Ways to Invest for the Good Life

Low interest rates prompt a new approach to investing

So, who is not wounded by the low deposit rates in Thailand? Whether you are a millionaire, a farmer, an office worker, a merchant, a factory worker or a college student, chances are you have been very unhappy with the interests received from your bank deposits.

Most of us have been accustomed to earning a double-digit rate for the past twenty years. Today, the current 2-4% rates, hardly cover, if at all, the monthly bills. This has created problems for us who know no other way of earning income aside from the bank deposits. Even worse, many of us still believe that the high deposit rates will return as the economy improves. In my opinion, that day will never come – not in the next five years.

So the question is how can we protect, if not create more of, our wealth in Thailand?

The answer is to learn and understand the different investment products besides bank deposits, and to mix them in the appropriate proportion to give the most optimal outcome. The latter part is very important, and referred to as “asset allocation” in the investment world.

In Thailand, there are limited investment products. You are probably aware of bank deposits, government bonds, corporate bonds, fixed income funds, equity funds and stocks. (Notice the order – they range from lowest to highest risk level.) However, the most important, depending on your investor type, is the mixture of products into an investment portfolio that will enhance your total return whilst minimizing risks. To illustrate, I would like to give you some examples of the following investor types:

Retirees

Your investment goals should be to preserve the principal and receive a stable stream of income. You can only achieve this by investing in lower-risk products like bank deposits, government bonds, high-grade corporate bonds and fixed income funds. Under the current market rates, I would recommend the following allocation:

Bank deposits: 15%
Government bonds: 25%
High-grade corporate bonds: 20%
Fixed income funds: 40%

Newly graduates

As you are at the start of your working career, you probably have limited funds to invest. However, you must

be planning about your being financially independent and, someday, a marriage. In this case, you can probably assume higher risks in pursuit of higher gains in the medium to long term. My recommended portfolio is then:

Bank deposits: 10%
Fixed income funds: 40%
Equity funds: 50%

And as you gain more experience with the stock market, you can possibly reduce the portion in the equity funds and go directly to the stock market yourself. Of course, this will enhance your potential gain and increase your risks.

Managers

While you are between 35 and 50 years old, your concerns should be how you can support your children’s education and how you can retire comfortably. Your risk profile should then be in the middle: you can assume some high risks for long-term performance but you also need current income. Your portfolio should then be:

Bank deposits: 10%
High-grade corporate bonds: 20%
Fixed income funds: 30%
Equity funds: 30%
Stocks: 10%

Please note that the above allocation percentages are just indicative and should be changed according to different market conditions. They should be “tailor-made” to suit your exact financial needs, goals, risk profile and other constraints. If possible, you should consult your financial adviser to decide on your most appropriate asset allocation.

To summarize, it is prudent for you as investors/depositors in Thailand to diversify your money into other investment products in order to protect your wealth from further deterioration. Long gone are the days when you only rely on interests from your bank deposits to support expenses. To ensure you will enjoy ‘the good life’, you must plan your asset allocation well.

Reprinted with modification from 'Money Matters', a weekly column written by Reungvit Nandhabiwat, former managing director of AYF, for the Bangkok Post.
August 16, 2000