Prepare yourself

WHEN it come to our investment portfolios, it is important to be prepared for the good times and – as much as nobody likes to think about it – the bad.

SuperLiving spoke to Personal Wealth Advisors principal Cameron Howlett about what we could do to make sure we are prepared for any curve balls that might be thrown at our investment portfolios.

“Warren Buffett said be fearful when others are greedy and be greedy when others are fearful,” Howlett said.

“You are better off looking to invest when the markets are lower. If you look at the Australian market over the last 100 years, it has always gone back up so you would be better off investing when the markets are lower. The hard thing is trying to work out when that low point is. Is it now? Next week? Is it in one month’s time?

“I don’t have the answer to that. I guess you have to look at the context of it and you think at some point in five to 10 years, now might be a good time to be putting money into the market.”

Diversification is the key. “You don’t want to have all your eggs in the one basket,” Howlett said. “I think it’s true at all asset classes, if you were to put all of your money into Australian shares, then during the GFC you would have seen the value of it fall by about half ... if you were to retire at that time and you had about one million dollars, your million dollars would be more like $500,000.”

“That then has an impact on your income that you can draw on.”

Howlett says the issue with just investing in just one asset class is risky. “If one asset class falls you are going to be negatively impacted in comparison to if you have some money in property, cash and term deposits.”

How we invest our money is dependent on the stage in life we are at. So are we close to retirement or are we a while off from it? We also have to ask ourselves the question – what do we actually want from the money we are investing?

“There is no point in a retiree [or someone close to retiring] putting all their eggs into mining stocks,” he said. “For example say it was a gold mine in Western Australia that had not started digging up for gold, it is probably not what the retiree would be after.

“If this retiree is looking at investing for an income and had the point of view that they did not really want any capital volatility then they should look at term deposits and maybe some blue chip shares that pay a fully franked dividend.”

Meanwhile, if it were someone who was looking at accumulating and growing their wealth then high-growth areas like local and international equities would be a more suitable option.

At some point in time, we would have all made a mistake in terms of our investment portfolio, whether it was big or small.

“These mistakes are often emotional mistakes,” Howlett said.

“Often I see people come to me and they have a portfolio of assets – it could be equities, it could be term deposits. They come in and say that they would like to sell certain assets. Usually these are the people who are in the red.”

Howlett said it might sometimes just be the time of the asset in the market has not been long enough for growth.

We are all attracted to headlines and advertising. “Say an ad in the paper which says 10.9 per cent guaranteed for five years [on an investment], it could be some kind of debenture or second mortgage investment. People who are looking for an investment with an income would look at it and say that it’s a really good return.”

Thinking about the income we are going to get from an investment is not the be all and end all. Howlett said we also needed to think about where the money we are investing was going and what it had been invested in.

“So it is important to have a good understanding about where you are putting your money and if it claims to be a safe investment, make sure it is safe.”