This article first appeared in Personal Wealth, The Edge Malaysia Weekly on June 11, 2018 - June 17, 2018

You have invested in a wealth management product and are feeling pretty satisfied. But did you ever pause to ask why this particular one? Clue: Saying someone told you it was a “good investment” is the wrong answer.

There never really is such a thing as a “good investment”, only investments that suit your needs and appetite. That is why successful football clubs do not invest singularly in a bunch of young people. They hire people well into their sixties and seventies as well (in different roles that ultimately form the total game plan).

When you make an investment, bear in mind the three broad categories for investing — growth investing, income investing and balance investing.

Using equities as an example, growth investing tends to pique the most interest as it aims to produce potentially higher returns (than its two supposedly poorer siblings) by selecting companies whose earnings are growing swiftly to achieve capital appreciation. Bear in mind that growth companies tend to use all of their earnings to expand their businesses and, for the most part, do not distribute dividends to shareholders.

Technology stocks, for instance, are possible candidates for growth portfolios. Growth stocks are optimal for long-term investors as those generally nearing or in retirement may not be capable of withstanding the higher volatility of these stocks.

Meanwhile, income investing is the dissimilar sibling who tends to shy away from shiny growing stocks and towards more mature companies that are generating high cash flow. These stocks generally include utilities, real estate investment trusts, healthcare companies and consumer staples.

Think Nestlé and other companies that are more attractive to investors in search of a steady stream of income. These companies are sometimes called “defensive” or “non-cyclical” due to their lower correlation to the market as they tend to offer merchandise that consumers need even during economic recessions.

For example, consumers will always need food, electricity and medicine, whether in a recession or otherwise. Apart from stocks, income investing may additionally invest in the government and high-quality corporate debt space to provide another route to safer interest streams.

Thus, the audience for this investing style should consist of less aggressive investors or investors close to retirement who have less time to withstand market volatilities.

Finally, the balanced style of investing assimilates the ingredients of its growth and income siblings. The objective is to provide a balanced mix of safety, income and capital appreciation, which will consist of a portfolio of riskier and safer assets (or mixed asset as it is sometimes called). A typically balanced style will have substantial weightings of both equity and fixed income, with the preference to rebalance according to market conditions.

Common to any consideration when it comes to the three siblings is the importance of risk and time horizons when investing. If you have been a bit careless in your approach, it is never too late to make adjustments. Investing is never about dumping your hard-earned cash into anything stamped with the title “investment”.

It is necessary to maximise the efficacy of your investments within the ambits of your risk appetite and ability to withhold current consumption. And do time yourself (not the market). Focus on the goals you want to achieve with your savings, such as retirement, financial security, education and property, to properly drive your investment strategy.

Following the 14th general election (GE14), investors are understandably nervous as the nation’s newly elected government works to calm financial markets as adjustments take place. Over the extended holiday after GE14, market participants raised concerns about the promises made by the new government.

Two of the well-documented ones are the abolishment of the Goods and Services Tax and the review of mega infrastructure projects. The equity market is expected to adjust to these new uncertainties.

These events should not sidetrack investing activities as the long-term consensus outlook is positive, on the back of proposed institutional reforms and improved governance and accountability. Income portfolios, on the other hand, are likely sitting on unexpected capital gains as the policy direction of the government is to increase consumer purchasing power and disposable income.

So, coming back to our earlier question, do you know why you selected that particular investment product? And was this indeed the type of investment suitable for you given your age and financial goals?

I hope you appreciate by now the need to focus on goal-based investing in the long run. Take a total wealth approach beyond profit and loss by taking into account your job type, age, location, family situation and other personal circumstances. Understand your total resources available as well as your potential limitations.

If you are nearing retirement, perhaps a heavier weightage towards income-style investing may be desirable. If time is on your side and the need for income is not imperative, you could consider leaning towards a growth strategy.

Think about it. There is a reason the younger guys are on the football field and the older ones are on the bench coaching. Both are equally important to the success of the team.

Michael Lai is vice-president of wealth management research at OCBC Bank (Malaysia) Bhd

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