enjoy the higher returns of funds.

How did you feel when you learned that the net value of funds in China had increased by 187 percent last year?

First, I was happy for all the investors and for the fund managers who had achieved these fine results. However, from the standpoint of normal standards, this number was way outside of our expectations. Any return in excess of 100 percent is a very special case. Investors should take a different attitude toward expected returns. I congratulate those investors who managed to achieve returns of 100 percent, 75 percent or even 50 percent last year, but they should not expect this situation to last forever. If we think that this kind of return can be sustained, we are denying the basic laws of investment. Everybody understands the average return of funds is 12 percent, and therefore, attaining about 12 percent return would be more reasonable.

Was there a time when the average annual return was more than 100 percent in the U.S. fund market?

A return of 100 percent or more seldom happens in the United States, but amidst the Internet boom of the 1990s, three-digit returns did exist. At that time, there were many investors lacking in experience who fantasized about the reoccurrence of such immense returns. Of course they were left bitterly disappointed.

Today, many Chinese investors expect to obtain a very high return. Do you think this is normal? What is the normal return for equity funds?

Last year, your assets could have doubled. But you might not earn quite as much in the following year.

From a long-term perspective, such as 10 years, 20 years or 40 years, the yearly average return of investing in equity funds in most developed markets of the world is 12 percent. You may make money this year and lose money the following year, but on average, over five years, 10 years or longer, a 12-percent return is reasonably good from a global perspective.

How do American investors view the risks of investing in funds?

There is a big difference between investing in low-risk fixed-return products and investing in high-risk stocks. The potential danger is that people treat them alike and think that they have the same risks. Investors must understand that the risks of investing in stocks are much higher than other fixed-return products. Nevertheless, from a long-term perspective, profits from high-risk investments such as stocks are always higher than fixed-return investments. Therefore, investors must have a long-term vision. Investing in equity funds is different from investing in fixed-return products. One should not expect to use stock investment funds to solve immediate problems like paying for housing or next year's expenses; these funds are for use as long-term investment capital. We have to look at problems from a long-term perspective, and at the same time, we also need to have steady bank savings to resolve any short-term financial problems.

Do you have any good ideas about asset allocation?

Most investors should try to diversify their investments. As long as you choose suitable stocks, even if it is just one fund that includes 10 or more stocks, your investment is diversified. But, do not include many identical funds in your portfolio. I also suggest that investors don't buy and sell too frequently. If you bought a house today and sold it the following month to pay for another house across the street, and you kept buying and selling in this manner, you wouldn't make any money.

How can an ordinary investor tell a good fund company?

There are many indicators with which to evaluate a fund management team. The "Morningstar Index" is one such indicator. Through these indicators, we assess all the funds provided by the fund company. I believe a good fund company should have funds with relatively high assessments, although this is only an indication. There are also analysts using globally acceptable ranking methodologies to evaluate all aspects of a fund company, including the quality of the management team, and arrive at a subjective assessment of the organization. Although investors anywhere in the world can study these assessments, the key question is whether the fund company is investor-oriented, and how they operate their funds. This is demonstrated in many ways, and is manifested in very important factors, such as the cost-exchange style of some high-ranking funds and the structure of the fund investors.

How do you view passive investment and active investment?

Under the vast majority of conditions, regardless of whether it is the bullish or the bearish market, index funds will perform better than actively managed funds anywhere in the world. The main reason is cost. In general, the cost of an actively managed fund is higher than that of an index fund, not to mention the transaction fees. I strongly recommend investing in index funds, and supplementing with actively managed funds. Fund managers will of course choose index funds. In everybody's investment portfolio, index funds should occupy the larger portion. n

(Xinhua Finance)

DISCLAIMER: The information contained herein

is based on sources we believe to be reliable, but is provided for informational purposes only, and no representation is made that it is accurate or complete. This briefing should not be construed as legal, tax, investment, financial or other advice,

and is not a recommendation, offer or solicitation

to buy or sell any securities whatsoever.