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International investment expert shares tips at Penn State Fayette

Binay Chandgothia
11/1/2007 —
UNIONTOWN, PA – Diversification should be the No. 1 strategy for anyone involved in financial investing these days. So recommends Binay Chandgothia, chief investment officer at Des Moines, Iowa-based Principal Asset Management Co.’s Asia office in Hong Kong, who spoke to a public gathering, including business students, about “Emerging Trends in Global Asset Allocation” at Penn State Fayette, The Eberly Campus Thursday morning, Nov. 1. But, while that may seem obvious on its face, he was emphasizing the need for investment diversity from a global perspective—that is, consideration of investment in emerging countries such as China, India, Russia and Brazil as part of a total investment strategy.
    “Something that affects all of us is the need to save for retirement,” Chandgothia pointed out. “But, if you don’t save properly, your expenses will exceed your [investment] income.” Chandgothia said it may seem attractive to place all your investments into the best-performing asset class, but people should not take that risk of putting all eggs in one basket, even if it is the best performing one! Plus, there are many changes taking place in the financial marketplace all the time. The way to ride the changes and market fluctuations is to have a diversified portfolio, he said.
    As global economies change and emerging nations grow economically by leaps and bounds there are more options for the investor. And investment and financial planning companies must adapt to meet the needs of more financially-savvy customers who want a lot of choices. “Investment managers are moving away from being generalists to being specialists,” reported Chandgothia. And more competition and a greater need for firms to justify fees is driving a trend toward an “open architecture” model, where companies do more, offer more, and outsource or partner with other companies to provide what the customers want.
One scenario Chandgothia used to illustrate the degree to which an individual could be involved in his or her own investment planning was an individual who has existing asset allocations, but all in U.S. equities. That individual may decide they need to diversify their financial exposure, so he or she adds Asian equities to the portfolio. The passive, or “beta,” method of accomplishing that would be to invest in index tracking or ETFs. On the other hand, an “alpha” strategy is an active strategy where more exacting choices are made. “Beta has less cost than alpha, but carefully chosen alpha-managers have the potential to beat markets over time,” Chandgothia explained.
    Many things are causing changes in the global financial community, according to Chandgothia: the Internet, global repercussions of outsourcing, the supply and ownership of decreasing natural resources, and the expansion of companies around the world. And most of the movement in the financial economy, he said, is now in emerging markets. He offered as an example: Of the top 10 companies in the world by market capitalization, five are Chinese companies, with Petrochina now No. 2 to No. 1 Exxon Mobil. And, overall, he said, Brazil, Russia, India and China Indexes are up significantly over American and European Indexes in the last 5-10 years.
    Because people are living longer, they need to create longer cash streams for post- retirement period. This is, in part, driving investors to look at different asset classes than those favored traditionally. Chandgothia observed, “If you want growth you have to tolerate volatility,” but, he added, “The biggest mistake you can make is to put everything in the same basket. You must diversify.”
    And you need to give your investments time for returns to begin flowing. “Market timing is easier said than done,” Chandgothia said. “Investing isn’t just putting your foot on the pedal and going at top speed, sometimes you have to slow down or downshift.”
    And don’t worry if you don’t have a lot of money to invest. Chandgothia pointed out, “Drops make an ocean.” In other words, every penny counts. “If you don’t have a large pool of money to invest, you can either get ETFs or invest in mutual funds with an active strategy that will have better returns.”

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