THE world of Vuca (volatility, uncertainty, complexity and ambiguity) has witnessed a challenging investment environment.
Uncertainty is almost a norm and investors are warned of the risks their investment face, including the Turkey lira crisis, Brexit and the trade war between the United States and China.
These global events increase uncertainty and challenge the returns investors expect to earn.
In April, the International Monetary Fund cut the outlook of global growth from 3.5 per cent in January to 3.3 per cent, the lowest since the global recession in 2009.
The sluggish economy poses questions on how investors should respond in the world of Vuca.
One way to mitigate risks is by diversifying funds into asset classes.
Stocks represent riskier investments, while bonds, unit trusts or gold are relatively stable. Investors can invest in asset classes with zero or low correlation to reduce risks.
Individuals may defer their investment decisions, while companies may avoid real option effects, which make them more cautious in investment.
So what are the opportunities left for investors?
They can diversify their portfolios to reduce exposure to risks associated with a region.
Vuca is reshaping the investment environment, making it more difficult for investors to make decisions.
Lastly, investors should adopt an investment strategy that matches their financial goals.
By diversifying funds into assets and rebalancing investment portfolios based on threats to economy and financial markets, it is hoped that investors can generate higher returns or reduce the risks of suffering huge losses.
Tay Bee Hoong
Senior lecturer, Faculty of Business and Management, Universiti Teknologi Mara, Johor