Guru Speak

While bank deposits are fully guaranteed by the government, depositors hardly receive any returns. It is not surprising that they are eagerly looking for alternative investments.

Recent rallies in the stock markets around the world have caught the attention of depositors. In Thailand, trading volume shot up from the daily average of about Bt8 billion in March to Bt27 billion during the first three weeks of this month.

The SET Index has also leaped by 28.4 per cent since end-March.

The global stock market rallies reflect the belief that there is now light at the end of this global economic crisis tunnel. Economic indicators released in April and May were "less bad" than those from the previous two months, while the results from US bank stress tests lent more certainty to the magnitude of their capital requirements.

Stock investors do have sensitive foresight. The light at the end of tunnel attract¬ed their attention and led their money back into stock markets.

However, "less bad" news is not good news. Most economies will continue to shrink, but with less momentum than before.

They are also not expected to recover briskly after bottoming out around the end of this year.

Stock markets have been and will likely be very volatile and reactive to new economic information. Experienced investors may have selected a few stocks to buy and sell with a view to making shortterm gains.

Given the uncertain landscape, it is not surprising that investors cannot decide if they should return to stocks.

On one hand, they fear the possibility of investment losses if economies do not recover as expected.

On the other hand, they do not want to miss out on future stock market rallies.

Judging from all the "flight to safety" money waiting to return to stock markets, stock market activities could surge in a big way if and when "less bad" economic news becomes good news.

Should investors consider putting money in the stock market now? The answer may be "yes" if they have a proper investment strategy.

Uncertainties will make it very difficult, if not impossible, to time when to enter and exit the market. Many investors have been burnt by their market timing strategy.

If investors believe the stock market will recover but remain volatile over the next few years, a more appropriate strategy, especially for new investors, may be dollarcostaveraging.

This concept is not new, but has not proven popular among Thai investors. Dollarcostaveraging means investing a fixed sum of money on a regular basis.

This strategy will help average investment costs by buying more shares when their prices are low and fewer shares when their prices are high. Over time, investors will be able to enjoy a stock market rally with little worry about market timing.

There are some securities and asset management companies offering dollarcostaveraging investment options.

They sometimes go by the name of "wealthbuilding" or "automatic millionaire programme".

They simply debit your deposit account every month and invest in the stocks or mutual funds of your choice.

Besides dollarcostaveraging, investors may also find diversification fruitful. Again, this is a basic investment concept that might not be popular among investors who make trading decisions based on market news.

Diversification does not require deep pockets. Investors can simply buy into exchange traded funds or equity mutual funds, which are available in various themes.

Some of them also use derivatives to hedge against stock market volatility, resulting in a more stable return.

It may now be time for you to invest in stocks, but do so wisely. Do not forget to ask your securities or mutual funds companies if they can help you with diversification and dollarcostaveraging.