By Philip Loh

AMID the backdrop of a beleaguered stock market and challenging economic conditions, it is even more imperative that you manage your wealth well. More often than not, our wallets are lighter than they should be because of unsound beliefs in how to amass and grow our wealth such as the following:

You cannot lose money with high grade bonds

With the stock market is facing more challenges today, investing in the safety of good grade bonds seems like an excellent idea. But nothing can be further from the truth. In fact, investing in long-duration bonds or 'long bonds' may be one of the greatest investment mistakes of the next decade.

This is because bonds are effectively IOUs issued by corporate bodies or governments to raise money. They pay a fixed rate of interest over a fixed term, say 10 years. But while the income may be fixed, the price is not. A bond holding bought one year ago, for instance, is likely to be worth a lot less now if interest rates start to surge. In fact, the longer the duration of the bond, the sharper will be the drop in its value when interest rates go up.

You can time the market

A client asked me recently whether it is true that many unit trust investors lose money. There is some truth in this but it is not entirely accurate.

Let us compare the following: The annualised return for the S&P 500 over the last 20 years, with dividend invested, is about 11 per cent a year. Meanwhile, the average investor of unit trusts, investing in S&P 500 companies, earns only 6 per cent a year during the same period. As for the average direct stock investor, he earns a meagre 3 per cent a year during that time.

The only plausible explanation for such great discrepancies is poor timing, which just goes to show that timing the market accurately is an almost impossible task. Most investors are in fact consistently worse off due to the poor timing of their investment.