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Goodbye to ad-hoc portfolios

Investment portfolios are often built in an ad-hoc fashion with too little thought given to taking a co-ordinated approach to investing.

 

 

Many investors, for instance, have collected "bottom-drawer"shares over the years that don't seem to have much of a useful place in their portfolios. These shares may have been inherited, bought at random from time to time or gained when a membership organisation listed on the market.

One way to go about tidying up a messy collection of investments is to think about what properly-diversified portfolio you would have created if you had started from scratch.

Perhaps put yourself in the position of a person who has rolled over large amount of super into a new self-managed super fund (SMSF).

The money in this SMSF example is in cash and is ready for investment. (For the record, recent tax office statistics show that more than 25,000 SMSFs were set up in 2017-18.)

Vanguard's approach for constructing Australian diversified funds, a research paper* by our investment strategists, gives four key principles that Vanguard uses in constructing and maintaining its professionally-managed diversified portfolios.

These principles – concerning investment goals, portfolio balance, low costs and investor discipline – are as applicable to individual investors as professional investment managers.

Goals
Have clear, appropriate and attainable goals for your portfolio. Critically, these goals should not rely on unrealistic expectations for investment returns or excessive risks.

Most individual investors have a series of goals such as saving enough for retirement, saving for a home deposit and paying off debt before retirement. Once your goals are listed, you can prioritise their importance.

Ask yourself such questions as: How much should I save in total to achieve my goals? How much should I regularly save to eventually reach my goals? How many years do I intend to keep working and saving?

Balance
Set or balance your portfolio's asset allocation to different asset classes appropriately for reaching your goals while staying within your tolerance to risk. (Asset classes include local and international shares, fixed interest, property and cash.)

And then regularly rebalance your portfolio back to its long-term strategic asset allocation to recapture its intended risk-and-return characteristics. (The portfolio of a professionally-managed diversified fund is automatically rebalanced.)

Costs
Minimise costs to improve your chances of better long-term returns. And never overlook that each dollar paid in costs, including investment management fees, is potentially a dollar less in your returns.

Repeated research, including by Vanguard**, concludes that the size of an investment fund's fees is the most-reliable and most-quantifiable predictor of future performance. This applies whether you are investing in index funds, actively-managed funds or a combination of both.

Discipline
Take a disciplined, non-emotional approach to following your investment strategy designed to meet your goals. Don't be thrown off course by overreacting to short-term market movements, the emotions of the investment "herd"and changing investment environments.

And avoid the trap of being an undisciplined performance chaser who switches to whatever is the latest highest-performing fund. Research, including by Vanguard, suggests today's performance winners have a strong chance of becoming tomorrow's losers. And today's losers could become tomorrow's winners.

* Vanguard's approach for constructing Australian diversified funds, published 2017.
**The case for low-cost index-fund investing, Australian edition, Vanguard 2018.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
15 April 2019

 


Sam El Shammaa

Sam El Shammaa

Director/Financial Planner

For more than 20 years, Sam has been a financial planner helping individuals and families achieve their financial planning goals, by providing advice on Investment Planning; Insurance Planning; Tax Planning; Retirement Planning; and Estate Planning. Working with a network of highly skilled professionals in Sydney he is dedicated to providing high-quality advice and integrated wealth management solutions that simplify and enhance the quality of his clients' lives.

Sam established his own firm in 1997 and has overseen its steady development and growth. Attention to detail, good listening skills and great empathy are symbols of his appreciation by his clients. He has built long-term relationships with his growing client base and aims to provide excellent customer service.

Sam began his financial planning career in 1993 after completing a Bachelor of Science degree in 1991. Since this time he has accumulated many professional qualifications such as:

Sam has volunteered with the Cancer Council of NSW and can be seen almost every year volunteering or participating in the 7 bridges walk.

Away from the business, he enjoys spending weekends with his son. He is also a football (soccer) tragic and is a massive Chelsea FC fan.



George Pereira

George Pereira

Financial Planner

Having worked for national financial planning companies in the past, George has extensive experience in the provision of advice in risk insurance, investments and retirement planning and is focused on forming long-term relationships with his clients.

George has been awarded a Masters of Commerce (Financial Planning) and a Bachelor of Commerce through University of Western Sydney as well as having the Diploma of Financial Services (Financial Planning).


Jane Lim

Jane Lim

Financial Planner

Jane Lim is a friendly character with a bubbly personality. She has the unique ability of making complex information sound simple and easy to digest.

Jane entered the financial services industry in 2006, and worked with big blue-chip financial companies such as Count Financial Limited and AMP Financial Planning Pty Ltd.

She holds a Master's degree in Applied Finance through Macquarie University, and she is a member of the Million Dollar Round Table.

Being a self-confessed "tennis nut", Jane spends many weeknights in the tennis court, and is a frequent member of Sydney's Eastern Suburbs Tennis Competition.

Being a highly motivated professional, Jane is always eager to help her clients on a wide range of financial planning needs.

Paul Jayashekar

Paul Jayashekar

Financial Planner

Paul has been a financial planner for over 15 years helping individuals and families successfully achieve their financial planning goals. He is very focused on building successful long-term harmonious relationships with his clients.

He provides a holistic approach on various aspects of financial advice encompassing areas such as Investment Planning; Insurance Planning; Tax Planning; Retirement Planning and has extensive experience and knowledge in these fields.

Paul's professional qualifications are:

Away from his professional life, he enjoys spending his time with his family doing various activities such as coaching his son and taking him to games. He is a very avid sports fan and a cricket enthusiast.

Christian Tanadinata

Christian Tanadinata

Client Services Manager

Christian joined Capitalwise as Client Services Manager, with backgrounds in both customer service and administration.

Christian is passionate in providing excellent customer service by being attentive to client’s need as well as being able to circumnavigate challenges.

He holds a Master's degree in Commerce specialising in Marketing through the University of New South Wales.

Volunteering is one of his delights in life, where he had spent time being involved with the Centre for Volunteering, St Vincent de Paul's Society, and Sculpture by the Sea in a variety of positions.

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