If only investing were that simple.
Short of the ability to look into the future and timing the market, how do you determine what is low and what is classified as high?
Although keeping abreast of market commentary is always useful, particularly in helping to develop your investment acumen, it is unlikely to deliver guaranteed investment success.
So, what can you do to give yourself the best chance for investment success?
Start with the basics
Vanguard believes there are four simple principles that will help improve the chances of a successful investment portfolio – goals, balance, cost and discipline.
De-risking as you age
Where possible, always make investment decisions and portfolio allocations based on your personal circumstances and goals. Accordingly, asset allocations in a portfolio should not only be guided by your risk tolerance and its ability to guard against market volatility, but also by the stage of life you are at.
An investment portfolio that has regular contributions (as a result of regular income) has more money working in compound than an investment portfolio that has regular withdrawals (typical of a portfolio of a retiree funding their retirement).
Thus, the asset allocation in an investment portfolio of a younger investor (typically upto 40 years old) should look markedly different to that of an investor in the early stages of retirement.
An investment approach that is quite entrenched in the US and gaining traction in Australia is the target-date fund model, which could perhaps provide some lessons in asset allocation to meet goals for each life stage. These allow investors to nominate their target date for retirement and the fund will gradually shift the asset allocation as they approach and then begin their retirement.
Vanguard's US target-date fund glide path takes place over four stages and constructs a portfolio based on balancing market, inflation and longevity risks in an efficient and transparent manner over an investor's life cycle along our basic investment principles. It generally segments investors into four phases, starting with investors aged 40 and below, then moving into the mid-to-late career.
Phase one starts with an allocation of around 90 per cent to equities and then begins de-risking during the mid-to-late career phase. Phase three encompasses the transition to retirement phase, where the portfolio de-risks further before reaching a landing point in the final retirement phase.
Too often a sound concept can be undone by sub-par implementation. This arose as a theme in the Productivity Commission's final report, highlighting the impact to outcomes that can arise from a target-date fund that is:
Vanguard endorses the Productivity Commission's view. The objective of Vanguard's asset allocation model is to avoid being too conservative or too aggressive and to adequately diversify where possible.
Achieving your investment goals
Vanguard's research, time and again, continues to show that disciplined, diversified and patient investors who adopt a holistic view and focus on factors within their control are likely to be rewarded over the long term.
Following the four simple principles – goals, balance, cost and discipline – and focusing on the things you can control will help you become a better investor and ultimately deliver you the best chance for investment success.
* This article originally appeared in the ASX Newsletter on 8 October 2019
Balaji Gopal
Head of Product Strategy
09 October 2019
vanguardinvestments.com.au
Director
BEc (Acc), MBA, CPA, FFin
David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.
David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.
Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.
David maintains a strong personalised client service focus, providing tailored solutions for clients.
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David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846
Business Finance Manager
B Bus (Acc), CPA
Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.
Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.
With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.
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Client Service Manager
Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.
Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.
Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.
Jasmine has gained her Certificate III in Financial Services qualification.
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Senior Client Service Manager
Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.
Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.
Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.
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