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News Bulletin : ADA News Bulletin July 2011
55 July 2011 investment insight WHAT dO SUCCESSfUL InvESTORS dO? Most successful investors invest in a diversified portfolio that has an appropriate asset allocation for their own personal risk tolerance. Once the portfolio is established these investors review their investments periodically to track how their portfolio is performing and make changes as required. Keeping up-to- date with the required information to ensure you are on the right path to achieve your goals is sometimes put in the ‘too hard basket’. Alternatively, the task is outsourced to a financial adviser. Most importantly an investor needs to be comfortable with their investments so they can sleep at night. In order to have that comfort they need to invest a little time looking after and understanding their investments. WHAT dO fInAnCIAL PLAnnERS REALLY PROvIdE? When advisers go through the financial advice process – helping clients establish their objectives, developing a strategy, recommending investments and implementing the strategy, they are simply on-selling the ‘one size fits all’ corporate approach to financial planning. This process is in itself a product created by financial planning organisations with the primary goal of selling products manufactured by their parent company or employer. In reality, financial advisers are gatekeepers of information charging investors service fees (typically 1% of asset value per annum) to access products and portfolio administration platforms. Advisers often have several hundred clients and as a result their time is spread too thinly to closely monitor individual portfolios. This is why client participation in the wealth creation process is vitally important. HOW TO bE YOUR OWn fInAnCIAL PLAnnER Many investors are unaware of what they’ve actually invested in – or why. Even with a financial planner they are often not aware or comfortable with the recommendations because they don’t understand the why. The first piece of the puzzle is to understand your appetite for risk so that you have investments that allow you to sleep at night. All well and good you might say but how do I determine my personal risk profile. The answer is FinaMetrica – an internationally recognised risk profiling tool that originated in Australia and is used around the world. dETERMInInG YOUR PERSOnAL RISK PROfILE FinaMetrica offers a self-profiling questionnaire to assess personal risk tolerance. Completing a series of questions determines a risk score relative to the rest of the population. Each score falls into one of seven different risk profiles and each profile has a suitable asset allocation recommendation. Determining risk tolerance provides the investor with a greater understanding of their personal attitude towards risk. The baseline asset allocation allows the investor to review whether or not the asset allocation in their current portfolio is appropriate. COnSTRUCTInG A PORTfOLIO OR bEnCHMARK Having ascertained a risk profile and a suitable asset allocation, the next consideration is the type of investments to be used to create the portfolio or use as a benchmark to measure an existing portfolio against. The question that now arises – ‘What is the best way to do this?’ It is suggested you compare your portfolio to one that was researched, created and maintained by professionals, for example Standard & Poor’s (S&P). Standard & Poor’s, a global investment research company, primarily caters to financial institutions. Their research Visit the 2020 website for further information on the 2020 DIY Portfolio Service developed as an ongoing service to enhance and increase our client’s investment knowledge and help them become better investors. methodology is to routinely conduct thorough qualitative assessments of fund managers and their investment products and to act as an independent rating service. Standard & Poor’s is able to create combinations of the best managers in any asset class to construct portfolios catering for different levels of risk. By accessing these portfolios investors have a benchmark against which to measure their portfolio. The S&P portfolios allow investors to determine whether their own portfolio is performing the way it should against a portfolio that has been statistically determined to be most appropriate for their risk appetite. If investors find that their portfolio isn’t performing as well as it should, then they have a starting point for what it should look like and then start asking ‘why’. ACCESSInG TIMELY MARKET InfORMATIOn Successful investing requires access to timely information – the very same information used by professional investors and fund managers. Often by the time you read something in the newspaper it’s too late to act on that information. A news service called FNArena is a high quality equities news provider widely used by professional traders. It collates information on a daily basis and makes available a daily morning broker call, summarizing the opinions, recommendations and forecasts of eight leading stock brokers. The daily broker call is sent to subscribers each morning before the share market opens allowing investors time to act. FNArena also has developed some unique analytical tools that provide the consensus opinion on various stocks by compiling and comparing all of the research from leading stockbroking firms. To become a better DIY investor you need the necessary building blocks and an understanding of your personal risk profile as well as access to ongoing research and timely information from credible professional sources.* By developing these skills you will become a more confident architect of your own financial success. The world of personal financial services is changing (hopefully for the better) and I believe that the successful investors of the future will be those who take control of their destiny combining timely information with quality ongoing education. Sure it will take a bit of effort on your part but the rewards far outweigh the risks. The information contained in this article is believed to be accurate. To the maximum extent permitted by the law, 2020 DIRECTINVEST (AFSL 244 249) disclaims liability for errors in, or omissions from, this article. In no way should this article be construed as providing securities advice or an endorsement or recommendation of any security or product. In preparing this article we have not taken into consideration your investment objectives or your investment needs and make no representation as to the suitability or otherwise of any product, or security, to you. Michael Lannon is the Executive Director of 2020 DIRECTINVEST, an ADA Partner service specialising in the provision of execution only DIY investment services. For more information or any questions please contact Michael Lannon on 1800 352 021 or visit 2020’s website on www.2020DIRECTINVEST.com.au
ADA News Bulletin June 2011
ADA News Bulletin August 2011