Do not let the Thailand’s tax regulation stop you from investing abroad

• A change to Thailand’s income tax regime has left many investors confused and concerned about investing abroad from Thailand

• The change necessitates investors report capital gains as part of their income taxes.  Capital gains for domestic investments remain exempt from taxation

• If your capital gains from abroad are taxed, at least you have a return in your hands.  Investment returns domestically have been dismal for more than a decade.  There are not many convincing arguments suggesting an inflection point is near

• Investors can still mitigate the impact from this change via certain exemptions.  The gift tax exemption is quite accommodative in this respect and allows up to Bt20 million (~US$560,000) to be transferred annually

Change to tax rule has left many uneasy

An update to Thailand’s income tax regime has left many investors confused and concerned about investing abroad from Thailand.  Following the change, Thai taxpayers are required to include any capital gains earned abroad in their income tax filing when funds are repatriated.

The update was made to an existing tax ruling that previously afforded investors with some latitude in tax avoidance.  The Thai Revenue Department announced the change last September, and is now effective beginning 2024.

Many investors are unsure how to navigate the new regime.  The impact will vary by individual depending on what income tax bracket the capital gains are added to.  Thailand applies progressive tax rates on income. 

Some wonder whether investing abroad is worth the effort given this new hurdle.  Investment profits earned from domestic assets are not subject to capital gains tax, and in theory is simpler to navigate.  The easier option is not always the best.

Do not close the door

Limiting your investment pool to domestic assets in Thailand is foolish and investment returns will most suffer as a result.

There is enough literature and public commentary disparaging Thai investments, particularly the local stock exchange.  Instead of repeating the same arguments, I will highlight some facts.

The Thailand Stock Exchange has returned 1.9% per annum for the past decade.

Thai equities have underperformed global equities by a huge amount.  In Thai Baht terms, global equities – as measured by the MSCI ACWI Index – returned above 7% annually.  Investing in United States equities would have produced more than a 2x total return in Thai Baht over this period.

Figure 1: Thailand has lagged global equities dramatically over the past 10 years

Source: Reuters.
Note: Returns shown in Thai Baht terms. Global equities represented by ACWI ETF and United States equities represented by Vanguard Total Stock Market Index (VTI).

If you have capital gains by investing abroad, at least you have made profit.  Many investors that have restricted themselves to Thailand have received no – or negative – returns.

There are many reasons why Thai market returns have been poor.  The largest companies on a market capitalization basis are energy companies and banks.  Combined, they represent 25% of companies on the Thailand Stock Exchange.  Energy companies are at the mercy of commodity cycles and see profitability go up and down.  Thai banks have seen their profitability deteriorate considerably over the past decade.

Figure 2: Banks represent 12.1% of the Thailand Stock Exchange

Source: Stock Exchange of Thailand.
Note: Data as of February 2024.

Figure 3: Thai banks return on equity have almost halved since 2014

Source: Company data.
Note: Data points represent aggregate of four largest Thai commercial banks.

Much of the decline in bank profitability is due to weak credit growth, over-aggressive lending to SMEs a decade ago and rising restructured loans.  Even the most optimistic sell-side brokers will have difficulty arguing that an inflection point will soon be seen.

Options to invest globally are aplenty

There are many ways to access offshore investing from Thailand, and investors can use this to their benefit.  This can be directly offshore or onshore via local financial institutions.

Retail investors can transfer money into investment accounts and/or assets offshore with a license issued by the Bank of Thailand.  The application process is electronic and provides an annual limit of US$5mn for outbound transfers.  Many are not aware of this.   

Investing in global assets domestically is also an option.  Foreign asset managers are not allowed to operate domestically and offer foreign investment products to Thai investors.  Retail investors are unable to directly purchase a Vanguard ETF, for example.

Foreign funds are available only via mutual funds that are ‘wrapped’ by Thai banks.  You can only invest in an S&P500 index fund by investing in a Thai bank mutual fund where the underlying holding is the index fund.  These are referred to as ‘Foreign Investment Funds (FIF)’.

