Investing: A timely reminder...

Author name:: By Lindsay Richardson
Job title:
Date posted:: 24 March 2021, 5:00 PM

During periods of market uncertainty the importance of managing the right investment strategy for the long term continues to be a key theme.

Investing not only into the right stocks but also into the right allocation of growth vs defensive assets is a continuous message we should always be reminding ourselves about.

Fundamentals of Investing

Remember the following fundamentals of investing.

Always keep the big picture in mind. If you are investing for the long term don't make rash decisions based on what is happening at the moment. Stick with your strategy and recognise that short term market wobbles happen. History has proven time and again that markets recover. It really does pay to be patient.

Quality assets have the best chance of recovery. Use the opportunity to review your portfolio and move out of uncomfortable positions. This may mean selling higher risk investments that are more susceptible to economic downturn.

Maintain a properly diversified portfolio of investments. Diversification of your investment portfolio, across all asset sectors, allows you to ‘hedge your bets’. By spreading your exposure and investing in different assets you create a portfolio in which you are able to minimise, to some degree, the losses that may occur in one asset sector with gains in another. The overall effect is that you moderate the volatility and smooth out your investment returns over time.

Strategic asset allocation (when combined with optimum rebalancing) has proven to be the most effective method for long term strategies. It is more likely to meet your objectives as its primary benefit is to manage risk and return.

If you stick to the basics of investing you will have a much better chance of surviving periods of high volatility and uncertainty. It's not all about market timing and stock selection but also about asset allocation, active reviews and sticking to your long term strategy.

Why are shares so popular?

Shares have historically outperformed all other assets classes over the long term.
They can provide long term capital growth and a strong and growing income stream
The tax benefits available by investing in companies that pay franked dividends.

Shares are often considered risky due to potential short term performance volatility. Over the long term, however, shares have provided consistent investment returns over the past 20 years.

Asset Allocation

The investment mantra has not changed. That is, with any downturn conditions do recover - it is just a matter of time.

However, time may not be a luxury for those who are close to retirement and have targeted a specific capital goal. This is where asset allocation will play a big role in how you ride out this current roller-coaster ride.

Successful asset allocation means achieving your objectives with the least possible risk. To do this you need to understand the behaviour of asset classes and products. Establishing an asset allocation that is consistent with your goals and risk tolerance should be your top priority.

Understanding the risk/return trade-off for the various asset sectors is very important. The greater the returns, the greater the risk you take; and vice versa. Unfortunately, market nirvana – where risk is low and returns are high - is nigh impossible.

In Closing

If you are investing for the long term don’t get caught up in short term ‘panic trading’. Investors need to cut out the noise and remember their original objectives for investing.

It really does pay to be patient.

Find out more

For further information or assistance in defining your own investment journey, speak to one of our qualified and experienced Morgans Mackay Advisers today by calling (07) 4957 3033 or visiting the Morgans Mackay webpage.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited (Morgans) AFSL 235410 ABN 49 010 669 726 as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.