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5 Steps to Building a Great Investment Portfolio

Posted by Naomi Rosenthal on Thursday, June 27, 2013 Under: Investments


My favourite Warren Buffet quote is “Someone's sitting in the shade today because someone planted a tree a long time ago.”

Our society today is always looking for the quick fix. The fastest way to get rich, make a million and be a superstar. TV shows like Australian Idol, Australia’s got Talent or The Voice suggest to its audiences that you can be a star overnight. The reality is that most of the contestants who make it to the finals have been crafting and honing their talents over many years. Small steps daily to reach their goal. And so it is with investing.

What are 5 steps to building a great investment portfolio?

1. Think long term

Because investment markets go up and down all the time, it is only over longer periods of time that the trajectory of returns consistently shifts upwards. Long term can be different for different people, but if you’re investing in real estate or shares, give yourself at least 7 to 10 years. And the more time you have until retirement, the more you’ll be able to maximise returns in your super fund.

2. Diversify (don’t put all your eggs in one basket)

'Diversification' is one of the best tactics to reduce the total risk of your investment portfolio. A loss made on one type of investment may be balanced by a gain on another.

Having a spread of different types of investments means you won’t suffer a big loss just because one sector is doing badly. If one business you've invested in fails, you won't lose all your money. Some of the types of baskets you can use to spread your money around are: different assets (shares, property, bonds), different fund managers, different markets (not just Australia!) and at different times (invest at regular intervals to reduce the risk of bad timing).

3. Know the risks and the risks you’re prepared to take.

All investments have risks. Even cash! (If you leave your money in cash for too long, its value will be eroded by inflation and it’ll be worth less than when you started). Investing is never going to be risk free. With careful planning, you can identify and manage the risks that are most likely to trip you up. Diversification is the best tool you have for overcoming investment risk. It’s also important to know how you feel about the risks of investing. How long you have to invest also factors into the decision. Putting all your savings into a share portfolio knowing you’re going to need it in 12 months’ time for that holiday in Brazil is taking a big risk. Don’t be surprised if you end up with no spending money!

4. Keep track

I’m not suggesting you need to plot daily unit prices on a spreadsheet but good record keeping is an essential part of investing. Treat your paperwork like your best friend—it will save you from stress in the future.

To ensure you stay on track, regularly review your plans and check on your investments. Nothing stays the same so it’s important to keep your portfolio up to date and moving with the times – both with your changes and the investment landscape.

5. Get Advice

Last year’s winner is often this year’s loser. Return figures are always past performance. For example, your average diversified growth fund (see point 2) returned around 13% for the 12 months to April 2013. Great! But does that mean you’ll get the same result next year? No way! At Annual Statement time, I see lots of people wanting to move from one investment option to another or move from one product to another. But don’t just dive in at the deep end and pick last year’s winner. Take the time to meet with us and get advice on the best investment options for you going forward. With our specialist skills and knowledge, we set your investment strategy, create your asset allocation and match it to your time horizon and tolerance to investment risk. Our expertise will see you ahead of the game in no time.

Do you need a review? Contact us today on 02 9417 6011 and book your appointment.

In : Investments 


Tags: investment portfolio "5 steps" "long term" diversify risk "risk management" "keep track" "advice" performance 

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