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The Importance of Personalising Portfolios

April 21, 2022  |  #Investing

Ever wondered what the difference is between ‘active’ and ‘passive’ management of investment portfolios? For David Donato of Strategic Invest Blue, this is a commonly asked question. Here, David offers his insight into why taking a personalised approach is so important when it comes to helping clients with their investments.

In simple terms, ‘active management’ is when a fund manager is actively monitoring and making adjustments to their portfolio in order to try and outperform the market. This occurs when the market is either rising or falling. For example, if the market goes up by 2% then the fund manager would want to go up by a greater margin than that or conversely, should the market drop by 2% then again, they will aim to go down by less than that.

As the name suggests, ‘passive management is when a portfolio is not being actively managed, and the portfolio manager has effectively set up the portfolio to follow the index. For example, the ASX 200 is the top 200 companies in Australia and a fund manager would copy the index and therefore mirror its reactions. For example, if the market is up by 2% then so is the fund and vice versa.

Comparing portfolios based solely on performance is not always a reliable measure and I urge clients to consider what they’re most wanting to achieve with their investments. Of course, everyone hopes for great returns on their investments in a rising market but on the flip side, when the market goes down, no one welcomes negative returns.

 

Getting the Balance Right

Getting the balance right is important and some of our clients are willing to sacrifice a little of the positive return on their investments for some protection when the market dips.

Naturally, where you’re at in life will impact the measure of risk you’re willing to take and best determine whether an actively managed or a passive portfolio is right for you.

Ensuring that clients have a well-diversified portfolio is an important component of financial planning. For example, I would discourage my clients from putting all their investments into one basket. It’s also advisable for any selected fund managers to work together. Such cohesion will deliver a balanced approach and best serve the client and their investment portfolio.

 

Big Dreams

In my view, one of the most important things we do as financial planners is to help people achieve their goals so that they can live their best possible lives. Of course, everyone’s objectives are different, so personalising a portfolio so that an individual or family can attain their key goals is paramount.

A good example of this is in retirement when people are often drawing down on their investments to fund their lifestyle. Selling assets (such as shares) when the market is down is best to avoid. Retirees need to ensure that their portfolio is set up with enough cash or defensive assets like government or corporate bonds to make the necessary withdrawals for everyday living rather than having to sell shares in a poor market simply to fund their lifestyle. Having this all-important buffer not only reduces losses in a falling market but provides clients with the comfort of knowing they can ride out any turmoil.

Alternatively, someone just starting out in their career is unable to access income from their superannuation fund until they’re at least 60 years of age. And so, were I working closely with a 20-year-old client with the knowledge that their funds will be invested for another four decades, it may be appropriate to take a more aggressive approach when setting up their portfolio.

 

The Bottom Line

Ultimately, everyone will have a different view of what their best possible life looks like. Clients have unique and ever-evolving goals and in light of this, setting up and monitoring a portfolio needs to reflect that. This tailor-made approach could well be the difference in someone achieving their best possible life.

Whether you’re raising a family, are an empty nester or are considering retirement, my colleagues and I are dedicated to providing holistic, tailored advice. We see the opportunity to guide clients on their path to financial freedom as a privilege and we look forward to being of assistance.

Please contact us for a complimentary consultation.

 

Featuring Financial Planner

David Donato

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David Donato has over 20 years’ experience in the financial industry and has been a valued part of the Strategic Invest Blue team for over a decade. He particularly enjoys taking the time to understand what his clients most want for themselves and for their family. As a father to three sons, two of whom are still very young, he appreciates the importance of planning for those long-term dreams.

When not busy helping clients, David will most likely be out and about in the great outdoors. He’s one for adventure with mountain biking and scuba diving both keen pursuits. He’s also a die-hard supporter of Clarence Football Club

 

Book a chat with us if you would like to speak with David Donato or one of our other financial planners about your own situation.

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