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Four key principles that help achieve portfolio success

Buy low and sell high is the mantra of many a seasoned investor regardless of the asset class. Just stick to this investment strategy and you will never go wrong – right?

 

 

If only investing were that simple.

Short of the ability to look into the future and timing the market, how do you determine what is low and what is classified as high?

Although keeping abreast of market commentary is always useful, particularly in helping to develop your investment acumen, it is unlikely to deliver guaranteed investment success.

So, what can you do to give yourself the best chance for investment success?

Start with the basics

Vanguard believes there are four simple principles that will help improve the chances of a successful investment portfolio – goals, balance, cost and discipline.

  1. Setting goals is possibly the most important aspect of any investment strategy. Having clearly defined goals that are attainable will help establish the strategy to achieve your goals at each life stage. Having specific goals in mind will also help you stay the course and reduce your vulnerability to investment noise during periods of market volatility.
     
  2. The concept of a balanced portfolio is about building an asset allocation strategy that aligns to your investment goals, based on realistic return assumptions. The strategy is balanced between potential returns and risk, and your portfolio holdings as a result should be broadly diversified.
     
  3. Although investment costs may seem small, they can take a significant toll on your portfolio, particularly when compounded over many years. Costs are an inevitable part of any investment portfolio but are certainly the one thing you can control. Ultimately the less you pay in fees, the more of what you earn stays in your pocket, where it belongs.
     
  4. Maintaining long-term perspective and a disciplined approach to your investment strategy will help to avoid making decisions that are rooted in impulsiveness or are in response to events with a short-term effect. Making regular contributions to a portfolio and increasing them over time can have a surprisingly powerful effect on long-term results.

De-risking as you age

Where possible, always make investment decisions and portfolio allocations based on your personal circumstances and goals. Accordingly, asset allocations in a portfolio should not only be guided by your risk tolerance and its ability to guard against market volatility, but also by the stage of life you are at.

An investment portfolio that has regular contributions (as a result of regular income) has more money working in compound than an investment portfolio that has regular withdrawals (typical of a portfolio of a retiree funding their retirement).

Thus, the asset allocation in an investment portfolio of a younger investor (typically upto 40 years old) should look markedly different to that of an investor in the early stages of retirement.

An investment approach that is quite entrenched in the US and gaining traction in Australia is the target-date fund model, which could perhaps provide some lessons in asset allocation to meet goals for each life stage. These allow investors to nominate their target date for retirement and the fund will gradually shift the asset allocation as they approach and then begin their retirement.

Vanguard's US target-date fund glide path takes place over four stages and constructs a portfolio based on balancing market, inflation and longevity risks in an efficient and transparent manner over an investor's life cycle along our basic investment principles. It generally segments investors into four phases, starting with investors aged 40 and below, then moving into the mid-to-late career.

Phase one starts with an allocation of around 90 per cent to equities and then begins de-risking during the mid-to-late career phase. Phase three encompasses the transition to retirement phase, where the portfolio de-risks further before reaching a landing point in the final retirement phase.

Too often a sound concept can be undone by sub-par implementation. This arose as a theme in the Productivity Commission's final report, highlighting the impact to outcomes that can arise from a target-date fund that is:

  • Too conservative in the early years when members have the greatest capacity to take on investment risk.
     
  • De-risks too early, or lands too low.
     
  • Is constructed to retirement, rather than considering the needs of investors through retirement.

Vanguard endorses the Productivity Commission's view. The objective of Vanguard's asset allocation model is to avoid being too conservative or too aggressive and to adequately diversify where possible.

Achieving your investment goals

Vanguard's research, time and again, continues to show that disciplined, diversified and patient investors who adopt a holistic view and focus on factors within their control are likely to be rewarded over the long term.

Following the four simple principles – goals, balance, cost and discipline – and focusing on the things you can control will help you become a better investor and ultimately deliver you the best chance for investment success.

* This article originally appeared in the ASX Newsletter on 8 October 2019

 


Balaji Gopal
Head of Product Strategy
09 October 2019
vanguardinvestments.com.au

 


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.

Jenny Zhou

Jenny Zhou

Administration Assistant

Jenny is a University of New South Wales graduate who joined the team as an Administration Assistant. She is keen to put her customer service and organisational skills to use, making sure day to day operations run as smoothly as possible.

Outside of work, Jenny focuses her efforts on karate and ice hockey. She can often be found coaching and practicing karate at her alma mater. The rest of her time is spent at one of Sydney’s many ice rinks playing, practicing, or officiating ice hockey.

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