‘Don’t put all of your eggs in one basket.’
We’ve heard this message before, but there’s never been a better time to remind ourselves why it carries so much meaning.
It’s especially true when you look at the investment performance trends of the last 10 to 20 years.
The recently-released 2017 Russell Investments/ASX Long-term Investing Report shows ve major threats facing Australians.
Pause for thought
Here are some revealing findings for the 10-year period to December 2016:
- The only asset classes to beat a typical balanced fund target were residential property, global bonds and Australian bonds.
- Many growth assets performed disappointingly, including Australian shares and hedged global shares. Both fell further away from the leading asset classes for the period: residential investment property, global bonds (hedged) and Australian bonds.
- While Australian property was once again the top-performing asset class, it showed a slight decline from last year’s report with dwelling approvals declining. The report’s authors believe the residential property market is overheated and carries significant risk based on regions, dwelling types and suburbs.
If lower returns, slower growth and overvalued markets have largely become the norm of the investing environment, then how do you meet your financial goals?
From threats to opportunities
If you know the pitfalls to watch out for, the rewards of a diversified multi-asset investment approach can be very promising. Knowing the threats that can derail you also means knowing where the opportunities lie.
1. Rear-view mirror investing
Leave the past behind—at least when it comes to investment decisions. There’s too much risk in constantly looking to past performances for guidance on what to do today. We live in times of dramatic global economic and political uncertainties, which is sure to change the fundamentals behind future investment performance.
The better approach lies in having an investment strategy that can respond in real time to market changes.
2. Lack of portfolio diversification
Once again we hear—don’t put all your eggs in one basket. It’s the same with pouring all your investments into one (or even two) asset classes.
Instead, spread your investments across a range of asset classes to cushion your savings against any large losses in one asset class.
3. Reliance on residential property
Property is a hotly debated topic. While it’s true that residential property saw strong returns in the last 10 and 20 years, did you know that median house prices rose less in 2016 compared to 2015?
It’s not about avoiding residential property altogether. It’s more about avoiding the risks that come with investing only in a single asset class. Again, diversity is key.
4. Investing in over-priced traditional assets
Our investment experts see lower returns and higher volatility being the norm for core asset classes like shares and bonds. The reason? Increasingly expensive share markets, coupled with sudden market falls (because of numerous unexpected political changes around the world).
But diversification can help you make the most of changing market conditions and protect your portfolio against downturns in a specific asset class.
5. Setting and forgetting an investment portfolio
The days of ‘set and forget’ are over, especially in the face of volatile markets. Today, savvy investing means moving between asset classes in real time as market conditions change.
Listen to the specialists…
How can you stay on top of all this when it comes to how your money is invested?
Look no further. You already benefit from the knowledge and experience of your OBT financial adviser and the investment managers you’ve chosen together. For example, the strategy for Russell Investments’ multi-asset portfolios is built on diverse sources of return, time and energy spent on finding quality investments, and active management of assets to minimise risks and take advantage of market opportunities.
…but make your voice heard too
Relying on financial specialists doesn’t mean you have no say in how your money is invested. Start by connecting with your OBT financial adviser to keep them informed of any changes to your circumstances — perhaps due to marriage, purchasing property, death of a loved one, retirement and more. We can also help you see if your current investment strategy is set up to achieve your long-term goals.
Rodney Turner and OBT Financial Group 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.
Source: Russell Investments