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Do your investment goals stack up?

There's an old saying, to only focus on the things in life that you can control.

   

But that adage has been well and truly stress tested on just about every level over the past few months because of the uncontrollable events stemming from the COVID-19 pandemic.

On an investment portfolio management level particularly, it's been difficult if not impossible to have much control amid the wild daily fluctuations in the values of many financial securities.

And, on a household level, the repercussions arising from lockdown restrictions and widespread business closures are that many families are now experiencing unprecedented financial strain because of a sudden loss of regular employment income, investment income, or both.

Of course, we all still have some elements of life control and maybe the current conditions are an opportunity to reflect on our investments goals to see if they still make sense and are realistic.

Depending on your circumstances, which may have necessitated impromptu investment actions during the crisis – such as the withdrawal of some superannuation funds or the selling of other financial assets – some goal adjustments may be prudent.

Last week, we referred to the Australian Tax Office now requiring SMSF trustees to not only review their investment strategies regularly, but to justify them.

The same sort of investment review also makes sense outside of the superannuation sphere.

Revisit your investment framework

Regardless of where and how you invest, creating clear financial goals is one of the fundamental pillars for having the best chance of achieving investment success.

Your goals should be well defined and as realistic as possible based on your current financial situation. If circumstances change, it makes sense to review them.

A review needs to take into account your immediate financial needs, and how they may impact your longer-term financial objectives.

Any adjustments will need to take into account factors such as your age, how your household income-earning capacity is likely to change over the short and medium term, and cater for revised expectations on investment returns over the longer-term.

Ideally, investment goals should always have a long-term focus and be designed to endure through changing financial environments over time, including periodic downturns in equity and property markets.

They should also take into account the potential for loss of income over time, which can be partially mitigated through appropriate personal insurance coverage.

Allowing for market risks

The current events have highlighted that investment risks are ever-present, and that when major value corrections do occur on markets they are usually widely unexpected.

In setting investment goals, it's important both to understand that risk is a key factor in investment returns and to build in your own tolerance for risk.

Market risks and potential returns are generally related, in the desire for higher returns will invariably require taking on greater exposure to market risk.

A current example of this is in the fixed interest market, where investors with a higher-risk tolerance have invested into bond issues from companies with low-quality credit ratings (see Know your bonds, they're not all the same). The investment temptation has been the issuers' high income payments, however recent events have seen a large number of these companies default on their debt repayments.

Other key aspects in setting and reviewing goals is your investment time horizon, liquidity requirements, tax obligations, legal issues, or unique factors such as a desire to avoid certain investments entirely. Constraints can change over time, and should be closely monitored.

The danger of lacking a plan

Without an investment plan, it can be easy to lose sight of the bigger picture and to end up with a portfolio that's not well balanced across different asset classes.

As a result your portfolio may wind up being concentrated in a certain market sector (see Over-concentration risk comes to the fore), or it may have so many holdings that oversight of your portfolio becomes onerous.

Most often, investors are led into such situations by common, avoidable mistakes such as performance-chasing, market-timing, or reacting to market "noise."

Many investors—both individuals and institutions—are moved to action by the performance of the broad equity market, increasing equities exposure during bull markets and reducing it during bear markets. Such "buy high, sell low" behaviour is evident in managed fund cash flows that mirror what appears to be an emotional response—fear or greed—rather than a rational one.

Stay focused on your goals

A sound investment plan can help you to avoid such behaviour, because it demonstrates the purpose and value of asset allocation, diversification, and rebalancing. It also helps you to stay focused on your intended contribution and spending rates.

Vanguard believes investors should employ their time and effort up front, on the plan, rather than in ongoing evaluation of each new idea that hits the headlines. This simple step can pay off tremendously in helping you stay on the path toward your financial goals.

Being realistic is essential to this process. You need to recognise your constraints and understand the level of risk you are able to accept.

In reviewing your investment goals, don't underestimate the importance of professional financial advice (find out about Quality financial advice in our Plain Talk library).

A financial adviser can help in developing a framework around your long-term goals and financial capabilities, which can be reviewed regularly over time.

 

 

 

Tony Kaye
Personal Finance Writer
12 May 2020
vanguardinvestments.com.au

 


David Forrest Download David's Adviser Profile

David Forrest

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

Michelle Forrest

Michelle Forrest

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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Darren Chalk Download Darren's Adviser Profile

Darren Chalk

Financial Adviser
B Com, Dip FP

Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.

Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.

With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.

Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.

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Darren Chalk is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

Natasha Bartlett

Natasha Bartlett

Client Service Manager

Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.

Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.

Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.

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Kelly Collins

Kelly Collins

Client Service Manager

Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.

On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.

Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.

Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.

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Jasmine Smith

Jasmine Smith

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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Merrilyn Smith

Merrilyn Smith

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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