Time to let go of blind optimism in investment funds

22-Sep-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Many Korean retail investors from all walks of life have had blind optimism in investment funds, which they identify as one of the most stable yet profitable methods of investment.

The phenomenon has been more noticeable over the past few years as the economy remained sluggish amid the prolonged period of low interest rates here and abroad.

Few people wanted to place their money in bank accounts because of such low interest from deposits. They did not want to make stock investments, either, amid fears of losing money. In Korea, there is widespread prejudice on stock investment, and many consider it as a high-risk, high-return investment.

Taking into account these external factors, the middle-aged in particular turned their eyes to fund investments amid blind optimism that “professional” fund managers would take good care of their invested capital. Retail investors also trusted fund sellers ? such as major banks and well-known investment affiliates of the nation’s top-tier financial holding firms.

But people are losing their trust in funds more and more in the aftermath of a series of nationwide financial scandals surrounding the mis-selling of some troubled funds ? such as those managed by Lime Asset Management last year. The so-called Lime fiasco ended up incurring 1.6 trillion won in losses for investors.

Shinhan and Woori banks were two of the major sellers of the funds. As they are top-tier lenders here, customers did not seem concerned over how the fund products could guarantee high returns of 5 percent to 8 percent annually during a period of prolonged low interest rates.

Lime and the fund sellers are to blame for the latest scandal, as they did not provide proper information on the funds’ inherent risks to customers.

But customers should also keep in mind that no financial products in the world can completely “guarantee” high returns and stability.

If certain financial products underline stability and high returns, investors should be wary of them and maintain a suspicious attitude to avoid falling victim to another possible fund fiasco.

Many experts advise retail investors to learn the basic rules of investment and start making small investments in stable areas, rather than simply relying on some “experts” obsessed with selling more products to generate better sales outcomes. Unfortunately, the elderly are especially likely to be deceived by such “fake” fund products, as was shown from data. Those over the age of 60 made up almost half of the Lime victims.

In this regard, the recent stock market boom is a step in the right direction, as retail investors have started shifting their attention to the area and making investments “on their own” without resorting to experts.

The social mood on stock investments is also improving. More small investors are jumping on the bandwagon, and taking it off their long-standing “not-to-do” list.

“It is praiseworthy for individual investors to pay more attention to local stocks and invest in companies here, as this can help build a virtuous cycle for economic growth,” an economist said.

In some developed countries, stock investments are cited as a stable, most common form of investment, and Koreans should follow their footsteps over the longer term and end their obsession with the nationwide real estate investment boom, according to the expert.



Category: Korea

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