Buy Stocks Now .. if You Can Hold on for 3 Years
Asian stock markets chalked up impressive gains over the last six months but the journey has been one rollercoaster ride marked by much volatility.
Trading will continue to be choppy as the economic picture remains unclear for now, but they create buying opportunties for investors, according to Vasu Menon, vice president of group wealth management at OCBC Bank.
"Asian markets had a good run, valuations perhaps look a little rich, but if you take a three-to-five year view, I am fairly confident that markets will end on a higher note over that period and investors can make decent returns," said Menon on CNBC Asia's Protect Your Wealth.
To play the market, Menon recommended splitting one's investments into two portions -- one tactical, the other strategic. The tactical part requires investors to have a disciplined approach to trading, to watch for opportunities in a selloff and to take profits and cut losses quickly.
The strategic portion or the "systematic investment plan" calls for investors to strengthen one's portfolio over time and to hold on to those purchases for several years .
"For instance, if you have $120,000 to invest, spread them over the next 12 months and buy gradually into the markets. There will be bouts of selloff. Use those opportunities to build your portfolio. Once you are fully invested after 12 months, ride it out over the next two to three years," he explained.
Menon expects annual returns of 10 to 15 percent from such a plan, as the global economic outlook is improving but the recovery will be gradual.
"Given that kind of backdrop, returns will also moderate," Menon said. "Some Asian markets have offered returns of 70-80 percent from the lows in March. Investors have to be realistic. Those returns are not achievable going forward."
Depending on one's threshold for risk, Menon suggested placing about one-third of the portfolio for tactical play, and between 60 to 70 percent into the systematic investment plan.
Catch "Protect Your Wealth" on CNBC's Asia Pacific network every Tuesday on "CNBC's Cash Flow," Wednesday on "Asia Squawk Box" and Thursday on "Capital Connection."