Regardless of why you start investing, it’s important that you have a working understanding of the intricacies of your investment portfolio.
Australians feel confident investing in popular products such as cash and property, according to the Australian Securities Exchange (ASX). However, shortcomings in awareness about more complex options and investment concepts has created a considerable lack of comfort surrounding other products.
Working with a financial planner will establish a lifelong learning relationship, instilling you with greater confidence in your investments. We spoke to Anthony Lyons, a financial planner from our Brisbane office, about how he helps clients to understand their portfolios.
“Risk tolerance links back to our investment philosophy; we’re not here to simply get the highest returns but also to focus more on capital preservation. It’s about the end-game and how much we need to live our best possible life, without taking more risk than is necessary,” says Anthony.
The risk/return trade-off is a key principle of investing, which is not as widely understood as it should be. A massive 68 percent of Australians either do not understand the concept, or have never heard of it, according to the Australian Securities and Investments Commission (ASIC).
This concept refers to the correlation between the risk and the projected returns of a product. Simply put, the higher returns expected from an investment over a short period of time, the more likely it is to experience a permanent loss of value or below-expectation performance.
As risk is a fundamental aspect of investing, Anthony stresses the importance of helping you understand your own ‘risk tolerance’ – your personal willingness to make risky investments and using that to guide you to suitable investments:
“At the end of the day, I want to be up-front with my clients about the worst case scenario to make sure they completely understand and are prepared for how their investment may perform.”
“Often your investing habits and directions can be formed from the habits and experiences of your family. When talking to clients about other recommendations, I break down why those suggestions may or may not be suitable for their specific situation and relate it back to their circumstances and risk tolerance,” Anthony says.
Australians are often willing to take on the financial advice of family members, but that advice may not always be relevant to your own financial situation or investor profile.
“The first myth I hear most is that property never loses value; it doesn’t always but it is a definite possibility. Property is not daily priced and you only know the value of your place when you come to sell it,” explains Anthony.
There are countless bits of misinformation floating around, often caused by sweeping generalisations about investments. Your financial planner has access to industry knowledge of the projected performance of various investments, which can help clear up confusion caused by these myths.
Anthony elaborates on how investment myths are to be taken with a grain of salt:
Diversification is another key aspect that Australians are commonly left in the dark about. Only 39 per cent of Australians believe they understand the concept, according to the ASIC financial literacy report. Investment myths threaten to eschew your portfolio and have you put all your eggs in one basket – potentially increasing your risk profile beyond your tolerance.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
You may also like