When the global financial crisis hit in 2008 and 2009, most investors who were invested before the crisis saw their portfolio lost value, some to the tune of 40-50 per cent losses. The confidence in the investment markets was badly shaken and I was no exception. I was alarmed at paper losses on most investments and there was no stopping the rout to the bottom.
We looked to opportunities to re-allocate investments from risky assets to safer assets and in some cases reduce the quantum investment amount in a particular asset. This was carried out gradually over the period since 2008.
One such action was to reduce the amount invested in currency-linked investment (CLI). This was a high-risk investment product and the volatile currency fluctuation impacts greatly the returns on this investment. We halved the investment amount since 2008/09 and is now in the process to reduce it further by 25 per cent.
Having currency-linked investment for us is to re-invest the interest income. Even with interest re-invested, the paper loss was not significantly reduced. We have decided to book this loss in our accounts and re-start with a fresh principal amount for currency-linked investment (at lower quantum).
While reviewing the cumulative income and capital gains/losses since 2008, the loss booked for CLI was adequately covered by the cumulative income and capital gains. On a portfolio basis, we did alright and there was no significant loss of capital on the current investments.
Investment in the future and achieving superior returns is getting more difficult. There are still uncertainties in the global economies. We have to be ever more careful and not to fall by another financial tsunami. Lessons learned must not be forgotten and we cannot throw caution into the wind in chasing returns. Preservation of capital is very important than investment income.
Copyright © 2011, limkimtong for Living Investment
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