This is not very efficient and often investors are penalized.  Often, Thai banks charge a management fee on top of what the underlying index fund charges.  Investors have caught on to this and now Thai banks have started to waive or charge nominal fees for these structures.  It is still egregious to charge retail investors for what is a glorified custodian fee.  Furthermore, a portion of the fund assets are kept in liquid assets to manage redemptions by local investors at the Thai fund level.  This is another drag on the net return you receive.

An alternative to the FIF structure is to purchase offshore assets via a Thai broker.  Many of them offer ‘Global’ trading accounts that are tied to a foreign low-cost broker such as Interactive Brokers.  Commissions are not as low as if you trade though the low-cost broker directly.  The Thai broker needs to make their cut.  This is a great option for investors that want to bypass the FIF products to access global investments.  Better yet, apply for a BOT license and open a global account directly offshore.

Ways to mitigate the impact of new tax ruling

There are several ways to mitigate the impact of the tax change and lower your liability.  I am not a tax expert and will not discuss them all in detail.  There is clear Thai and English information available at (link).

The method which looks tenable is the usage of the gift exemption.  The annual limit of US$5 million is conducive to managing sizeable amounts of repatriation, even for the ultra wealthy.

The additional work is worth it

Taking the extra effort to set up accounts and/or spend more time doing taxes is worth it if it means restricting yourself to domestic investments.

Decades ago, most investors did not have the luxury of accessing global investments.  There was no infrastructure that supported this and as a result, home-country bias is rampant.

Today, this is no longer the case. 

Mistakes that all investors make

• Make mistakes and improve your investing

• Mistakes are part and parcel of investing and trying to avoid them is futile.  The benefits in learning from mistakes are huge and the perils of ignoring them can be devastating

• Most common investing mistakes come from allowing emotions to dictate behavior.  Panic selling happens when investors develop tunnel vision because of fear

• One of the best ways to recognize and learn from mistakes is to write things down.  Doing so forces you to be more objective about decision making.  Your memory may become fuzzy but your words on paper will not fade away

• Course correcting is one of the biggest advantages that investors have.  If you identify and can stop making the same type of mistakes repeatedly, your chance of compounding successfully goes through the roof

Trying to be flawless

Being too careful and with the aim of preventing mistakes is counterproductive in investing.  Risk is part of investing.  Protecting yourself from adverse outcomes is futile and only leads to suboptimal results.

Investment decisions require judgment based on limited information today subject to numerous variables beyond your control tomorrow.  It is for this reason that success in investing is compared to baseball.  A 40% hit rate is exceptional.

I have encountered clients and investors that believe that bowling strikes can be achieved repeatedly if you are smart money.  Much disappointment awaits those that subscribe to this.

Depending on the type of investor you are and your strategy, the nature of errors will differ.  Once you recognize what the mistakes will look like, life becomes easier.

Investing in stocks require making judgment on businesses.  If you do this, the range of variables that have an impact on the future value of your investment is very wide.  Industry prospects, management capability and pricing power all matter.

An index fund investor making regular contributions to their retirement portfolio navigates a much more limited set of variables.

In general, the more complexity, the more room for mistakes.  Do not overlook this in portfolio construction.

Assuming the current environment will persist                            

In the middle of the crisis, it is difficult to look past doom and gloom.  Making decisions during these periods is a common investing error.

When financial markets rally, it can seem like the party will never end.  When markets crash, the alarm bells ring louder by the day.

Extreme conditions do warrant heighted attention.  This is true in investing and otherwise.  If there is a fire in the kitchen, next week’s meal plan quickly takes a backseat.

The danger is when this causes tunnel vision.  Investors panic and sell when markets fall heavily because they cannot see past the current predicament.  When people do this, they frequently sit out the eventual recovery in prices.  Their reason is always the same: the emotional turmoil was too much to bear, and concluding that “this is not for me”. This being risking my capital.

Many investing regrets have a similar pattern: making decisions in the heat of the moment against better judgment.  The consequences of such actions can be huge if it means permanently checking yourself out of investing.

