“Mirror Mirror on the wall…. Who's the fairest one of them all?” The answer may not be Snow White since beauty is in the eyes of the beholder! And when it comes to choosing Retirement Mutual Funds (RMF), the answer may not be that simple either. Not only are there nearly 30 funds in 5 categories from 17 asset management companies to choose from, not to mention all the tax implications and asset allocation strategies which could make or break your retirement dreams. Besides, in the real world, there are no magic mirrors to forecast what the future holds hence M&W has come up with a relatively simple guidelines to help you achieve your retirement goals via RMF. Admittedly, we are not magician ourselves but we hope you find what we have to say helpful.

Essentially, there are 3 simple rules when it comes to investing for retirement:

Rule #1: Invest for the long term. Since one can not redeem from RMF until the age of 55, the secret to successful investing is to invest early and invest often. The sooner you start putting away retirement savings in RMF the better and by law one has to put in at least Baht 5,000 every year into RMF accounts anyway. In this way you enjoy the dual benefits of compounding growth and by using Dollar Cost Averaging technique (Please see M&W 7 th issue) short term volatilities in the stock market will add extra boost to your portfolio.

Rule #2: Invest in Stocks. Historical evidences have proved that equity is the only asset class that will outperform every other asset classes such as bonds, cash and inflation in the long run. Therefore, if you have a relative long investment horizon of say 10 to 20 years, then your portfolio should be tilted towards equity and not bonds or cash. Although, there will be times when short term volatilities in the stock market will give you sleepless nights but our advice is to ride out the short term volatility and remain focused for the long run.

Rule #3: Avoid Market Timing. The biggest mistake that anyone (including professional fund managers) can make is to think that they are smarter than the market. Buy low, sell high. Get in when market tumbles and get out when everything is red hot. This strategy is easier said than done and can be out right dangerous because once fear and greed interfere with you decision making process, it often fails. It has been proven that 90% of portfolio returns are derived from asset allocation and not stocks picking or market timing.

Here are a few tips on how to construct your RMF portfolio depending on your investment horizon.

Those with 20 more years until retirement… have the luxury of time on your side. Therefore, it is advisable to put up to 90% of your portfolio in equity by splitting 50% in passively managed equity index funds and 40% in actively managed equity funds. The remaining 10% can go into a bond fund. This portfolio may be classified as high risk but with a 20 years time horizon, one can easily ride out the short term volatility and be handsomely rewarded with relatively high long term investment return.

Those with 10 more years until retirement… can still afford to take medium-term risk by putting 50% in equity (25% in index funds and 25% in normal equity funds). The remaining 25% can go into a flexible fund and the remaining 25% in a bond fund. (Please refer to M&W 5 th and 6 th issue for full explanation about index funds). This portfolio will not be as volatile as the first portfolio because equity exposure has been scaled back and flexible funds can alter their equity exposure depending on how the fund managers view the market. Moreover, 10 years is still a relatively long period of time where one can ride out short term volatility.

Those with only 5 years until retirement… should be more than 3/4 of the way towards their retirement goals, provided that they have invested wisely over the years. At this stage, equity exposure should be no more than 25% and 25% can go into flexible funds. The remaining 50% can be split equally between short-term and long-term bond funds, which should provide ample stability for the portfolio while maintaining long term growth rate.

Now that you have a fairly good idea on how to construct a portfolio, the next step is to pick the right funds into your portfolio. Here again there are no simple rules of thumb because most RMFs are relatively new with fairly short track record. However, one can more or less tell how the fund is likely to perform from who the fund manager is. Most of the 14 asset management companies have built up a fairly long track record and the way they manage their RMF should be in line with all their other funds. Listed below is a table of all the RMF that are currently available. They are divided into 5 main categories as follows:-

•  Equity Funds: High risk with high long term return. Suitable for long term (10-20 years) investment horizon.

• Flexible Funds: Medium to high risk with corresponding return. The fund manager can invest in both equity and bonds as he sees fit.

• General Fixed Income Funds: Medium risk/return profile. Suitable for medium (10 years) investment horizon.

•  Short Term Fixed Income Funds: Low risk alternative. Suitable for those with short (less than 5 years) term investment horizon.

•  Specific Fixed Income Funds: invest in specified securities such as government bonds. Medium risk/return profile.

All 5 categories have different risk profiles and it goes without saying that high risk funds will be more volatile but the return will be higher in the long run as well. The other points investor should carefully look at is the expense ratio and asset size. If the fund is too small (less than Baht 100 mm.) it is going to be very difficult to manage and most important of all fees and expenses should be in line with peer group. However, this does not mean that funds with low fees are better. Ultimately, it's long term performance that counts. One final word, you don't have to own too many funds; a portfolio comprising of 4-5 funds should be enough. The key is to get your asset allocation strategy right and pick funds with solid and consistent long term performance. If you need help, get in touch with your investment advisor/planner and do not forget to read your prospectuses. For full details of current RMF and LTF family of funds please refer to: RMF Funds and LTF Funds.