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Navigating your portfolio through volatile times
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You are now reading:
Navigating your portfolio through volatile times
Market volatility is a way of life in investing. There is any number of events that can trigger turbulence in markets, from major political elections to unexpected central bank decisions. Many of these occurrences might even blindside markets completely — think of the rapid onset of COVID-19 that caused markets to whipsaw violently in early 2020.
The point is, market turbulence is unavoidable. What you can control, however, is the way you manage risk in your portfolio so that it can withstand bouts of volatility in the future.
Everyone has a different risk appetite when it comes to investing, and this may evolve over time. For example, a new addition to the family or the decision to pursue further education are factors that could change your risk tolerance over the years.
It is important to understand that there is no cookie-cutter solution to what a resilient portfolio may look like at any given time.
But there are several common threads to what makes a portfolio resilient, including the ability to balance risk with potential returns and to benefit from a spectrum of future outcomes while still limiting downside.
In short, a resilient portfolio would have the right asset allocation to perform well across a range of plausible scenarios. The question is — how do you accomplish that?
Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
- Warren Buffett | Renowned investor
The ability to manage risk is paramount to building a resilient portfolio.
While that is easy to say, not all investors follow this approach. For instance, it might be tempting for one to approach investing first and foremost from the perspective of capturing opportunities that are glistening on the horizon. However, UOB’s Risk-First Approach champions assessing risk from the outset and taking the appropriate amount of risk in one’s wealth journey.
The first step of this approach is to safeguard one’s current financial assets. Knowing that the wealth you have accumulated is protected then gives you the peace of mind to build your assets and ensure you have sustainable income for your long-term financial goals. Only after you have addressed these steps should you look to enhance your assets with tactical strategies to capture market opportunities as they arise.
Ultimately, when your financial risks are well-managed, you will be in a better position to achieve your wealth goals sustainably.
As you may know, diversification has always been key to investing. Diversifying your portfolio across asset classes, sectors, geographies and even investment strategies helps to optimise risk-adjusted returns in different scenarios. The idea is to harvest a broad set of returns, whereby if some of your investments perform sub-optimally, for instance during a pandemic, others may still bring profit.
In the long run, it helps to keep the downturns of your portfolio relatively contained regardless of the current state of affairs that might affect some industries significantly.
During volatile times, having a future-focused mentality can also help you build a portfolio that will survive different scenarios. It may take years of experience to have such foresight, but the power of technology can now empower you to make the right investment decisions.
For example, UOB’s Portfolio Advisory Tools (PAT) draws on more than a decade of historical market data to simulate the expected performance of an investment portfolio against various economic scenarios. The tools can then recommend appropriate portfolio allocations across investments of different risk levels to help you take the suitable amount of risk in working towards your financial goals. Whether it is to monitor and track your portfolio or get real-time product solutions, these tools are designed to help investors navigate portfolios through all manner of market turbulence.
In conclusion, while you may not always be able to predict when volatility will occur, you can take steps to steady your portfolio so that see-sawing markets will not be as startling.
What is SimpleInvest?
A new investment platform via the UOB TMRW app. Individuals can choose from three solutions that best suit their risk levels and goals:
1. Liquidity
• Consists of high-quality bonds, government securities and bank deposits
• For investors seeking to minimise risk while still getting higher returns over deposit interest rates
2. Income
• Consists of fixed income, equity and multi-asset funds that provide income and moderate long-term capital growth
• For investors seeking regular income from a globally diversified portfolio
3. Growth
• Consists of globally diversified equity funds that are actively managed
• For investors seeking to maximise the potential of growing their capital
The information herein is given on a general basis without obligation and is strictly for informational purposes only. It is not intended as an offer, recommendation, solicitation, or advice to purchase or sell any investment product, securities or instruments. Nothing herein shall be construed as accounting, legal, regulatory, tax, financial or other advice. You should consult your own professional advisors about issues mentioned herein that may be of interest to you as the information contained herein does not have regard to any specific investment objectives, financial situation and/or particular needs of any specific person. The information contained in this publication, including any data, projections and underlying assumptions, are based on certain assumptions, management forecasts and analysis of known information and reflects prevailing conditions as of the date of the article, all of which are subject to change at any time without notice. United Overseas Bank Limited, its subsidiaries, affiliates, directors, officers and employees make no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accepts no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this publication. This publication shall not be reproduced, re-distributed, duplicated, copied, or incorporated into derivative works, in whole or in part, by any person for whatever purpose without the prior written consent of United Overseas Bank Limited. Any unauthorised use is strictly prohibited.
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