If this phenomenon can be described as intense zooming in, the antidote is to do the opposite. Morgan Housel states that all past market crashes look like great opportunities and the next one looks to be a great risk.

The next time a crisis leads to sharp selling in the market, ask yourself the following question: is the reason why prices are falling now going to keep them low in 10 years?

The answer is often no. 

When the pandemic hit in early 2020, financial markets tumbled very quickly.  Uncertainty was heightened.  Nobody had lived through such a crisis before.  Fear and caution were warranted.

Zooming out means considering whether the destruction in market values of businesses caused by Covid-19 would remain 5-10 years later.  For businesses essential to the way we consume and transact?  Probably not very high.

Letting emotions run wild

Many investing mistakes come from letting emotions play an outsized role in decision making.  Controlling this will allow you to reap dividends immediately.  Check yourself before you wreck yourself.

Uncontrolled fear and greed put us in emotional states that obscure clear thinking.

At its worst, fear dulls appetite for risk and has a huge opportunity cost.

I was once advising a young client investing in retirement who could not bear to see the value of his savings fluctuate.  The fear of seeing temporary drops in account values due to market volatility was simply too much to bear.  Such situations are not uncommon.  For someone decades away from retirement, being conservative to this degree does a disservice.

Greed and rising markets can engender overconfidence in investors.  This frequently takes place and can cause investors to mistake luck for skill.

A healthy dose of fear and greed is necessary.  Successful investing requires you to not always conform to the masses.  Fear reminds you to not jump aboard speculative investment schemes.  Greed gives you the confidence required to purchase assets while everyone else is selling.

Uncertainty is the root of emotional triggers.  As the number of potential outcomes to a situation increases, our imagination plays out different scenarios that can unfold.

Being objective is the best way to combat this, and my favorite method is to write things down.  Since using an investment journal close to a decade ago, the clarity in my decision making went up greatly.

Before making an investment, pen down your thesis.  Coming back to this can help keep track of how accurate your previous assessments were.  It is possible that your investment turned out the way you hoped, and for entirely different reasons than what you thought. 

Having no information filter

Without being deliberate about what information you consume; it is easy to become unsettled and for your mental boat to rock.

All information is either from the source, or through a lens.  The latter comes with a narrative serving a purpose that might not align with yours.

Federal Reserve Board minutes are publicly available for all to read.  What the financial press has to say about the same meetings uses colorful adjectives designed to maximize eyeballs.

Do not blame the news outlets.  They are just doing their job.

The next time you see a headline claiming that stocks are sliding after a 2% decline, remember this: in 2023, the S&P500 had 12 consecutive 2% declines during a year where the index went up by 24%.

Figure 1: the S&P500 had more than 10 2% declines in 2023

Source: Reuters.

If you are a stock investor, reading through company filings and transcripts tells you much more than reading articles from the press.  The authors frequently take que from how share price has reacted to an event such as an earnings release in the ‘analysis’ they present.

Acceptance that media outlets are biased goes a long way in remaining grounded when the prose tries to stir emotion.  Better yet is to only use those that you think are reliable.  Best is to go to the source.

Always be prepared to change course

The world is in constant change, and it is perilous for investors to stand still.

Knowing what types of mistakes, you are exposed to and recognizing them allows you to course correct.  In any long-term pursuit, course correcting allows you to move to your destination in a more efficient manner.  This means cutting out the weeds in your investment portfolio by recognizing that your thesis was wrong.  Or staying put when markets fall, and the headlines make you feel jittery.

The benefits of adopting a life stage approach to financial planning

Different stages of life necessitate different needs and wants, which needs to be reflected in your financial planning.

Trade-offs are involved in how you manage your investments.  Younger individuals that have a longer investment horizon are more suited for volatility compared to people in retirement.

Seldom does coming up with a plan today work 10 or 20 years in the future.

Understanding this is crucial for a sound financial plan as you will need to periodically update and review it.

Your plan needs to be specific to your stage of life and also flexible enough to be changed once you cross milestones in your life.

We have outlined priorities that are most important for different stages of your financial life.

