ARTICLES
The Informed PRS Contributor
PRS contributors take the first step in managing their investment risks by making an informed decision in investing their contributions into an appropriate fund that will achieve the desired retirement objective. One should adhere to the old saying of “begin with the end in mind”, to establish the purpose for investment, which can then be translated into investment objectives.
This starting point of investing with a purpose is critical as it will drive subsequent decisions on risk taking, desired returns, investment tenure and ultimately the choice of funds and underlying assets to achieve the investment objectives. It is therefore imperative that PRS contributors spend time doing their “retirement homework” or due diligence in order to establish a proper and suitable plan for their retirement before making their decisions on investing their funds.
“Spend time doing “retirement homework” or due diligence”
The emotional bias involved in making investment decisions is often influenced by a “greed and fear” attitude, where market volatilities has a direct influence on individual’s perception of risks and returns opportunities. This has been well researched and documented in fields of behavioural finance, where emotional responses often play a significant part in the investment decision process.
To mitigate the influence of emotional responses to market movements, PRS contributors should consider the following when deciding on their investment:
- As in all long-term decision making, the starting point to commit long-term savings and investments should be taken based on a plan to accomplish the desired retirement funding outcome.
- PRS offers a choice of Providers and funds which serves to diversify investment risks, by not “putting all your eggs in one basket.”
- Regular monthly contributions mitigates market volatilities through “dollar cost averaging” your investments and reduces market entry and timing risks.
- The PRS savings for retirement assets are ideally suited for long term investing, to generate growth and/or income requirements.
- Rebalance the PRS funds when necessary, taking into account changes in life stage situations and fund performance expectations.
As the journey towards retirement is long-term, contributors should pay attention to monitoring the performance of their funds to ensure they achieve the desired risks and returns expectations. A key mistake that investors often make is that they “invest and forget and regret” at the end of their investment period. Ongoing annual monitoring and review is part of ensuring that the retirement plan is on track and that any performance deviation is flagged and attended to.
“Monitor your funds’ performances to achieve desired returns expectations ”
Aside from fund performance issues, conducting an annual review will also highlight any changes to the contributor’s personal situations which may necessitate changing the investment objectives or risk profile of the funds. PRS offers contributors the choice and flexibility to switch their fund if they underperform expectations and/or even transfer their funds to another Provider. This will ensure that the contributor’s retirement and investment objectives are aligned, not mismatched and ultimately realised.
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