I READ with interest the article, 'Ex-banker likes chalking up good debt' (The Sunday Times, Nov 4). Mr Dennis Ng was quoted as saying: 'To achieve financial independence by age 40, I'll need at least a million to provide a monthly income of $5,000, based on a 6 per cent annual yield.'

I am approaching retirement and have been thinking about how one can achieve an annual return of 6 per cent when fixed deposits - which are relatively risk-free - are giving only an average of 2 per cent.

While I could invest in unit trusts or shares, I also know the risks involved. In fact, I have lost something like 80 per cent of my capital on technology unit trusts - something a retiree cannot afford to do. So where do I go from here?

WHEN investing, it is always important to first focus on your goals and objectives.

While the 6 per cent annual yield cited in the article was aimed at providing an example of the return needed to accumulate $1 million by retirement, this rate of return and amount may not apply to you.

It is important that you evaluate, with the help of an investment professional, your risk tolerance and your personal objectives to arrive at the rate of return needed based on your requirements and financial situation.

It is true that unit trusts and shares are generally riskier than fixed deposits, but given the current rate of inflation in Singapore, using a pure fixed deposit savings strategy, while safe, is very unlikely to get most of us to where we need to be financially.

It is also true that a person nearing retirement should take on less risk than, say, a single professional in his 30s. This should also be reflected in the asset allocation of a retiree's portfolio.

Most people who have lost money in unit trusts or shares did so because of a combination of reasons:

A lack of timely information;

A lack of understanding about what the investor is investing in and how to invest;

A lack of a clear investment strategy developed around clear objectives and risk profiling; and

The lack of a disciplined review with an adviser to keep investments in line with the person's strategy and objectives.
While your return objective is perhaps 6 per cent, your risk profile is very conservative. Products such as fixed deposits, while safe, yield a very low return. It is possible to develop a welldiversified portfolio that curtails your downside risk while achieving your desired rate of return of 6 per cent.

This can be done by following a well-diversified investment strategy. It is also important that you regularly review your strategy and rebalance your portfolio to your original asset mix to ensure optimal returns and management of risk.

This strategy can tap various products such as unit trusts, as the key issue is not the instruments but the assets they represent. For example, instead of investing in technology only, which resulted in an 80 per cent loss due to the overly focused nature of the investment, you can now diversify among fixed income, equity, property and alternative asset classes to reduce your risk and enhance long-term returns.

These principles, when combined into a concerted strategy, offer lower risk but can still meet your return objectives.

The logic behind this approach is that these major asset classes react to market events and each other differently at different points in time when combined in a portfolio. While some assets may struggle over certain periods due to their cyclical nature, others may not. This results in an overall curtailment of risk while maximising returns.

We strongly recommend you evaluate your own investment objectives with a professional. You should also look into your risk profile and time horizon. Then a professional will be able to help you develop a strategy that meets your objectives while minimising the risk of losing your capital.

As an example, if your profile is moderate to moderately conservative, we would recommend that, in general terms, 50 to 60 per cent of the portfolio be invested in global fixed income securities, which are low-risk, and the rest in a well-diversified basket of global equities.

This is a general example and more careful evaluation is needed. This portfolio would be able to yield 6 per cent a year based on the historical and expected performance of the asset mix.

The risk attached to this portfolio would obviously be lower than that attached to the technology fund you invested in, and your capital would be better protected against market events such as those that led to your losses before.