Seven steps to help get the right mix

Many investors are understandably concerned when they read news stories about fluctuating global markets. How will this uncertainty affect the hard earned money you have invested, especially if you are nearing retirement?

A well designed investment portfolio will not only help you reach your financial goals, it can also provide some reassurance during times of uncertainty. A healthy mix of investments in different market sectors and asset classes can help you achieve smoother, more consistent returns over time.

1. Look to the future

For most of us, the future after retirement involves more opportunities to do the things we love, whether that is travel, golf, gardening or just more time with the grandchildren.

To turn dreams into reality, the first step is to understand just how much you will need to fund your retirement lifestyle. There are many online calculators available that can provide a snapshot to show you how much you will need (visit www. thewealthgeneration.com.au to see an example). As a guide, you will need enough to live comfortably for 20 or 30 years after retirement.

Once you have decided on a goal—for example, the amount you would like to have saved or invested when you hang up your gloves, and how many years you have left to achieve it— it is time to work with your financial adviser to identify the investment opportunities that will suit you best.

2. Know the asset classes

Trying to understand the plethora of investment options available can be confusing, but breaking them into different categories (or classes) can help make your decisions easier.

For example, many investments fall into one of four major asset classes: cash, fixed interest, property and shares.

Cash includes money in bank accounts and other investments such as bank bills, while fixed interest investments include term deposits, debentures and government bonds.

Cash and fixed interest investments are usually seen as steady performers that help balance the ups and downs of other higher risk investments. And, in the case of cash, there is usually fast and easy access to your money. Cash and fixed interest investments are best suited to shorter term investing.

Shares represent part ownership of a company. They can be bought and sold directly on the Australian Securities Exchange or you can invest in an investment vehicle such as a managed fund that invests in shares. You can earn income from your shares if the company chooses to distribute its profits by paying investors dividends and there is the opportunity for an increase in the value of your original investment if the company’s performance improves.

Like shares, you can invest in property either directly (where you buy real estate), or indirectly (where you buy units in a property trust that invests in real estate).

3. Be aware of different risk levels

Cash and fixed interest are usually considered ‘defensive’ investments. That means they are lower risk, their returns are less volatile and they provide a regular income. Think of a bank term deposit—it provides a guaranteed return and at the end of the term, the amount you originally invested (your capital) is yours again.

In the medium to longer term, defensive investments tend to have lower returns or income and no growth in capital.

On the other hand, property and shares are considered ‘growth’ investments because, not only is there the potential for greater income to be earned, there is the potential for the capital value to increase over the longer term. Growth investment returns are typically more volatile over the shorter term.

With defensive investments you have access to your funds, whereas growth investments are suited to investors who have more than five years before retirement.

4. Understand the trade off between risk and return

When deciding which investments may be right for you, it is important to understand the trade off between risk and return and how to manage investment risk.

Low risk asset classes can limit the returns that you could potentially achieve, whereas high risk asset classes risk shorter term losses. As a general rule, the larger the potential investment return, the higher the investment risk and the longer you need to remain invested to reduce that risk.

So given each asset class will have its good and bad times, a diversified portfolio may never achieve the top return in any given year and many never receive the lowest either.

You should be realistic with your investment choices. Don’t select high investment options, if you are not prepared to also accept the potential losses.

5. Remember that markets move in cycles

Taking a look at the bigger picture—the performance of the Australian economy and movements in markets both here and overseas—is another way of helping to make sure your portfolio is structured to help meet your goals.

Markets and economies always move in cycles. They rise until they peak then begin to fall until they bottom out before rising again, and so on. Some choose to sell their investments as markets begin to fall believing they can choose the right time to buy back into the market as it rises again. But getting it wrong comes at a cost.

6. Look at your existing portfolio

With your retirement goals in mind, a review of your current investments with your financial adviser is the next step. It’s a good idea to discuss the proportion of each asset class in your portfolio to see if it has the trade off between risk and return that suits you best.

You can also diversify within asset classes to spread your risk even further. For example, by owning shares directly in a number of different companies and industries, or by investing in a managed fund that invests in a range of companies and industries.


Speak to us for more information

If you would like to know more about how a well structured investment portfolio may improve your financial situation, contact us. We can give you more detailed information on the best approach to your situation.


Artemas Wealth Management Blog

Timothy Donlea & Artemas Wealth Management have been providing advice to clients for over 20 years. Contact us by clicking here or alternatively by calling us for a confidential discussion on 02 9221 9699.

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