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Financial Planning Tips | Success in investing

From our experience in the Financial Planning industry here in Adelaide, while the investment industry has promoted investing as a specialist field, creating a sound portfolio is much simpler than most think or want you to believe. Sure there are advantages in receiving quality investment advice but basic principles apply.

Most people not directly involved in Financial Planning might believe that investment returns have everything to do with selecting the ‘right’ financial investments. You see proof of this in the huge array of financial information in the media and internet.

This isn’t actually correct.

While knowing which investments to buy does have a bearing, it has a much smaller impact than most would think; only 20% of the return!. It’s not widely known that around 80% of predictable returns relates to the asset allocation and the proportions between defensive and growth assets in a portfolio.

There are 4 fundamental steps to successful investing:

1. Objectives Clearly define your objectives of what it is that you want or your motivation for investing. This includes stating when you’d like to achieve your goals by.
2. Risk Know your risk profile which is your attitude to risk and return.
3. Allocate Allocate your savings to the major asset classes (this is called asset allocation) and is defined by your risk profile in step 2.
4. Select Finally, select specific investments that match your asset allocation model.

Step 1, this simple process will make your investing far more meaningful because there is a ‘science’ and reason around the choices and decisions you make. Most people will tell us they are risk takers when in truth they may not be. The test for investors is how they react and feel when markets fall. Managing the downside risks is a sound approach to investing. Once you have dealt with this, the upside will look after itself.

Step 2, defining your risk profile, is very important. The best way to do this is to complete a risk profile questionnaire. A financial planner can help here or you can do an online version.

Another important consideration is to know if you are investing for growth, income or a balance of both. In most cases investment advisers focus on recommending growth investments and give little credence to income producing assets. For example, if you have enough capital saved for a successful retirement then the question is why would you want to put your savings at undue risk if you didn’t need to? Income producing investments can be a very valuable (and under-rated) part of a portfolio.

Thanks to Bob and Daniel our farm planning and succession process has been extensive and successful. They have provided us with direction, alternatives, and ongoing support, and we consider them to be an important link in our farming system. They demonstrate professionalism and are very easy to get along with. We feel comfortable knowing that they have a genuine interest in what we do and in helping us to make the best decisions for our future.

Amy Tiller