 5% = $21.50.

a journey of 10,000 miles starts with the first step

Yes it dose, if you're the emperor Napoleon, who definitely had more than $ 3,000 in his saving account.. width=32 alt=coffee1.gif>

I knew people would laugh because I want to start investing with only $3,000 in my saving account. Well, I have $1,300 comes in every month so I should have around $13,400 plus my annual bonus by the end of the year. I am young and just started working so I don't have much but I believe I should start as soon as possible. I don't think I can be Napoleon but I rather investing my money than doing nothing.

People who think like you are the ones who get to do whatever they want when they are say 40, and other people ask them "where do you get your money if you are not working".

[rootshell]

I try to invest in Thai stocks (not only). Have some experience as a value investor. I formed a modest portfolio of Thai stocks and property funds in the end of October 2013. Market was bad. So, now I just broke even. I expect great dividends (5.5-6% annually) soon. My goal now is just to learn myself Asian stock markets investment opportunities. Then I'm going to acquire more and more assets.

Edited April 18, 2014 by rootshell

[DogNo1]

Given that your initial portfolio will be around $13,500, I suggest that you could start by investing around $1,200 in each holding and then increasing your number of holdings until you get 15-20. After that, you could increase your investment in each holding until it gets to 3-5% of your total portfolio. It's best to diversify and spread risk early on. If you were to buy just five stocks to begin with and lose out on just one, you would have lost more than 20% of the money you invested. It appears to be rare for investors to factor in investing mistakes and large losses but you will make mistakes and have losses, possibly very large ones. A good strategy is to keep your risk on each position small. I can't count the number of times I've confidently taken large positions (usually after having done well on a couple) only to take a large loss. Overconfidence and lack of caution can kill your portfolio resulting in an overall loss during your investing career. Everyone thinks that he can overcome losses but very few can. During my investing career, I've seen everything turn bad at some time - stocks, index funds, ETFs, commodities, bonds, mutual funds, closed-end funds, REIts - you name it. Besides choosing good investments, the secret to successful investing is diversification and limiting risk and it's best to start out practicing it even if your positions ARE small to begin with. Good luck!

[DogNo1]

Here's an interesting question : If you invested in a stock which then lost 50% of its value, how many percent would it have to increase in value for you to break even? How many stocks do you know of that have done that?

[Thailand J]

Why not be a "lazy investor", set up a "lazy portfolio".

I have faith in US economy. I have a Vanguard account with a "lazy portfolio" consists of a few US ETF's: low fees, diversified, and easy to move money in and out online.

You can read all about "lazy fortfolios" online. For example:

http://mutualfunds.about.com/od/managingyourportfolio/a/How-To-Build-The-Best-Lazy-Portfolio.htm

Edited April 18, 2014 by Thailand J

[AyG]

Why not be a "lazy investor", set up a "lazy portfolio".

I have faith in US economy. I have a Vanguard account with a "lazy portfolio" consists of a few US ETF's: low fees, diversified, and easy to move money in and out online.

You can read all about "lazy fortfolios" online. For example:

http://mutualfunds.about.com/od/managingyourportfolio/a/How-To-Build-The-Best-Lazy-Portfolio.htm

I can't but think that, as stated, this is staggeringly bad advice. Looking at the "One of the best lazy portfolios examples" in the link, it recommends investing as:

40% Vanguard Total Stock Market Index Fund

30% Vanguard Total International Stock Index Fund

30% Vanguard Total Bond Market Index Fund

If you look up the mean annual return over 10 years for each of these funds (source: Google Finance) the figures are 0.74%. 0.71% and 0.36% respectively. In other words, such a portfolio wouldn't even keep up with inflation in the US, and you'd actually be losing money in real terms, so I'm not sure why the poster has "faith in the US economy". To me it's a decadent, morally bankrupt economy that's heading the same way as ancient Rome, run for the benefit of a privileged elite, not for the people.

