What impacts investment returns?

What impacts investment returns in the long term?

When it comes to investing, it goes without saying that the investment return is very important to the client.  It is imperative for a financial planner to manage a client’s expectations and ensure that they are happy with the risk and return they are likely to receive over the course of the investment.

Over the long-term, by far the biggest contributor to return is the asset allocation. The higher an investments exposure to growth assets such as shares and property, the higher the likely long-term return. Growth assets in the long-term have higher returns than cash and bonds; they also have much more volatility.

The reverse is also true; by adding cash and fixed interest to your investment portfolio, you add stability and reduce downside risk, but you sacrifice potential growth in the long-term for this added stability.

The length of investment and a client’s natural feelings towards investment risk will help us to identify the amount of volatility the client is prepared to accept.  This in turn determines the exposure to growth assets.

Short-term investments normally have a higher allocation to safer asset classes. The reason for this is that in the event of a bad year for growth assets, they won’t be invested long enough to recover with subsequent above average years. Long-term investments will have a range of both above and below average periods of performance, and over the length of the investment likely to end up with investment returns close to the expected average. Therefore, having a higher exposure to shares and property in order to increase the likely returns is a risk worth taking.

Financial planners try and limit the risk without negatively impacting the investment return. The main method is the use of diversification. The use of managed funds and index based investments is a method to spread your exposure.


Managed funds work by pooling the money of a number of clients and investing in a wide range of assets. Most superannuation funds are invested in this method or something similar. Different managed funds have different investment strategies and philosophies they use to choose their investment options. As financial planners, we try and select managed funds with different types of philosophies with the thinking that different approaches will lead to funds over and underperforming the average at different times, further reducing risk.

Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services


  • Paraplanner at Zammit Partners Investments
  • Unit Trust Administrator at Colonial First State


  • University of Western Sydney
  • Penrith High


As a Financial Planner I help people to achieve what they would like in life. This involves helping you to identify the things in life they would like , developing plans to help achieve them and strategies to protect what you already have. We do this by providing Financial Advice to guide you through your life stages.

The financial planning process involves determining a clients current situation and financial objectives and tailoring strategies to assist in best achieving those objectives.

I am an expert in superannuation, investments and insurance, these are tools we use to help you achieve your goals.

I aim to use my knowledge of superannuation, taxation and Centrelink to efficiently use your assets and income to achieve your financial goals.

Retirement and pre-retirement planning, wealth creation, asset protection, insurance planning and estate planning are all areas of advice that I provide.

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