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Our Areas of Service

Investments

Selecting Investments

It’s important to consider how soon you will need money when selecting your investments. For goals where access to money will be required within a short period of time cash and fixed interest investments would generally be appropriate. For long term goals where access to funds will not be required for several years down the track, generally suitable assets would include property, infrastructure and equities.

This is not suggest that you should put all your money in these assets. In reality, people have a mixture of short and long term goals and hence their portfolios contain a mixture of assets, which we refer to as the asset allocation. In some cases, a portfolio may be completely oriented to growth assets (e.g. a portfolio consisting only of shares) or defensive (e.g. a portfolio consisting only of term deposits).

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Types of assets

Your risk profile

Your investment strategy

Managing and reviewing your investments

Risks involved with investing in growth assets

Diversification

Types of assets

Generally, assets which provide the potential for greater returns are also riskier. This means that in the short term you could suffer significant losses that compromise your short term goals. However, given a long enough timeframe these assets should conform to their projected returns. We call these types of assets growth assets.

In contrast, assets like fixed interest (e.g. a 2-year term deposit) provide a generally stable level of return albeit minimal if any potential for greater returns. We call these assets defensive assets.

Your risk profile

Risk profiling refers to the assessment undertaken to gauge the amount of financial risk an individual is willing to take with their strategy and investments. We worked together to understand your expectations and how you feel about investment risk to determine your identified risk profile.

Sometimes your identified risk profile is not consistent with your goals and their timeframes. In this case we can either consider changes to your goals or we can agree to implement an investment strategy which does not align to your risk profile. If you agree to invest in line with a risk profile that has a higher proportion invested in growth assets, you need to be aware of the following:

  • You would be invested in a higher proportion of growth assets than you initially indicated you would be comfortable with.
  • Your potential for higher long term returns will increase and so will the potential that you will suffer more significant short term losses.
  • The minimum time that you should be comfortable not withdrawing that investment capital will be longer.
  • In the event of a serious market downturn, your losses would likely be more significant than if you were invested in line with your identified risk profile.

While investing in line with a risk profile that has a lower proportion invested in growth assets does not carry a higher investment risk, you would be limiting your potential for higher returns.

The current market environment of low yields, falling expected investment returns and increase in volatility has seen the industry re-evaluating client return expectations. The return objectives for your risk profiles have been reduced to reflect the changed market outlook over the next 5 to 7 years. These changes were made to ensure that we are reasonably confident that your investment will meet the stated return objectives without adding additional investment risk that you may not be comfortable with.

Your investment strategy

Your investment strategy is the approach or plan that we use to place you in the best decision to achieve your particular goals. It is the foundation of how your portfolio is invested and managed to achieve your objectives.

The following components are considered in determining your investment strategy:

  • Your goals and the timeframes in which you want to achieve them
  • Your risk profile; your tolerance and expectations about investment risk
  • The types and nature of investments that are appropriate for you
  • The level of ongoing management your portfolio would require and the suitability of that for you
  • Whether to exclude an amount of cash for your short term goals

A sound investment strategy will provide you with the following:

  • An appropriate mix of growth and defensive assets for your risk profile, goals and timeframes
  • Diversification across asset classes, industry sectors and markets
  • A cost-effective portfolio in terms of implementation and ongoing management

Managing and reviewing your investments

Your goals and attitudes to risk can change over time and it is important to make sure that your investment strategy remains appropriate for you. It is also important to review your investments regularly to ensure your portfolio is diversified and you hold a portfolio which aligns to your investment strategy.

Risks involved with investing in growth assets

Historically, over the longer term returns from growth assets (e.g. shares) have been higher than defensive assets (e.g. cash). While growth assets can provide investment returns well above their defensive counterparts, you need to be aware of the associated risks of investing in them.

To illustrate the difference, a portfolio invested 100% in growth assets could in nearly all cases expect returns year-to-year to be between -27.43% and 41.99%. A portfolio invested 100% in defensive assets could in nearly all cases expect returns year-to-year to be between 1.25% and 4.25%. You will notice that these ranges are vastly different, growth assets are much more volatile than defensive assets.

The amount of income you derive from growth assets (e.g. dividends) may vary and sometimes stop altogether.

You can reduce but not eliminate the risks of investing in growth assets by investing over a long period and diversifying your portfolio appropriately.

Diversification

With investing it is important not put all your money into one investment or type of investment, or all your eggs in one basket. All investments are subject to some level of risk. By placing your money into a number of investments, an investor may improve their chances of evening out the highs and lows of investment returns.

No one type of security, asset class or investment manager provides the best performance over all time periods. So a range of investments should reduce the risk of each of the investments within a portfolio experiencing drops in performance at the same time. This is simply because one asset class or manager may perform well to counter the poor performance of another.

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