It’s customary to give red envelopes during the Lunar New Year. Commonly called “hongbao” in Mandarin, “lai see” in Cantonese or “ang pow” in Singapore, these red envelopes containing “lucky money” are generally given out by married adults.

While the tradition is focused on children, they could also be given to the elderly, other relatives, friends or colleagues as tokens of good fortune and blessing.
 

Making your “lucky money” work harder

Some could spend their red envelope money on their favourite things, while others may save it or even donate it towards a worthy cause. 

This could be a chance for the younger ones to learn about money management. Saving for the future instead of spending it straight away could be a good start.

Or better still, one could make their “lucky money” work even harder by investing, and reinvesting the dividends earned over a long-term horizon¹. The power of compounding could greatly enhance potential returns, as the chart² shows.
 

Past performance is not indicative of current or future results. Provided for information only. This hypothetical example is for illustration only and does not represent any fund performance. Different investments have different volatile patterns.

In addition, time is on the side of the younger ones, and they could further optimise the power of compounding by considering different ways of investing.

The power of compounding in equity investing

There are different types of equities across regions and industry sectors. Based on their investment objectives and risk appetite, investors seeking capital growth opportunities may consider investing in fast-growing markets or sectors¹.

On the other hand, those seeking potential income opportunities may consider high-dividend paying equities¹. Still, within a specific equity sector, stock selection backed by rigorous research is key.
 

Our equity view:

Currently, our Multi-Asset Solutions (MAS) team keeps a preference for US stocks¹ but notes that they are waning a little at the margin. Still, should global economic data pick up stronger than our forecast, emerging market equities could likely be a beneficiary, alongside other more cyclical regions, such as Japan. (Read more: Make equities a partner in your multi-asset journey)
 

Expand income potential with flexible fixed income investing

Fixed income¹ could also play a role as it covers a diverse³ spectrum of bond sectors across geographies, offering a wide range of income sources. Some bond sectors also have lower correlation to equities and could help build portfolio resilience. (Read more: 1Q 2020 bonds: where we see opportunities)
 

Our fixed income view:

Within fixed income, our MAS team believes that current fundamentals remain supportive of high-yield (HY) bonds⁴, with sound corporate balance sheets and stable leverage. On the technical front, positive flows and below average net issuance also support HY bonds. Nonetheless, we are mindful of the increase in valuation and risks in a late cycle, and thus we have been investing selectively with a quality bias.

To manage the risk premium of HY bonds, asset-backed securities (ABS) ¹ and mortgage-backed securities (MBS) ¹ could be considered because they tend to have lower correlation to HY bonds, as well as equities. Unlike HY bonds, which are more closely tied to corporate balance sheets, ABS and MBS optimise the balance sheets of consumers because the underlying assets are mostly loans extended to individuals.

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Conclusion

As you welcome the Year of the Rat, it’s a good time to have a rethink about money management, and how to make the “lucky money” work harder to achieve your financial goals.

1. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
2. Source: FactSet, MSCI, J.P. Morgan Asset Management. *Reinvestment in cash based on the same month US three-month Treasury bill (secondary market) yield. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 31.12.2019.
3. Diversification does not guarantee investment return and does not eliminate the risk of loss.
4. High yield credit refers to corporate bonds which are given ratings below investment grade and are deemed to have a higher risk of default. For illustrative purposes only, exact allocation of portfolio depends on each individual’s circumstances and market conditions. Yield is not guaranteed. Positive yield does not imply positive return.


Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current and future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.