Three considerations to get the most out of your Investment Portfolio

By Gregory Harris

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As Financial Planners and Investment Advisers we are often asked to share our insight into where we think it is best for people to invest their money.

It goes without saying that when someone makes the decision to invest their hard earned cash they certainly don't want to risk losing it and, of course, they are looking for a healthy return on their investment.

The truth is the majority of our successful wealth accumulation strategies rely on a diversified approach to an investment portfolio.

There is generally not a one-size-fits-all strategy as investments goals will need to align to an individual's circumstances and plans for the future.

There are three things that we encourage you to consider before embarking on investing:

1. Diversifying to minimise risk and volatility

Putting all of your eggs in one basket can expose you to unnecessary risk. Asset classes will perform differently at different times and in our experience no one asset class will consistently outperform another. For this reason we are advocates for investing in a diverse range of shares and property for client's growth and we don't push one asset class over another.

2. Active versus passive investment management

When it comes to managing your investments you can take an active or passive approach.

Passive investment management is essentially index based investment and means you invest in the entire market of a particular asset class. You will decide the allocations (for example; 50% Australian shares, 30% international shares 10% Australian property etc).

While passive management achieves the highest level of diversification, there is a point where the benefits of diversification are out-weighed, and diversification is not simply being exposed to an entire market or asset class.

Passive management is a much less complicated and generally cheaper way to invest, however you will effectively be taking a blanket approach to your investments and will end up with a group of both good and bad assets.

Active management of your investment portfolio provides the ability to be selective with your investments within each asset class and sector. As an active investor you can just choose the quality assets and take advantage of any arbitrary opportunities that exist when market values do not align with your own personal values.

For example, you may preference Australian companies but not want to invest in tobacco or mining organisations.

Ultimately, it's active management of your investment portfolio that will allow you to not only diversify but to also reach a level of out-performance.

With an active management approach you can choose your investments based on present value, identify quality businesses trading below their fair value and utilising this to your advantage.

3. Aligning your investments to your personal goals

Like anything in life, proper planning prevents poor performance.

In our experience, a great deal of comfort is felt by our clients that understand how their investment strategy links to their lifestyle and financial goals.

If your investment strategy has been based on a solid understanding of these goals and you have received advice from a professional adviser, you will be able to rest easy as your investments do all the hard work and take you where you want to go.

While we realise that all of the minor details around an investment portfolio might not be of interest to everybody (that's why you leave it to us, right?), we will always make sure that we communicate as much information as possible so there is transparency and information about your investments available to you if you need it.

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Greg is a Certified Financial Planner®. He enjoys simplifying the many complexities around investing and assisting his clients to meet their financial needs and objectives.

If you would like to learn more about diversifying your investments, you can contact Greg on 02 6583 1735 or gregory.harris@morgans.com.au.