19
January
2014

What is the right investment for me?

Developing your investment plan...

This is one of the most common questions I am asked as a financial planner, and like most things in life there is no simple answer!

A number of factors determine the appropriate investment for an individual, the time horizon of the investment, the requirements for the investment and the tolerance for risk of the investor.

The aims of financial planning investment recommendations is to provide reasonably accurate outcomes and as such are more conservative in nature than other investments such as a direct shares or a property development, which have the potential for very large returns in a short period however may also lose money.

The foundation for conservative investment is diversification. By investing in a number of different assets, you are able to reduce the risk of the investment, the asset classes are cash, fixed interest, property, Australian Shares and International shares. Each of those asset classes offer different growth and income characteristics and have different levels of risk. As a basic rule the greater the risk the greater the potential return.

Within each of those asset classes we also diversify, particularly within the more aggressive investments such as shares and property, for example not only do we invest in a number of shares, we invest in different types of shares, different industry, life stages and alike.

The other investment fundamental is the use of risk profiles. Essentially the financial planning industry has identified a number of risk profiles ranging from defensive (conservative) to high Growth (aggressive). These risk profiles each have a pre-determined level of risk and volatility that is expected for each profile. These profiles have an investment structure which is statistically modelled to provide the highest return within the expectations for the risk profile.

Each individual client has a risk profile assessed, the most important factor in determining how aggressive we are with an investment is the length of time, the basic premise is the longer the investment horizon, the more potential for growth assets. The theory being, statistically speaking, the longer the investment length the closer to long term averages the investment will achieve,  and as more aggressive portfolios have a wider range of results, a longer time frame is required. Or more simply speaking, you have a longer time to recover from a bad year.

The length of time the money invested sets a maximum level of growth, however not all investors will be comfortable with the level of volatility throughout an investment despite the long investment horizon. A financial planner will help determine an investor’s natural aversion to risk and adjust the risk profile accordingly.

The final piece in the puzzle is the requirements of the investment. If the investment is to achieve a specific goal, this may require the investment to be adjusted. Any investment that requires income from the investment (EG. Retirement income) will have to be invested to achieve this goal, a focus on income generating products will be necessary. It may be necessary to take more risk than the client would like if the client needs a higher return to achieve financial goals. The reverse is also true; there may be no need to take investment risk if you will have sufficient savings to achieve your goals with a lower level of volatility.

If you are interested in receiving advice in relation to developing an investment plan, especially in relation to superannuation (an often neglected area), please contact Future Financial Services for advice on Phone: 02 47276588 or via our contact page.

Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services

Past:

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

Education

  • University of Western Sydney
  • Penrith High

About

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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