17/11/2016 The Hopkins Group Financial Planning Team
Excusez-moi! Où puis-je acheter de la bière? Sound French to you? That’s because it is! It might be hard to get your head around the grammar and intricacies of a foreign language, but once you know the basics, you can at least find out where to buy a beer.
Knowing your way around the language of investing is the same. Sure, there might be some concepts you will never have the time or patience to understand, but with some base level knowledge in your tool belt, you’ll have the confidence to contribute to a dinner party conversation . . . and perhaps take your financial future a bit more seriously.
The financial planning team at The Hopkins Group fancy themselves as some skilled linguists when it comes to the language of investment. They know how daunting it may seem for a first-timer to consider taking an active role in investing – but everyone has to start somewhere. Just like how you need to negotiate the male and female versions of nouns in French, you also need to get a feel for investments inside or outside of superannuation and how they will react to the volatility of the markets, to be able to get ahead in your financial future.
Our advisers have dug into their bag of tricks to share some handy tips that – like a tourist in a foreign city – might just help get you from A to B . . . or at least to the closest pub!
The first step to investing is to know how much risk you are comfortable taking on. Are you a ‘throw everything at it’ kind of person, or more a ‘slowly but surely’ player?
Your propensity to take risk can be decided by completing something known as a risk profile with your financial planner. It outlines a series of questions that have been specifically developed to evaluate your willingness to take risks.
If you’re more of a row boat on a lake, than a jet boat down the rapids character – that’s okay! This discussion with your planner and the nature of your answers will help identify what type of assets classes - and how much of each asset class - you should be comfortable investing in when diversifying your own investment portfolio.
Block out the noise
Probably the most important part about investing is to try and rise above the doom and gloom stories that are strewn across every media outlet, day in and day out.
Here’s what AMP’s Chief Economist, Dr Shane Oliver, had to say on the subject:
“The problem for investors is that the worry list seems more worrying than it used to be. Yes, there is a fundamental element: the normal return potential from most asset classes are lower than they used to be, global growth is slower than it was pre GFC and the world seems awash in geopolitical risks”.
It’s easy to be caught up in the negative talk and be consumed by worry and fear, but by seeking advice from an expert, you can block out the noise and focus on the facts. It’s incredible what a newfound grasp of investment knowledge and impressive suite of vocabulary can do to allay your fears – just like landing in a new city armed with trusty tour guide!
Patience is a virtue
A popular shampoo brand was on to something in the 90s when it coined the term “it won’t happen overnight, but it will happen”. Same can be said for investing.
When you invest – particularly within superannuation – it is for the long haul and you need to keep your eye on the horizon. Short term rises and falls (known in the industry as ‘volatility’) should not sway you from your objectives. Over the years, we have seen several economic downturns, but history dictates that the market returns to normal and recovers – you just need to be patient.
By remaining patient and staying invested during these downturns, you can take advantage of lower unit prices and reinvest more income and distribution than you could if the market was higher. Sure, you may have lost some capital value in the short term, but ultimately, when the market recovers, the uplift is greater over the longer term.
Share the love
You’ll hear people say ‘diversification is the cornerstone of any sound investment portfolio’. Okay, but ‘mi no comprende’. What is diversification?
Diversification basically means not putting all your eggs in one basket – it’s a risk management technique that mixes a wide variety of investments within a portfolio. Diversifying allows you to reduce the overall risk to your portfolio by gaining exposure to different asset classes which could include property, bonds and global investments – assets often ignored by the average ‘DIY’ Australian who tends to invest primarily in the Australian stock market.
If we refer to the 2014/2015* financial year, Australian equities (i.e. ‘shares’) were in fact the worst performer, delivering a 5.6% return for the financial year. No, not all bad, but with some expert advice from a financial planner, you could diversify your investments and benefit from having some interest in a range of asset classes which could deliver higher returns.
Asset classes investment 2014/2015 financial year
- Unhedged international shares – 25.2%
- Australian listed property – 20.2%
- Unlisted property – 10.6%
- Hedged international shares – 8.5%
- Australian Bonds - 5.6%
- Cash - 2.6%
The Lonely Planet of the investment world
So as you’ve seen, you can learn a few words and wing it on your journey to financial freedom, or you can engage a professional and take it to the next level. Our team of financial planners at The Hopkins Group speak fluent ‘investment’ and love playing tour guide to new – and existing – investors.
If we’ve whet your appetite for digging deeper into your investment potential, give us a call to organise a free financial health check. We can have a chat about your goals and objectives and do that all important – and sometimes revealing – risk profile.
Call 1300 726 082 to book in a no obligation appointment with an adviser, or drop us an online enquiry and we’ll be in touch.
Disclaimer: Shane Light is an Authorised Representative and John Hopkins Financial Services Pty Ltd is a Corporate Representative of WealthSure Financial Services Pty Ltd Level 1 190 Stirling Street PERTH WA 6000 ACN:130 288 578 AFSL: 326450.
General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.
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