Once an appropriate equity based is achieved the retirement planning process can begin.  This may involve direct share purchases, appropriate superannuation contributions or investment property purchases.  We can deal with most of these issues as part of your plan, but if we do not have the particular expertise you are seeking, we will talk to the relevant professionals to ensure that whatever is put into place is done with your ultimate goals as the priority.

Liaise with; Share Broker;  Accountant

Managing Risk

There are ways you can reduce the potential impact of Investment Risk. 

1.      Balancing Risk and Return

Generally speaking, the greater the risk you are willing to take, the greater the potential returns your investments may earn in the long term. You will need to balance the amount of return you need to earn to reach your goals. The time you have for investing is vital in estimating how much risk you can absorb.

2.      Invest for the Long Term

If you are able to invest for the long term, you will have more time to ride out the ups and downs of the financial markets. Investing in the higher risk asset classes can expose you to high daily volatility in prices, but you will have the potential to achieve stronger returns over 10 or 20 years, in most time periods.

A long-term approach helps you overcome the temptation to sell when markets fall, and also keeps you cool in a boom market. You avoid the buy high / sell low traps of emotional investing and give your investments a chance to accumulate long-term positive returns.

Your ability to invest for the long term will depend on your investment time horizon.

3.      Diversify your Investments

A common way to reduce risk is through diversification. The more you diversify – or spread your money across investment types – the less your investment success depends on the performance of any one investment. If one of your investments falls in value, you may have several others that are performing well to help make up for that loss. You can diversify your investments by gaining exposure to a range of asset classes. You can also seek diversification through investing in different countries, and by using a mix of fund managers.

4.      Invest to Beat Inflation

The annual rise in the cost of goods and services (the inflation rate) has averaged about 4% for the 15 years leading up to June 2001. At that rate, today’s $20,000 new small car could cost $43,800 in 20 years. In other words, your money may not go as far in the future as it does today. To maintain its value, your investment must earn enough to equal or beat the inflation rate.

5.      Stay in Control of your Investments

Being overly cautious can also be a risk. If you tie up your money in safer, lower return investments, you may need to save more or accept that your earning may not be as high. Because your own circumstances and preferences are unique and can change, it’s a good idea to review your investment strategy regularly to make sure it suits your current needs.

Know the Asset Classes

Different types of investments carry different levels of risk and potential return. These types can be split into 2 categories – growth assets and defensive assets

Growth Assets

Growth assets tend to earn higher rates of return over the long term, but carry higher risks.

• Shares – When you buy shares (also called equities) in a company, you buy part ownership in that company. Share prices are determined by the value the financial markets place on the company. Share prices usually rise and fall quite a bit in the short term; however, historically, they have shown a potential for growth over the long term.

• International Shares – Some funds invest in international shares. There are risks involved in international investing that may not be present when you invest in Australian shares, such as currency risk. But overseas shares also present an opportunity to invest in industries or companies that are not available in the Australian market.

• Property – Property markets are influenced by many factors, including the supply and demand conditions of the specific market in which a property is located. Investment in direct property carries the risk of static or falling values and listed property trusts will, like share prices, rise and fall in any period.

Risk and Return Meter

Higher

RISK & RETURN

Lower

The risk meter above shows where the various investment types fall on the risk/return spectrum.

Defensive Assets

Defensive assets are used to protect your investment from a significant loss in value, but generally earn a lower rate of return.   

• Fixed Interest – When you buy a fixed interest investment, which can include bonds, you lend money to a corporation or government entity. In return, you receive a commitment to have your money repaid by certain dates, and you may receive regular payments of interest. Fixed interest investments typically go up and down in value less dramatically than share prices.

• Cash – Cash investments are similar to fixed interest, but are considered less risky because they have very short-term repayment periods. Their typically low returns mean that their earnings may not outpace inflation in the long term.  

Asset Allocation

Your investment can be spread across a number of asset classes. The weighting given to the various asset classes within an investment is known as its asset allocation. A weighting towards growth assets is likely to appeal to investors who are willing to take some risk to achieve high growth over the long term. More defensive assets will appeal to investors who are more concerned with security and slow, but stable growth.

Funds, which are invested in a number of different asset classes, are known as diversified or multi-sector funds.

FUND MANAGER STYLES

Each manager has a particular “style” and recognised strengths. Understanding managers’ styles helps to ensure diversification. Fund managers’ investment styles describe how fund managers work.

For example, a manager that invests broadly in line with a market index (eg. The All Ordinaries Index) is an “index manager”. An “active manager” aims to outperform the index by making active investment decisions that do not necessarily aim to match the index.

INVESTOR PROFILES

Determining the right mix of assets for your needs can seem overwhelming. We have identified five Investor Profiles to make things easier for you. Choosing the most suitable profile can help you to put in place an investment strategy.

What is an Investment Strategy?

Your investment strategy is the way you divide your money up among investments, in order to meet your financial goals. It takes into account your time horizon, how much risk you feel comfortable taking and how much your investments need to grow for you to achieve your financial goals. Our profiles have been designed, taking into account these factors.

You need to consider these factors, as well as your own particular circumstances, attitudes and financial needs, when selecting an Investor Profile.

Aggressive – Aggressive investors seek to maximise their return and are prepared to accept a higher level of risk on their investment. They have a long-term time horizon (7 years or more) and they invest almost entirely in growth assets.

Growth – Growth investors usually desire the potential for higher returns and are comfortable with higher risks. Often, they have a time horizon of 5 years or more to ride out the ups and downs of the market so they invest more aggressively to seek maximum long-term growth

Moderate – Moderate investors usually seek capital growth and are willing to accept some volatility. Often, they have a time horizon of 3 years or more and therefore may seek investment returns to outpace inflation. Their strategy is balanced between shares and more defensive investments.

Conservative – Conservative investors usually regard security as more important than the level of returns. Often, they have short time horizons (2 years or more) and don’t have time to ride out ups and downs in the values of their investments. Their strategy is more heavily weighted to defensive assets, which are usually more stable.

Defensive – Defensive investors regard security as the most important aspect of their investment. They are willing to sacrifice return to minimise risk and often have a very short-term horizon (up to 2 years). Their strategy is predominately weighted to defensive assets.

Risk & Return Profile

Choosing a profile

Selecting an Investor Profile can help you choose investment options that suit your needs. For example, if you have seven or more years until retirement, and you want to maximise your investment growth potential, you may have an Aggressive Investor Profile. The investment options classified under this profile tend to invest predominately in growth assets.

On the other hand, if you need to access your money within a year or two, you may select options under the Conservative or Defensive Investor Profile. These options tend to invest predominately in defensive assets.

The table below summarises the characteristics of each profile.

To earn significant returns over the long term