KUCHING: Local investors must diversify their investment portfolios to maximise returns and mitigate risks to ensure a smoother ride in the current uncertain economic environment.

Certified financial planner Nicholas Ong said it is advantageous to have a mix of investments in one’s portfolio as it will create a favourable equilibrium between long-term high returns and short-term liquidity.

“What diversification actually means is that you have a balanced portfolio, which in one case you would not want to put too much into liquid assets like fixed deposits that you forgo the opportunities of having your money working hard for you,” he said.

“On the other hand, you do not want to be too focused on medium and long-term investments and do not have available cash in hand. When you do need money, you are forced to sell, and this will definitely reduce your long-term returns or even incur losses.

“So, should one of these investments ever be in trouble, you will have others to counteract such setbacks,” added Ong.

On how to diversify one’s investments, Ong stated that investment assets can generally be allocated into four key areas – property, equity-based unit trusts/shares, fixed deposits/fixed income instruments and ‘thrills’.

“The biggest percentage, between 20 and 40 per cent or higher, should go into property and real estate as these segments are the most viable investment over the long-term.

“Following suit would be on equity-based unit trusts/shares and fixed deposits or income instruments, of around at least 25 per cent and 10 per cent, respectively.

“The least would be indulgence in thrills, or in the local context, ‘skim cepat kaya’. Certainly some of the schemes are valid, such as legalised gambling, but only allocate five per cent for this type of investment,” he advised.

For more investment-savvy investors, Ong suggested looking at opportunities overseas.

“To diversify your portfolio within Malaysia is already a very good measure by itself. But for those who are more savvy and with more means, it would be even better to diversify your portfolio outside of Malaysia legally, as you can leverage against foreign exchange fluctuations,” he said.

On the public’s understanding of managing investments, Ong said most local investors still have backward mindsets and remain apprehensive about getting proper consultation.

“It is important to have the right person to talk to when it comes to managing one’s investment, especially on diversification. It should be tailored to each individual’s requirements, age and tolerance for risk.

“Local investors should not be afraid to seek consultation from certified financial planners or investment advisors as these people have the proper knowledge. In turn, the more you know, the better you will manage your wealth.

“Most importantly, you must take note that a good advisor should not be pushing investment products and be well-versed in most instruments” he explained.

Nevertheless, Ong believes that things have been slowly picking up over the last decade.

He added that average salary earners can take several steps to manage their financial affairs more effectively.

“Allocate a percentage, say five per cent, of your income into a unit trust every month. Make it the first priority before you settle other expenses such as car loans and bills. Many people have this backwards and as a result, they end up with no savings by the end of the month.

“After a while, raise the percentage to 10 per cent or more. Over the long run, you will slowly achieve total financial independence,” he said.