Your attitude to risk is one of the most important factors to consider when it comes to investing.
This is because growth assets, like shares and property securities, tend to have more volatile returns over the shorter term but they do have the potential to produce higher long-term returns.
Assets like bonds and cash are considered lower risk and less volatile but they generally do not have the same potential for similar high returns over the long term.
Understanding whether you have an appetite for risk and where you are on the risk spectrum is often the first step on an investment journey.
Generally, the longer you have to invest, the more growth assets you can include in your portfolio.
The graph below illustrates how the ups and downs of investment markets tend to even out and the gap between the highest and lowest returns closes over time. For example, holding international shares for just one year an investor might experience a return of over 40% or lower than -30%. Over longer time periods, however, these wild swings tend to smooth out.
This is why it is important to consider your timeframe for your investment goal when choosing your investments. For instance, investing funds you're earmarking for a home you want to buy in three years is very different to funds you're setting aside for your retirement in thirty years. The risk tolerance for the former is much lower because of the shorter time frame.
Range of returns over 1, 5 and 10 year periods (1 January 1990 - 30 September 2017)
Note: Assumes 100% reinvestment of distributions without any considerations of fees.
Source: Vanguard calculations using data from Morningstar Direct.
Most fund managers offer diversified funds where the mix of investments, or asset allocations, are aligned with a range of investor profiles and their appetite for risk.
Let's look at Vanguard Diversified Funds as an example. There are four funds - conservative, balanced, growth and high growth.
They aim to provide long-term investment returns that match your desired level of risk. The allocations to defensive assets (bonds and cash) and growth (shares and property securities) are the main factors influencing the risk/return profiles of the Diversified Fund portfolios.
Vanguard's Diversified High Growth Fund invests 10 per cent of the portfolio in income or defensive assets (bonds) and 90 per cent in growth assets (shares), and is suited to those seeking capital growth and those with a higher risk tolerance and longer investment time frame.
However, if the thought of your investments going up and down is going to keep you awake at night, you may feel more comfortable choosing a more conservative or balanced investment approach, where there is a higher allocation to defensive assets.
Although taking no risk can be one of the biggest risks of all, if you invest all your money in cash, inflation and costs can erode your investment returns and purchasing power over time.
Written by
Vanguard
29 Jun, 2021
vanguard.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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