There are also serious risks associated with the bond part of the portfolio which invests only in US bonds, despite the "total bond market" moniker. (1) US interest rates are currently artificially low as a result of the moronic "Quantitative Easing" policy. Once US interest rates start to return to where they should be bond values will fall - almost certainly quite dramatically. (2) For someone living in Thailand(as is the OP), there's an enormous exchange rate risk. A 30% loss on exchange rate in 12 months wouldn't be a black swan event.

The OP would actually do better putting the money in a fixed deposit account or two in Thailand than invest in the "best lazy portfolio" as suggested.

I'm not against simple portfolios investing in a few ETFs, but these need to reflect that investor's circumstances. In the case of the OP they need to take into account that he/she is living in Thailand, is affected by the way the Thai economy performs, and (presumably) has the majority of his/her expenditure in Baht.

[Thailand J]

A fixed deposit to me is the THE staggeringly bad advice.

Here are examples of 10 , 5, 3 and 1-year returns of some lazy portfolios:

http://www.marketwatch.com/lazyportfolio.

The positive 10-year returns shows that the "lazy investors" had recovered from the 2008-2009 market collapse.

Exchange rate will always fluctuate, to suggest that Thai bath is a better currency then USD is very hard to agree.

Edited April 19, 2014 by Thailand J

[AyG]

A fixed deposit to me is the THE staggeringly bad advice.

Here are examples of 10 , 5, 3 and 1-year returns of some lazy portfolios:

http://www.marketwatch.com/lazyportfolio.

The positive 10-year returns shows that the "lazy investors" had recovered from the 2008-2009 market collapse.

Exchange rate will always fluctuate, to suggest that Thai bath is a better currency then USD is very hard to agree.

I wasn't recommending a fixed deposit. I was simply pointing out how staggeringly bad the "best lazy portfolio" was - even worse than a Thai fixed deposit. Mean returns of less than 1% per year over a 10 year periods are pathetic.

The "examples" linked to are highly selective, chosen to promote a philosophy - they are not typical. Yes, some portfolios following the framework will do well (and be highlighted by those so inclined), but others will perform poorly. That's what's called "luck".

It's not a question of which currency is "better". If one's expenditure is in Baht, then it makes sense to ensure one's exposure is primarily to that currency so there is less exchange rate risk.

[AyG]

Here are examples of 10 , 5, 3 and 1-year returns of some lazy portfolios:

http://www.marketwatch.com/lazyportfolio.

The positive 10-year returns shows that the "lazy investors" had recovered from the 2008-2009 market collapse.

And just had a closer look at the figures in the link. S&P 500 annualised return (shown in the link for comparison) over 1, 3, 5 & 10 years: 22.7%, 14.7%, 19.0%, 7.30% respectively.

Not one of the "lazy investor" portfolios beat any of these returns over any period; every single one performed worse.

I'm not recommending it, but buying an S&P 500 ETF would have been better than buying any of the highlighted "lazy portfolio" strategies over any of the periods mentioned.

Edited April 19, 2014 by AyG

[DogNo1]

So the "lazy investors" recovered from 2008. Did they recover from 2000? Have they made any money at all? I manage my portfolio of income securities, selling some and buying others when the soundness of the investment changes. I subscribe to security investment advisory newsletters. I make about 5% per year on my holdings. It's good to monitor your portfolio and sell an investment when it turns bad rather than waiting for it to recover. You can put the proceeds of the sale to work in a better holding. Otherwise, it's "dead" money. Take a look at a chart of MSFT. Where is its price now compared to where it was in 1999? Did the people who held on make any money?

[Isaco54]

To build a good portfolio today it's kind of hard due to uncertainties in the market, given that your savings are assocaited with THB there will be depreciation, today's sport market is kind of fragile, stocks, mutual funds, commodities extra are unpredictable, since you can't afford to lose the little you have , I would recommend you to invest in a simple business social networking business, where you can make from 1650- 3375 Usd per month and it's a win win investment.

