Normally you wouldn’t draw many similarities between a nutritionist, a balanced diet and a fund manager
However, we have some food for thought.
A balanced diet has a variety of food groups represented, each providing different nutritional benefits. This will generally include some protein, some carbohydrates and some healthy fats. The combination is designed to keep you healthy and in the right proportions and it can help reduce your chances of devastating illnesses such as heart disease or stroke.
How is this similar to a multi-asset fund? Instead of different food groups, a multi-asset fund is made up of a variety of different asset classes, usually with the aim of producing returns at a relatively lower level of risk. Typically, you’ll have some shares, some bonds, some cash and some alternatives. Alternatives are investments like real estate or infrastructure, areas which self-directed investors often don’t consider or can’t easily invest in by themselves.
How a multi-asset fund could keep your portfolio “healthy”
Each asset class can bring particular attributes to your portfolio. Share holdings (or equities) are usually considered an opportunity for growth but they can be highly volatile (and higher risk), for example.
Bonds and alternative assets are generally considered to offer more stable but lower returns than other asset classes such as shares.
Using a combination of a range of different asset classes is how, through a multi-asset approach, you could achieve a smoother risk and return profile – something which may be attractive for investors in times of market volatility.
The benefits of diversification – or not putting all your eggs in one basket
Just like you can’t rely on one food group to provide all the nutrients your body requires, depending on a single asset class to meet your investment needs can be a risky strategy due to the lack of diversification.
It’s the same as putting all your eggs in one basket, something you’ve no doubt been cautioned against before.
A multi-asset fund may also be able to offer investors access to different asset classes or different investment styles in various regions, providing further diversification benefits.
Active asset allocation – the “ready-made” option relying on experts to meet specific objectives
Deciding where and when to invest your money with so much choice available can be complicated. Thinking back to a balanced diet, it can be hard for some people to make healthy food choices, which is why they may require help from an expert like a nutritionist. Using a managed fund is a similar concept. You can outsource investment decisions to a fund manager, whose job it is to decide how to allocate between asset classes and regions to give the portfolio the best chance of achieving its objectives.
It’s a “ready-made” option that you can choose based on your individual investment needs.
Importantly, the fund manager can change the split between asset classes to take advantage of changing market environments. If he or she believes a different allocation will enhance the potential return of a portfolio or avoid unnecessary risk, they can adjust the portfolio as necessary.
Because different asset classes perform differently during different market conditions, the aim is to create a portfolio that benefits when markets are doing well and provides you with some protection when markets aren’t doing so well. The portfolio will therefore likely look very different during times of market optimism and times of stress.
The fund manager can try to capture returns during times of optimism and shift positions to diversify and reduce risk to minimise losses in times of stress.
Choosing the right option for you
While multi-asset funds are generally designed to achieve attractive risk-adjusted returns, it is important to remember that lower risk does not mean risk-free.
The value of investments and the income from them may go down as well as up. As an investor you may not get back the amounts originally invested and there is no guarantee that investment objectives will be achieved.
Speak to your OBT Financial Adviser to see if this investment option might be right for you on 07 5462 2277.
Our financial advisers Bruno Tjelder and Damon Zischke and OBT Financial Planning Pty Ltd are Authorised Representatives of Lonsdale Financial Group Ltd ABN 76 006 637 225 | AFSL 246934.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein. Information is current at the date of issue and may change.