A PERSONAL INVESTMENT STRATEGY CAN BE THE PERFECT WAY TO MAKE YOUR MONEY WORK FOR YOU. CHRIS HOLM LOOKS AT THE OPTIONS AND POTENTIAL TRAPS FOR THE UNINITIATED

Opic and Tania are working professionals in their late 20s who have recently married. Having saved what Opic calls a “modest” sum of money from their jobs over the past decade, they are now thinking seriously about saving for a house.

Currently, the pair are putting their savings into a joint account, yet Opic says he and Tania realize they can get a better return on their money elsewhere. He admits they have only recently started to consider their options. So where to next? For new players like Opic and Tania, the first advice from most investment professionals is along the mantra of “know thyself”.

“Before people put their money anywhere, we get them to take a hard look at their financial situation,” says Aidil Akbar Madjid, a personal investment strategist. “It all comes down to a basic idea – we want you to know your risk profile. Then you will know where to put your money.”

Edwin Sinaga, a stock market analyst and director of PT Finan Corpindo, puts it like this: “If you are a risk taker, have long-term goals, spare money, and are willing to lose as big as you’re willing to gain, then investing in stocks is appropriate for you. But if you prefer safety and don’t mind only small gains, something much safer, like a time deposit, should be your main investment.”

The oldest rule in the investor book is spreading your risk, or not putting all your eggs in one basket. Our analysts agree that for first-time investors, managed funds – where your money is spread over a series of investments, from government bonds and time deposits to riskier ones like shares – are often the best option. The downside is that you pay around two percent a year to someone to manage your money. For the inexperienced, this option allows you time to understand the market, says Aidil, “at which point many people become less risk-averse”.

If you want to play safe, the best path is still money in the bank. Even if the worst was to happen, and a series of banks were to collapse, as they did in 1998, the government still guarantees all deposits up to two billion rupiah. This means, generally, your funds will still be there in all but the worst catastrophes. Time deposits and government bonds are both government guaranteed and thus also safer, but pay better interest than your normal savings account. But there are some disadvantages. First, there is the expected lower rate of return than the market or other investments. Inflation is also expected to rise this year as prices rise and the economy improves, which may erase some of the gains you would make.

If you want higher returns and only slightly more risk, there is always the most precious of metals. The price of gold has risen steadily over the past years, but has increased by almost 70 percent in the past two, especially when people began to pull their money out of share markets. Even with market interest coming back, Citibank currently forecasts that average world gold prices will stand 11 percent higher in 2010 than they were in 2009. Gold’s big advantage is that, unlike investments in property or art, you can pull your money out quickly when you need it, says Aidit. Despite this, gold doesn’t always go up – it often drops in value when share markets become more popular.

American writer Mark Twain once advised that land is always a good investment, “because God isn’t making it anymore”. While he had a point, Twain lived before the era of land reclamation and highrise apartments. While there’s no-one creating much land in Indonesia, people are building upwards, especially in Jakarta, the center of the country’s property market. According to Aidil, sections of the city’s market such as high-end apartments are in danger of being oversupplied. Some are in a bit of a slump at the moment, with prices likely to go down or stay stagnant for as long as a year before they go back up. If you want to buy a winner, he suggests cheap government-subsidized apartments going for around 20 million rupiah each, where there is still plenty of demand. These can be turned into rentals. Houses in good areas in Jakarta are undoubtedly going up in value. “But there’s still a disconnect between what the sellers want and what people can afford to or will pay,” says Aidil. Otherwise, you could look further afield to tourist resorts like Bali, where the value of land is likely to rise.

If you are going to take the plunge into the share market, now might not be such a bad time. The Jakarta Composite Index had a heady ride in 2009, after plummeting with other markets when the global crisis hit. As of mid-November, it was the fourth-best performer in the Asian region, having recovered more than 70 percent. For 2010, both Edwin and Citibank expect the market to continue its rebound as the economy improves, gaining another 25 to 30 percent, and proving less volatile than in 2009. They suggest sticking with blue chip stocks, like telecommunications, health care and consumer goods, along with energy and mining stocks, as all are expected to go up in 2010. New market players should focus on a maximum of five stocks, learn as much about them as they can, and be committed for two to three years if they want to realize a good result, says Edwin.

Understanding your risk profile means also understanding others’ profiles. Wherever you put your money, be sure you have a licensed investor with a registered investment, policed by stock market regulator Bapepam-LK or the central bank. Lists of licensed investors can be found on Bapepam or Bank Indonesia’s websites. Otherwise you will have no recourse if things go wrong. Easy warning signs of dodgy investments include high rates of return offered, especially on “complex” investment products. “Guaranteed” returns on investment products involving shares or other inherently risky portfolios are also a dead giveaway. Also, avoid companies peddling so-called “discretionary funds”, because these products are not guaranteed by Bappepam’s rules on managed funds. Concludes Aidil, “If it looks too good to be true, it probably is.”

Chris Holm is the business editor of the Jakarta Globe newspaper. Extra reporting by Ardian Wibisono