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SCMP Reporter

THE Hong Kong stock market's march to record highs has been matched by a rush of investors attempting to stake a claim in local gains.

   Record amounts of cash have been flooding into mainland stock markets and Hong Kong authorised unit trusts.

   Investment experts claim many investors are making the classic mistake of rushing into a market as it pushes to a peak and is at its most expensive.

   Warren Buffet, a Wall Street guru often described as the world's greatest investor, cautions investors about hunting with the pack.

   Mr Buffet, one of the richest men in the United States, said: 'Most people get interested in stocks when everyone else is. The time to get interested is when no one else is.'  But his advice begs the question in many investors' minds as to how to pick the right time - and in what.

   The problem is that conditions are constantly changing with interest rates and shares incessantly rising and falling.

 The answer is to aim for a balance between risk and reward and to spread assets across different types of investments.

   Developing a regular savings habit can overcome one of the major problems confronting an equity investor - timing the market. Even the territory's top fund managers would confess to the difficulty of calling the market correctly some of the time.

   About 14 of the territory's authorised unit trust companies offer low-cost, simple, savings schemes aimed at encouraging investment.

   These enable an investor to choose a fund and start purchasing units on a regular basis, typically once a month.

   By setting up a direct debit with a bank, the money can be automatically deducted enabling the investor to 'set-and-forget' their plans.

   The advantage of saving regularly is that it diminishes the impact of market peaks and troughs.

   The principle - known as dollar-cost averaging - means that market lows can be to an investor's advantage.

   Regular savings instalments buy more units during lows, averaging down the cost of investments so that the potential gains are higher when the market picks up.

   The frequency and degree of fluctuation will determine how effective it will be and it could work against an investor if the market was to rise quickly and then fall.

   But experts reckon that regular savings will help an investor capture the long-term growth opportunities by spreading investments across a cycle.

   Investment prospects - rather than minor differences in costs - should be the governing criteria of an investor's choice.

   The charging structure for most unit trusts is transparent with an annual fee of between 5 per cent and 6 per cent and annual charges of between 1.5 per cent and 2 per cent.

   Some houses, such as Manulife Funds Direct, have lifted their front-end fees. For others, the charging system has been complicated by the addition of performance fees and exit charges.

   Investors are advised to closely read the small print product particulars before making a decision.

  But, over the medium term, a fund performing well with reasonably higher charges should offer better returns than a poorly managed counterpart with lower charges.

   Investors are advised to shop around for the scheme that best suits their finances.

   For example, Jardine Fleming Unit Trusts allows investors to make contributions starting from $1,000 a month with no initial lump sum for its recently launched Greater China Trust, while HSBC Asset Management requires a $5,000 lump sum with monthly top-ups of $800.



Aim for balance in risk and reward