Articles & Tips

Changing the way we view Investing


I have been in financial sector for over a decade and a half, started as academics for half a decade and spent most of the last decade in capital markets and investment management industry. During these times, I have often been confronted with individuals asking for stock or type of funds tips, whether a particular stock or a series of bond or type of funds is an attractive investment. The issue here is, even before determining whether a financial instrument is a suitable investment, individual investors must first work out their own inherent risk profile to determine the suitable portfolio fund model. In short, by going straight to stock tips or attractiveness of a particular financial instrument, these individual investors started from the wrong point.

What are your criteria?

Imagine if you arrive at a new city and you come across an individual and your first question is should I buy a property in area XYZ? The person is likely to reply to you “it depends …” It depends on whether you want a house or an apartment, on whether you are going to build or buy a completed property, on whether you want a high-end, mid-end or low-end area, on whether you prefer to have a good school nearby, on whether you work around the area…the list goes on. This is equivalent to working out your risk profile. In the case where you decide to build a house, you will get an architect to draw a blueprint before you engage a contractor. This is equivalent to building a portfolio model based on your risk profile for your investments.

Asking someone about the attractiveness of a particular financial instrument without first evaluating your own risk profile and building your portfolio model is like going to a new city, neglecting all the factors above that you need to first determine, putting a down payment on a property directly and engaging a contractor to build a house on top of it, even without a blue print. Very soon, you may find your property is located on the wrong side of town from where you work and completely disconnected from commuter lines – while you were planning on using public transport. Since you built the house without a blueprint, you may also find upon completion, the house has a bathroom inside the garage. The worst part is, when realizing all these issues you have blown your entire budget and thus are left with no room for replacing the property, or even renovating it.

Getting the right fit

Surely, the example above may sound a tad too extreme. However, in my experience, there are many individuals who find themselves with some funds to invest and they simply got overly excited and went straight out the door with a list of potential instruments. Please keep in mind; we are not talking about a shopping list for your next pair of trendy sport shoes but rather investments for your future. Most people, when they want to start investing, first look outward, seeking financial products that they can jump into, when they should first be looking inward, on their own conditions and targets to determine their risk profile and build their portfolio model. Once you have the model in place, then you start selecting the financial instruments in accordance to the category within your portfolio model.

Now, what does all that mean at the end? Before you start investing, sit back and map out your own conditions. How old are you? Are you married or single? Do you have children? How old are they? How many dependents do you have? Have you owned your own property and is it paid off or still in mortgage? Do you have passive income? How is your compensation structure in your income? Do you have plans for any big purchases in the near term? Do you have protections such as insurance and so on? The list goes on.

Portfolios with higher concentrations on equity or equity fund, due to the higher risks associated with the equity market, are likely to be more suitable for younger investors than someone who is already around the retirement age. In contrast, a majority holding in income-generating investments, such as rented property, income mutual funds and bank deposits are likely to be more suitable for those that are nearing retirement age. Individuals with a higher probability of incurring major spending within the next two years may need to keep a larger cash portion or more liquid investments with lower volatility in their portfolio.

Even the more suitable method of setting aside excess cash flow for investment may differ across individuals. Those that have a higher fixed salary may find it more suitable to participate in monthly installment plan for their investments. However, for individuals with less stable income, namely those with a higher component of their income from annual bonuses and sales commissions are likely to find it unsuitable to commit to monthly installment plan. These individuals may need to be more disciplined and set aside a portion of their income for investments upon receiving a cash windfall. Accordingly, these individuals may be more suited to investments with lower inherent volatility as there is a higher risk for them to have a sudden need to cash out their investments for living costs upon any period of low income.


Therefore, at the end, there is no one investment model that suits everyone. Each individual is unique, with their own needs and unique conditions. Thus, when an individual starts to invest, rather than jumping straight in to hunt for suitable investments, it is best for the person to first evaluate his or her own needs and conditions.

Then, subsequently, in accordance to identified needs and risk profile, as well as investment objectives, he or she should build a suitable portfolio model before embarking to search for suitable investment to fill in each of the slots within the constructed portfolio model. To get through the whole process, it is best for those that are new to investment to seek advice of professionals which may either be investment consultants of their banks or professional financial planners. But be sure to find professionals that help you to reach your financial goals, and don’t just try to sell you products.


Important Information:

The views and opinions contained herein are those of Teddy Oetomo, Head of Intermediary, and may not necessarily represent views expressed or reflected by PT Schroder Investment Management Indonesia (“Schroders Indonesia”) view. For professional investors and advisers only. This document is not suitable for retail clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders Indonesia does not warrant its completeness or accuracy. This does not exclude or restrict any duty or liability that Schroders Indonesia has to its customers under Indonesian laws and regulations.” PT Schroder Investment Management Indonesia (PTSIMI) had received an investment manager license from, and is supervised by the Indonesian Financial Services Authority (OJK).