13
Oct

How to achieve financial security

Like all things worthwhile in life financial security can only be achieved if a plan is established, reviewed and maintained regardless of short term distractions.

History has shown us that by retaining cash for short term use, and continuing to hold quality growth investments for the medium to long term, will increase your chances of achieving financial security prior to retirement and maintain financial choices in retirement.

Shares and property have continually outperformed investments in cash by 4-5% per year over time.

It is my view that periods of short term volatility should be looked at as buying opportunities, and not a time to panic and redeem quality investments to have them reinvested in cash.  If you are paying off a mortgage and interest rates increase you don’t panic and sell your home and start renting.

While it is important that a financial plan be continually reviewed, it is also important that an investment strategy established for success over the medium to long term is not adjusted because of short term fluctuations.

Important Information:  The information in this document is of a general nature only. Before you make an investment decision you should assess for yourself or obtain professional advice on whether the information is appropriate for your particular investment objectives, financial situation and particular needs.

9
Oct

Diversification and Asset Allocation

So what is Diversification ?

You have all heard the term of “not having all your eggs in the one basket” and at a very basic level that is what Diversification is all about.  Diversification is a term used to refer to the relative mix of assets classes held within any given portfolio.  Everyone’s circumstances are different and in this regard the relative mix of assets held will depend on a variety of factors including your age, the size of your investment, your income and the expected time frame for which you will be investing to achieve a particular financial goal.  All of these factors play a role in determining your attitude to Risk or Risk Tolerance and consequently the relative mix of assets you will hold.

There are four dominant asset classes which include :

  • Cash
  • Fixed Interest
  • Property, and
  • Shares (International and Australian)

All of these asset classes have different attributes and will perform differently and thus provide varied investment returns at different times during any economic cycle.

What about Risk Vs Reward ?

When it comes to risk it is fair to say that “Risk and Reward” are inextricably linked.  All investments involve some degree of risk, though generally Cash and Fixed interest are considered more “Defensive” in nature as they are less subject to market based volatility and risk, while Property and Shares are considered “Growth” asset classes that will be subject to greater risk but provide greater reward over the longer term.

There will always be a time when one Asset Class outperforms another and by diversifying your investments across the major asset classes you are able to take advantage of this phenomenon to minimise your risk.  Additionally it is important when structuring your portfolio to allow sufficient funds to be invested in “Defensive Asset Classes” to provide income where that is required and allow the “Growth” element of your portfolio to provide returns that outperform defensive assets over longer term.

As Financial Advisers it is our job to work out what best suits you given your unique circumstances and to do so on an ongoing basis to set and then adjust as required your investment’s mix of assets given your circumstances over time.  Generally exposure to all of the asset classes will be appropriate to provide the diversified return that is appropriate for you.

Important Information:  The information in this document is of a general nature only. Before you make an investment decision you should assess for yourself or obtain professional advice on whether the information is appropriate for your particular investment objectives, financial situation and particular needs.