Young adults: build a foundation for the future

Setting yourself up for the long-term is paramount in the early stages of adulthood (20s and 30s).

Your number one priority is to establish and maintain an emergency fund to cover unexpected expenses and financial storms.  This is made possible once you save from your income.  3-6 months of your expenses is a decent start and can be adjusted for your circumstances.

The worst thing that can happen is if you need to liquidate some or all of your budding investment portfolio.

Even if you are not a high–income earner, take the time to put a plan together.

Another important thing to bear in mind is establishing good credit history.  Minimize debt balances and not falling behind on credit card payments will help you in the future if you need to apply for a mortgage.

Middle age: maximize retirement contributions

As you transition into middle age (40s and 50s), applying momentum towards your goals will pay off in the future.

Being disciplined financially will allow you to increase contributions to your retirement portfolio.

Thailand allows you to contribute towards retirement through tax saving funds.  While the performance is below par on most investments, the tax write-off is advantageous.  The money gained back can be used to contribute to your nest egg.

For those with growing families, children’s education and living cost are high in this stage as you aim to set them up for their future. Do not forget to prioritize yours.

Reviewing and updating your investment portfolio or insurance coverage to ensure proper protection for yourself and your family is also vital during this stage.

Pre-retirement: balancing your goals

For pre-retirees (50s and 60s), the focus intensifies on transitioning from accumulation to protection and income.  This means you may switch out from growth / aggressive investment products into more stable income paying investments.

This involves rebalancing your portfolio to ensure it aligns with your risk tolerance and remaining time horizon.

Estimating your retirement expenses and planning for benefits allows you to forecast your future financial needs and make informed decisions about your retirement income streams.

Retirement: when your hard work pays off

Finally, as you enter retirement (60s and beyond), managing your retirement savings to cover living expenses becomes the central focus.

Downsizing your home and reevaluating your healthcare needs can help optimize your budget.

Remaining active and engaged socially contributes significantly to your overall well-being during this phase.  Wealth is pointless without health.

However, the journey of financial planning is not linear.  Life throws curveballs, and unexpected events like marriage, divorce, illness, or job loss can significantly impact your financial landscape.

Therefore, flexibility and adaptability are key.  Regularly reviewing and updating your plan to reflect changes in your circumstances and goals ensures your financial roadmap remains relevant and effective.

Remember, it's never too early or too late to take control of your finances and chart a course towards financial security and prosperity.  Most importantly, do not compare yourself with others.

Having enough money to retire comfortably is the most important goal, this is where “It’s not about winning, it’s about finishing.”

Stocks you need to buy before the end of the year

Unfortunately, there are no stock pics in this article for you.

Instead, we are exploring whether holding stocks is appropriate for you. While investing in individual stocks can be an exciting adventure, it is not everyone’s cup of tea.  People often find out too late.

The advantages on offer are handsome returns and a chance to be part-owner in a company.  There are also numerous factors to consider before going all-in.

Make sure you can handle volatility

The inherent nature of stocks involves volatility, where values can soar to new heights one moment and plummet the next.  This can be due to reasons related to business performance (fundamentals), or external reasons such as changes in the macro environment and shifts in investor sentiment.

Even companies as large as Microsoft saw a 35% decline during 2022.

Great companies endure such swings and holding them can be rewarding.  However, if the thought of your asset moving up and down in value keeps you awake at night, individual stocks might not align with your risk tolerance.

Risk tolerance is a personal trait that varies from investor to investor. Some individuals thrive on the adrenaline of high-risk, high-reward scenarios, while others prefer a more stable and predictable investment journey.

Understanding where you fall on this spectrum is a critical first step. If you can stick to your long-term goals and weather the occasional financial storms without succumbing to panic-induced decisions, this ride may be suitable for you.

Understand the time commitment

The time you need to spend keeping track and thinking about your portfolio also matters.

Managing individual stocks demands a level of engagement that goes beyond a casual interest in the financial markets.

Successful stock investing requires staying informed about your investments, monitoring market trends, and being prepared to decide about a stock you want to/or already own and how it aligns with your goals.

