Financial Planning

Investment

Investments made simple

Welcome! We understand that everyone has different approaches to investing and that we all have differing opinions as to what is the best type of asset to invest in e.g. shares, property, resources, etc. WealthMaker has experience in lots of different types of investments, and an understanding of the advantages and disadvantages of each.

Our approach when discussing investments with clients is to listen and understand what they are trying to achieve. Is it an income stream, capital growth or a combination of both. Frequently, clients are looking for a “sounding board” where they receive feedback on a “without fear or favour basis”.

At the highest level there are 3 important factors that should be considered when making an investment decision:

  • Your investment strategy. This is partly determined by what the purpose of the investment is and where you are in your “Life Cycle Journey”. See our Financial Planning section.
  • Your risk appetite, e.g. are you risk positive, risk adverse or somewhere in between?
  • Where the economy is in the Economic Cycle

WealthMaker can help you:

  • Understand the reasons for your investment
  • Understand your attitude to risk and return
  • Identify your future financial needs
  • Discuss investment strategies
  • Compare investment strategies
  • Consider your investment in relation to the Economic Cycle

Your investment strategy

Investing should not be an emotional decision, however all of us at some point have fallen “in love” with an investment and held onto it hoping it would come good. Hopefully, we learn from our mistakes.

Some additional information that may be of interest includes, Your Financial Journey as this discusses where you are in your Life Cycle and the Financial Life Cycle Paradox article that identifies how changing life expectancies and longer retirement periods are affecting traditional retirement planning models.

Hopefully these will be helpful.

Key Tip: Determine your investment vehicle upfront to avoid unexpected tax consequences. For example, should you be investing in your own name, or jointly with your partner (if you have one) or through your superannuation.

Your risk appetite

Investing should be used by everyone as a tool for creating wealth and securing your financial future. However, many people don’t invest because they don't fully understand the nature of risk or the various investment strategies and types.

When it comes to risk you need to understand the relationship between the risk you take and the return you may receive, this is called Risk v Return and it is different for each of us.

Key Tip: High risk generally means high return. See our Risk Profile page and determine what your attitude is to risk.

Economic cycle

A key factor that many of us intuitively consider is where the economy is in terms of the Economic Cycle. Confidence in the economy because the economic indicators are strong will help drive both business and individual investment decisions.

Key Tip: There is a constant flow of economic data (See our Economic Calendar Page) that can make it difficult to determine the level of importance to each indicator. Remember to divide the indicators into “leading” (e.g. Consumer Confidence Index) and “lagging” (e.g. Quarterly GDP announcements).

Key elements to successful investing

Below are some of the basic fundamentals of maximising your investments over time.

Regular investing

Making regular contributions to ensure the wealth creation process continues. It also allows you to take advantage of other investment strategies such as dollar cost averaging. You can start investing today.

Dollar cost averaging

Where you make regular contributions over a specific period of time your money will buy you more shares when the prices are low and less shares when the prices are high. The outcome being to lower the total average cost per share of the investment, giving the investor a lower overall cost for the shares purchased over time.

Compounding

Compound interest is when you earn interest on the interest i.e. rather than spending the interest you have earned, you re-invest it. Another form of compounding is when you re-invest the dividends from your share portfolio. This may be done through a Dividend Re-investment Plan (DRP).

Growth investments

This strategy is not without risk but with riskier investments often comes greater returns. This strategy can help you reach your financial goals sooner but must be exercised with care. High risk types of investments can be found in the property, Australian and international share markets. Talking to a professional may be helpful when thinking about investing in higher risk strategies.

Borrowing to invest

Also known as ‘gearing’. Borrowing money to invest can be an effective investment strategy for boosting returns if implemented and used correctly. It can allow you to increase the amount you invest and may therefore increase your return. There may also be tax advantages attached with this strategy.

Diversification

This helps you manage the risk of investing by spreading your cash through a number of different investments and investment types. There are two levels of diversification, the first is different asset types. This involves investing in property, shares, commodities, fixed interest bonds, private equity or venture capital. The second level is where you select an asset type and then invest in a sub-asset category, e.g. it is possible to be investing in residential, retail, commercial and industrial property.

Investment strategies

Having determined what type of an investor you are, you can now consider the investment strategies available and whether they are consistent with your attitude to risk.

There have been many books written about investment strategies. A common theme of these strategies is to research your investments and diversify your investment types. Some strategies that apply to most asset classes (property, shares, commodities, etc) are:

Buy and hold

This is to buy a stock, or property and hold it through good and bad times.

Contrarian

This is to buy when the market is generally selling (falling) and sell when the market is buying (rising).

Market timing

This strategy is to pick the ‘peaks and troughs” of the market, being the first in the market after its bottomed and first out before it falls.

Trend following

There is an old saying that the “trend is your friend”. This strategy is to buy in a rising market and sell in a falling market, i.e. follow the trend.

Trading strategy

There are many different trading strategies, e.g. long and short. The idea is to determine a strategy and stick to it.

Quantitative trading (algorithmic) models

These are sophisticated models that look for market “signals” on whether to buy or sell. Examples of models are the Dow Jones “Dogs of the Dow” which is a 365 day cyclical model.

Liability driven strategies

This means taking a holistic view of both asset (investment) and liability (funding) scenarios. This strategy is particularly relevant when using gearing strategies to create wealth.

CANSLIM

This is a growth stock strategy. The aim being to identify growth stocks before they take off.

Index tracking or investing

This strategy is based on the premise that in the long run the index will outperform stock picking.

Momentum

This strategy involves buying stocks or securities that have had high returns in recent years and selling those that have had poor returns. This can also be viewed as an example of a trading strategy

Fundamentals

This is using fundamental company data plus comparative market benchmarked data to determine the value of stocks and whether they should be brought or sold. This applies equally to property investing

Technical analysis

This strategy is based on historical trends/behaviours that technical analysts believe provide an indication of the future market direction


Whether you are an experienced or first-time investor it is important to seek advice on which type or mix of investment options best suit your individual needs. To answer any questions or arrange an appointment, click on the Contact form above or call us on 02 9233 1111.

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