Investment Portfolios

What is an investment portfolio?

The term investment portfolio refers to the types of investments your total financial assets are invested in. Examples of this are superannuation or an investment property or it may include shares, managed funds, term deposits and bank accounts.

 What are asset classes?

The four main asset classes are:

◊ Cash (e.g. bank accounts)
◊ Fixed interest (e.g. government bonds, corporate bonds)
◊ Property (e.g. residential, commercial, industrial)
◊ Shares (e.g. Australian & International shares)

Asset classes can broadly be separated into ‘income’ and ‘growth’ investments:

Income investments (cash and fixed interest)

◊ Provide regular income and do not usually grow in capital value
◊ Investment returns and values fluctuate only slightly over short periods
◊ Over the medium to long-term, returns are generally lower than those of growth investments

Growth investments (property and shares)

◊ Can provide growth in the value of your capital in addition to income
◊ Investment returns can fluctuate significantly over short periods although over the medium to long-term, returns are potentially higher than those of defensive investments

 Risk and Return

Both ‘Income’ and ‘Growth’ investments have a different expected rate of return, and normally, the higher the expected return, the higher the associated risk.

All investments carry some risk. There are broadly three types of risk to consider:

◊ The likelihood of not getting the expected return on the investment you are considering – including the possibility of losing some or all of your investment
◊ The risk of volatility – where the value of some investments and their potential return may rise or fall from time to time due to market fluctuations
◊ The risk of being too cautious – if your money earns less than inflation then it loses its real purchasing power

These risks can generally be managed by assessing the investment you are considering and your own long-term financial situation and objectives. This is the main job of a Financial Planner, we take into account your goals and objectives including and arguably most importantly your attitude to risk, and tailor your investments design accordingly.

Diversification

By not investing all your funds into the one type of investment, or even the one asset class, you can significantly reduce the level of fluctuations in your investment value; that is, by diversifying your asset allocation you can reduce the risk associated with market volatility as seen during the Global Financial Crisis.

Diversification is not simply investing your money into as many different investments as you can. It is about selecting investments that complement each other and perform well at different times of the economic cycle according to your risk profile and objectives.

This is where having a Financial Advisor can benefit you; with our industry knowledge and experience you can be sure that our recommendations are carefully thought through and monitored so we can help you achieve your financial goals.

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