For those with busy schedules or a preference for a more hands-off approach, the time commitment of individual stocks may pose a challenge. Unlike other investment vehicles such as index funds or mutual funds, individual stock ownership places the onus on you.

If your lifestyle leans towards a more time-efficient approach or if monitoring your portfolio doesn't sound fun, you will be best served avoiding purchasing individual stocks and/or working with an advisor to find out what works.

Knowledge and diversification are tools for informed decision making

Beyond risk tolerance and time commitment, the foundation of successful stock investing rests on knowledge and diversification. Before diving into individual stocks, it's crucial to equip yourself with a solid understanding of the companies you're interested in.

This involves delving into their financial health, evaluating prospects, and analyzing historical performance.

The importance of diversification cannot be overstated. Placing all your financial eggs into one stock basket is akin to walking a tightrope without a safety net.

Ignore the media and own index funds

Investors can participate in the growth that equities offer without having to own individual stocks.  Purchasing index funds that track certain markets does not require as much monitoring on your part.

The financial media, broker research and brokers are all induced to encourage to buy and sell. This increases commissions which is detrimental to the long-term health of your portfolio and disturbs compounding.

Always be mindful of this when your broker gives you a call with the latest stock tip.

Buying shares in a company is not for everyone. Just because someone bought the stock of company A and made a killing does not mean that the same approach will work for you.

Always look at purchasing individual stocks as part of a greater whole that is your portfolio. Does it align with the goals you are looking to achieve?

Investing during the end of the world

At present, the global environment is one filled with fear and uncertainty.

Geopolitical conflicts have surfaced, and the macroeconomic environment has led to volatility in financial markets.  The price of U.S. treasury bonds has fallen by 60% from its high. Closer to home, the Thai Baht has depreciated by 10% against the dollar since the end of January.

As dire as current circumstances may be, investing over a long-time horizon necessitates contending with such periods.

Turbulent events are difficult to predict by nature. Instead of trying to forecast the future, we believe that you are better served by focusing on variables under your control.

Here are some items to keep in mind that can serve you well in times of distress.

Do not time the market

Investors are often tempted to sell when asset prices fall fast and invest again later when the outlook is better.

This is one of the biggest investing sins.

By trying to wait for the ‘better’ time to invest again, you will most likely miss the rebound when prices rise.

Investors have lost more money preparing for corrections than from the corrections themselves.

Consider the following as evidence: if you invested $1 in the S&P 500 from 1990–2018 and missed the 25 best days, it would have grown ~$5. If you just left it, it would be ~$15. The best days usually follow the worst days and vice versa. Compounding is best left undisturbed.

Asset allocation is your friend

Investors have the highest degree of control over how their assets are allocated in their portfolio.  Even before turmoil begins, if you have properly allocated assets according to your risk profile, it becomes easier to ride.  Better yet, you can even take advantage of price declines.

Having some defensive assets may help investors sleep better at night. Gold prices tend to be stable and can be used to protect your portfolio from big drops in other assets during difficult times as they tend to rise. Another good defensive asset is real estate, though it matters more where it is located, the cost of maintenance, interest rates and the price you paid compared historically.

Moving or holding most of your portfolio in safe assets such as money market funds may help if you are getting close to retirement and need to start to withdraw to cover living expenses. Planning this ahead of time helps to negate short term gyrations of asset prices.

Beware of speculative investments

Speculative investments are a double-edged sword.  In rising markets, these assets can produce very high returns.  They are also the ones that have the largest falls during periods of stress.

If the fundamentals of the assets are strong, prices may eventually recover.  Most investors do not have the wherewithal to hold through painful drawdowns. Moreso when the rationale behind buying is based on excitement or optimism.

Investors need to be cautious investing in such assets all the time but even more so during periods of high turmoil.

Even when optimism is at a high, it pays to remember that financial markets always experience periods with large asset price declines. Trying to predict when or how this happens is too difficult an exercise, and investing in speculative assets can be like playing with fire.

Investors are best served by remembering that consistency beats out intensity.

