Investment and risk management. The current economic condition

This year, i'm going to start a share builder plan with Phillip securities, a brokerage in Singapore. They have this plan where you can invest a minimum of $200 per month to buy into the STI ETF. This method of investing every month is a tested proven strategy where the average returns is about 7-8% annually. By using this method, one doesn't need to time the market and the plan can be on auto pilot where money is deducted from your bank account automatically every month.

For the past 10 years from 2002 to 2012, the STI ETF has achieved an annunalised return of 9%. This is higher than most unit trust or funds out there in the market. My opinion is this, if you can't acheieve more than 9% in your investment consistently every year than why not invest in the STI ETF instead?

A point to note when investing is to have proper risk management. By that, you have to know how to allocate your money to different asset classes at different times. Do not put all your money in stocks as that would mean you're taking too much risk. Even before investing, set aside an emergency fund of up to 6 months your expenses. Then using the rest of your money, invest into safe, medium risk and high risk assets. That means you'll need to have a portfolio of index funds, bonds, stocks, commodities to balance your portfolio. The above assets do not move in the same direction. So when stocks go down, bonds will go up as people move money into safer assets. By having a mixture of all, you reduce your risk exposure. How many percentage of each asset should you invest into? That will have to depend on the current economic conditions and how money is flowing in the economy.

Now, some economics of the current situation. As we know, bond price are currently at high prices and yields are very low. If you study economics you will know that as interest rates rises, bond price will start to drop. Right now, interest rates in the US are at a low of 0.25%. That would mean that the potential for interest rates to go down are limited and the possibility of interest rates going up are more likely. Economic conditions in the US and China are improving with their manufacturing index climbing up and above 50 showing signs of expansion. Although US fourth quarter GDP showed contraction, i believe the next result would be better as manufacturing activity starts picking up. Bond prices are starting to drop and 10 year treasury yields are above 2% currently. Historically, a yield of above 2% indicated the economy is about to recover in 6-9 months. By the end of 2013 and early 2014, we should see a recovery economy around the world.