Vijay Valecha, Special to Gulf News
Dubai: Maximizing returns on investments has always been the pinnacle for every investor in every segment of society. However, most investors do not realise that maximising returns without even analysing the risk associated with those returns, is the black hole of finance.
Every investor should always consider the risks associated with the returns before deciding to invest. There are certain asset classes that yield lower but fixed returns, such as low yielding bonds and fixed deposits while other investments have a much higher risk-reward ratio. Then there is real estate, which yields a higher return at a supposedly lower risk, but with a much longer investment horizon.
Investments are not dependent on just the risk-reward profiles; rather, it has more to do with an individual’s age, risk appetite, dispensable income and personal responsibilities. Below are a few tips investors can keep in mind in order to minimise risks and maximise returns.
1. Long term investments
Investors should opt for a long-term investing strategy rather than look for short term unrealistic gains. In the current market scenario, where equities are at arguably the biggest bull run of all time, there is no reason to miss out on entering the equities markets, locally and internationally, to gain handsome returns.
2. Invest in precious metals
Investors should look at the global geopolitical situations and as the currency wars seem to be ending, the next bull cycle will be of precious metals like gold, silver, platinum and palladium, which has already begun and could last for the next three to four years. Gold could see a high of 1500 over the next 2 years. Therefore, it may make sense to invest in these as they also provide diversification benefits reducing the overall risk.
3. Own a mixed portfolio
In the equities markets, it is evident that technology is the single biggest sector to invest in. It would be ideal to have a mixed portfolio between emerging markets and developed markets in equities. In the last five years, Facebook and Amazon have given about 650% and 300% returns. This trend could continue over the next two years and the Nasdaq 100 could see a high of 7500. Emerging markets like Hong Kong and India could outperform with a CAGR of 14-15%.
4. Focus on crypto currencies
Crypto currencies to be part of technology, which could shift the paradigm of traditional forex trading. Investing in crypto currencies with a lower lesser allocation and a longer-term approach may provide good returns.
5. Avoid real estate and developed markets bonds
Real estate as such is a sector we would want to avoid, as it has become a crowded and low yielding space. With the expectations of higher interest rates, investors should also avoid developed markets bonds and bond funds for the next couple of years.
6. Support start-up funds
HNI investors should be looking to starting or supporting start-up funds especially in this region, as it is the highest yielding asset class in recent times.
In conclusion, an ideal portfolio mix for an investor to minimise risk and maximise returns would include getting into emerging market bonds, developed market equities and a mix of precious metals along with a very small percentage in crypto currencies as leap of faith.
— Vijay Valecha, Chief Market Analyst, Century Financial Brokers LLC, UAE
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