Why recent news on Thai corporate bonds need not impact you

Corporate bond defaults in Thailand have gained significant attention in the news recently.  This has spooked many investors who fear a loss of capital when investing in these assets.

The appeal of investing in bonds for investors is that they can receive income via interest payments without taking undue risk.  When defaults emerge, it can erode confidence.

Reasons for companies defaulting varied.  In one case, there was an accounting scandal and misdoing on behalf of those at the top.  Other defaults occurred because of weak balance sheets and deteriorating business fundamentals.

Whilst there is reason for concern, we do not think that investors are best served shunning these investments altogether.  The sum of bond defaults in the first half of this year accounted for 0.3% of total corporate bonds outstanding.

We maintain that bonds have a place in a well-diversified investment portfolio.  There are several considerations to consider when allocating capital to these assets to ensure that you are making well-informed decisions.

Make sure that a bond is what you need

Investors need to make sure that adding bonds into their portfolio serves a purpose.

Bonds are an excellent investment for conservative investors looking for principal protection alongside the ability to receive income.

The better the credit quality – i.e. the safer the company – the lower the coupon, which is the interest rate you as a holder will receive.  The opposite is also true with riskier companies paying higher interest.

In general, the longer the duration of the bond, the more you will get paid. 

The most significant mistake an investor can make is to invest in questionable bonds solely in pursuit of higher returns. Taking such a risk does not always pay off.  In these cases, investors may be better off seeking higher returns in equities over purchasing such bond issues.

Diligence pays off

Doing some homework can pay huge dividends before making any investment, and that extends to corporate bonds.

Relying on the recommendation of someone getting paid to sell you something is not foolproof.

Even if you do not know how to read financial statements, there are some things that you can look out for.

Look at high-level financial items such as sales, operating and net profit.  Have there been huge swings in these items, or are they stable?  Erratic movements in financial figures are a cause to investigate further.

There is also qualitative analysis that anyone can do.  Doing some reading about the company’s business activities and latest developments.  This can help in making more informed decisions.

If doing the work is too difficult, finding a third party you can trust may help.  Independent advice can provide very valuable.

Do not only rely on ratings

Many investors look at the rating of a bond and take that as a stamp to whether it is a worthwhile investment or not.

Credit ratings are meant to be a guide as to the quality of the company in question.  The higher the rating, the lower the chances of default.  In theory.

The issue with relying solely on such indicators lies in the limitations of rating agencies themselves.

These agencies have constraints like a limited scope, delayed updates, potential subjectivity, and the risk of investor overreliance.

Keeping these few points in mind will help you make better decisions when it comes to purchasing bonds for your portfolio.

Understanding different types of risk for better financial decisions

Risk is all around us.  Many choices we make daily involve considering trade-offs and selecting the best option.

All resources are finite, and we attempt to achieve our goals efficiently without wasting them.

This is a central concept in investing.  Even readers that are not familiar with technical concepts are aware of this.

Many people assess the risk of an investment in proportion to how much they may make or lose.  A relationship between risk and reward.

Whilst this is true, there are other types of risk that investors are also exposed to and selecting from.  Understanding and appreciating their features will help you make better decisions.

Liquidity risk: how long your assets need to be kept away for

The level of liquidity an asset has is important in assessing its suitability as an investment.

Liquidity refers to how fast it can be sold and converted to cash.

Assets that are not very liquid have higher liquidity risk.  For example, real estate takes longer to sell as compared to equities that can be bought and sold on your cellphone.

Returns for certain asset classes such as venture capital and private equity can make investors swoon.  These assets are generally less liquid, and require holding periods that are longer than traditional investments.

Your time horizon plays a big role in assessing the risk that you can take with liquidity.

Capital at risk: how much you can gain or lose

This is the traditional assessment of risk most are familiar with, and refers to how much you can gain or lose with an investment.

Varying asset classes have different characteristics in this respect.

Investments such as government bonds are unlikely to have meaningful capital appreciation.  They are also unlikely to lose much in value.

