Even for the most seasoned investors, good guidance can mean the world when it comes to growing your personal wealth.
Our Chief Investment Officer, Lena Teoh, shares her golden rules and insights, from curating a portfolio, to asset classes that continue to capture her attention and why it’s crucial to get out of your comfort zone.
With over 25 years of experience in the asset management industry, Lena Teoh is no stranger to putting together a sound investment portfolio. As Chief Investment Officer at Prudential, she leverages her private banking experience servicing high-net-worth (HNW) clients and their investments to support the Opus by Prudential proposition and its suite of legacy planning and wealth management solutions for this group of customers. Here, she addresses some of the most frequently asked questions when it comes to wealth management through investment.
My two guiding principles are diversification and discipline. They are the very basis of investing. Firstly, it’s important to be diversified in your investments and not put all your eggs in one basket. Once you build up a sustainable strategy of asset allocation that’s diversified, it’s essential to complement it with discipline by setting an investment time frame, because there is nothing in this world that doesn’t go through price volatility.
Volatility is part and parcel of the investment process, and the longer you invest, the longer you are able to tolerate the price fluctuation to get to your objective.
Have the discipline to not veer off guard and steer continuously back to your objective, or to stop, review and admit when it’s time to cut losses and move on to another investment. I think this is very important for anybody managing money.
Something I’ve observed is that HNW clients, especially those in the ultra-HNW space, tend to stay in their comfort zone – their industry or sector of expertise – and would typically invest in stocks and bonds of companies in the same sector. Consequently, their investments tend to be highly concentrated and correlated to their business, industry or sector. This goes back to the importance of diversification: if the sector they’re operating and invested in is struggling and going through a downturn, their personal wealth would suffer as well. A significant part of my time servicing such UHNW clients was providing strategic asset allocation advice. As part of the process, we had to do thorough correlation studies across the asset classes and even sectors to ensure that the financial assets generated from a tycoon’s businesses or operating assets would be well-diversified.
I think real estate continues to be one of the most resilient assets, since it’s an illiquid asset class that can generate a very long-term return. Ultimately, real estate is a real asset — it’s physical and tangible. Whilst there are always peaks and troughs in the property cycle, a good asset in a good location should provide stable returns in the long run. Real estate will inevitably age, but you can always upgrade and enhance it to generate better rental income as well as appreciation in value. I also believe in equities. Equities have always been interesting to me because they are long duration investments with dividend yield. How much people are willing to pay for the stock reflects the company’s industry, profitability and capital efficiency by way of return on capital. A company is also alive and breathing because it’s made up of people, right? And the management always adjusts to new entrants, barriers and competition in the marketplace, which is always changing. This is where equities as an asset class has potential for higher pay outs if the company achieves higher profitability and return on equity.
Long-term for me is beyond 10, perhaps up to 20 years. I typically allocate about 60% equities, 20% alternatives — private equity, private debt and real estate — and 20% fixed income securities, mainly credits. For instance, when creating a trust for children that will be executed when their child has grown to their early 20s there is a very long runway for investments. For a much longer horizon like 30 years, and going into philanthropy or foundations for charities, a higher percentage of equities and alternatives with lower bonds would be appropriate.
It’s always good to have in place a trust-in-perpetuity and have a foundation structure where there’s a proper governance in terms of assessing the purpose of the trust and how you want to endow to your charity of choice. It’s also important to make sure things such as taxation set-up are ideal.
For clients who want to carry out philanthropy, our Opus by Prudential proposition offers a whole range of value-added services and partners in this field; and we are more than happy to provide this support for clients with this need.