Had a few conversations with my clients who took up investment this year and all of them had the same complain: why their returns either just broke even or had even slight losses? I did some computation and this is what I found:

I computed the return of the MSCI AC World Free Net in SGD terms. In this computation I calculated the return as at 23 Nov 2007 if an hypothetical investor would to invest at the various points at the end of the month.

How to read the above table? For example, in the row “2006 Dec” it means that if an investor would to invest at the end of Dec 2006, his return from that point to 23 Nov 2007 would be 3.27% in absolute percentage before fees but after tax. It can be seen that all investors would be experiencing flat or negative returns. After fee, it is expected everybody should be facing negative returns!

Are there any other assets that will do better? I checked that the best CPFIS-OA approved bond fund one year performance is from Legg Mason Global Bond Trust which returned a mere 3.8% (as at 24 Nov 2007) !

What should investor do? I personally do nothing but just buy more. However, a great majority of my clients have panic and order a deviation of the original plan. Some of their risk appetite has also suddenly become more conservative and thus I have no choice but to reduce the volatility of the portfolio either through increase in bonds or addition of non-correlated non-equity assets. Only a very small minority has no problems with the existing volatility and remains relatively happy about it.

What do I think of these? Only those minority who are not emotionally attached to the volatility will truly experience high return over a long-term basis. The rest I would say probably will only inflation proof their assets on a long run basis.