This changes as you move up the risk spectrum.  The upside potential with assets such as equities is higher, as is the potential for loss.

We like to think about this in terms of ‘range of scenarios’.  Assets that have a wider range of return scenarios can lead to higher returns and higher losses.

A diversified investment portfolio will take this into consideration when allocating assets.

Economic risk: how interest rates and inflation matter

Changes in the economic environment can present varying risks to your investments.

All investment assets have some level of sensitivity to interest rates.

In most cases, lower interest rates are beneficial for riskier assets, as the payout on safer investments goes down in tandem with rates.  The opposite is also true. Risk asset prices generally decline when interest rates go up.

Real estate investors are impacted greatly by changes in interest rates.  Higher rates mean higher mortgage and interest payments.  This can negatively impact demand and the cashflow investors receive.

Inflation erodes the purchasing power of money over time, and investors need to take heed of this.  Being overly conservative in your investments means that your return might not keep up with long-term inflation.

Some risks are difficult to predict

There are other types of risk that are almost impossible to prepare for.  They are unavoidable and can affect entire countries and economies.  In the case of a pandemic, the repercussions are global.

The duration of these events may stretch on for years, months or even just a few days.  It is a fool’s errand to predict this. Thai politics is another great example of unpredictability.

These are just a few of the risks that are commonly seen by investors.  There is no possibility of avoiding all of it. Rather than trying to avoid risk, understand it and the tradeoffs you are willing to make improve your chances of success.

Tips to make better Retirement Mutual Funds (RMF) and Super Saving Funds (SSF) purchases

Putting a little bit of work before purchasing mutual funds that provide tax benefits can go a long way.

Thailand offers benefits to taxpayers that invest in certain classes of mutual funds that have restrictions on holding periods. These are Retirement Mutual Funds (RMF) that are redeemable upon the age of 55 and Super Saving Funds (SSF) that have a 10-year holding period. 

The SSF is an updated structure of the previous LTF program that some readers may be familiar with.

Most people wait until the end of the year to purchase these funds and make haphazard decisions because they are short on time. Doing a little bit of work now can help you get ahead of the curve.

Make decisions that match up with your risk tolerance

Before purchasing any funds, figure out what level of risk you are comfortable with. The great thing about the RMF and SSF pool of investments is that there are instruments for all types of investors and risk appetites.

If you are a conservative investor you will want to invest in bond funds. Similarly, if you have a higher risk tolerance there are plenty of options in equity funds.

Your age matters much in approaching this. A 30-year-old will have multiple decades of holding RMF funds and therefore can consider more exposure to equities as compared to someone closer to 55 years in age.

Go global

RMF and SSF funds have many funds that provide exposure to markets and investments outside of Thailand, and we encourage you to utilize this.

In the past, options were more limited and the LTF program was limited only to domestic market investments. 

Despite this change, many investors still stick with domestic funds due to home country bias.  We believe this is unwise.

Global diversification helps to reduce risks and provides an opportunity to invest in markets that have higher growth than Thailand.

Make sure higher fees are justified

Most SSF and RMFs sold are actively managed, meaning that the fund managers are aiming to beat the market return.

This typically results in the funds having higher management fees as compared to their passive counterparts.

Before purchasing fund(s) with higher fees, make sure that you can justify it. Check the historical returns relative to the index and examine the track record.

A large share of active funds underperform the market in the long run. Picking passive funds is a conservative route that has lower risks. 

Beware of diworsification

We frequently encounter investors that have a long list of RMF and SSF investments. This is because each year they are buying funds recommended to them by friends or bank staff.

This creates a large assortment of funds that is not necessary. These are investments that in many cases need to be held for decades, and a lengthy list of funds can be cumbersome to keep track of.

We have highlighted in earlier articles that you can maintain an investment portfolio under a well-crafted strategy with single-digit number of fund holdings.

If you have read our previous article on diversification, then balancing assets with differing characteristics can help you greatly.

This makes your life easier, and you can continue purchasing the same funds every year without fail. Being consistent and sticking to the plan tends to yield the best results over the long term as compounding is allowed to continue unbated.