[Thailand J]

Hello AyG,

The "lazy fortfolio" idea was not a strategy to beat S&P500, some of the EFT's are bond you should have seen that...and yet while S&P 500 returned 7.3% in last 10 years, the examples returned 5.7% to 7.21%. I will take that anytime.

A lazy fortfolio is not a scheme to pick the winning horse. It offers diversification with minimum maintenace.

Edited April 19, 2014 by Thailand J

[AyG]

To build a good portfolio today it's kind of hard due to uncertainties in the market, given that your savings are assocaited with THB there will be depreciation, today's sport market is kind of fragile, stocks, mutual funds, commodities extra are unpredictable, since you can't afford to lose the little you have , I would recommend you to invest in a simple business social networking business, where you can make from 1650- 3375 Usd per month and it's a win win investment.

OK, I'll bite. Can you explain this in simple terms, please?

(1) Why is it harder today than before? Haven't markets always had uncertainties? What has changed?

(2) Why do you say "given that your savings are assocaited (sic) with THB there will be depreciation"? (Not even sure what this means.)

(3) What is "a simple business social networking business"? (Google doesn't help me here.)

(4) "you can make from 1650- 3375 Usd per month". Sounds great. Can I make this much even if I only have 1 Baht to invest?

[AyG]

Hello AyG,

The lazy fortfolio was not set up to beat S&P500, some of the EFT's are bond you should have seen that.

..and yet while S&P 500 returned 7.3% in 10 years, the examples returned 5.7% to 7.21%. I will take that anytime.

I really don't understand why you think that any of these "lazy portfolios" is worth investing in when every single one of them underperformed the S&P 500 over every single one of the periods quoted. (And that's ignoring any bias in the selection of the portfolios reported.)

You quote the 10 year performance. What about the 1 year performance? S&P 500 22.7%, but "Yale U's Unconventional" 5.7%.

And then there's the 3 year performance. S&P 500 16.7%. Fundadvice Ultimate Buy & Hold 5.7%.

And over 5 years, S&P 500 19.0% and Fundadvice Ultimate Buy & Hold (again) 9.8%.

Not only are these portfolios totally inappropriate for someone based in Thailand, they're totally inappropriate for anyone living in the US of A when a simple S&P 500 ETF can beat them over any meaningful time period.

[Thailand J]

NOt all of us aim at picking the winning horse to beat S&P 500, but if u have a good way to do that please tell me.

[Thailand J]

people with nothing to advice usually are the ones to tell you how wrong you are.

[seasia]

Here's an interesting question : If you invested in a stock which then lost 50% of its value, how many percent would it have to increase in value for you to break even? How many stocks do you know of that have done that?

I`ll bite, just for fun, answer to first question is 100 %.

An interesting point you raise, it can be difficult to recover from such a dramatic fall but I know of a few.

CTR ( LSE listed in the insurance sector ) was 240 in 2010 dropped to 120 in 2011 regained 240 in late 2013/early 2014 and closed last Thursday at 255 mid.

It paid dividends along the way.

There`s a few others similar, including TCG, from 200 + to sub 20 then back to 100 +, WIN from 200+ to 40 or so then back to over 120 ( figures approx, I used to trade & follow them but haven`t done for a long time )

With some research, avoiding a 50 % drop in an investment should be possible but of course there are always risks.

As to the OP , kudos for aiming to start early, good to see, whatever route you choose to follow, start slow and learn more along the way.

The best person to manage your investments will be yourself, that of course takes time and research.

GL

[PCA]

To build a good portfolio today it's kind of hard due to uncertainties in the market, given that your savings are assocaited with THB there will be depreciation, today's sport market is kind of fragile, stocks, mutual funds, commodities extra are unpredictable, since you can't afford to lose the little you have , I would recommend you to invest in a simple business social networking business, where you can make from 1650- 3375 Usd per month and it's a win win investment.

yes we all love you and see you in the rest room.