Take Charge of Your Investments

In my last post I talked about how I was overhauling my finances and ditching a Financial Advisor who was happy to take my regular commissions, and provide no value in return.

Here are some important considerations to help you take control of your investments:

Step 1: Risk Profile

There are a number of ways to understand what your risk profile is, and advisors often use surveys to help to assess what people’s risk tolerance level is.  If you don’t have access to these sorts of surveys, have a read of this - https://www.moneysmart.gov.au/investing/invest-smarter/goals-and-risk-tolerance

Essentially, you need to understand how you handle the potential ups and downs in the market.  Everyone loves when their investments make money, but how would you react if another Global Financial Crisis happened (be honest with yourself)?  How long could you tolerate a down swing in your investments before you would feel the urge to sell?

It’s very important to understand this, as it will impact every decision you make in the future.

Step 2: Asset Allocation

This really depends on your age, stage of life, and what your retirement plans are.  If you’re in your 20s and 30s, you have longer to work until retirement, and may be more comfortable with a larger amount of Growth (i.e. higher risk and potentially higher return) assets.

Typically, when one is in “accumulation phase”, which is when you’re still building wealth, your Asset Allocation is generally 70% in Growth assets, and 30% in Defensive assets (which are things like term deposits, savings accounts, gold and bonds).

For me, my risk tolerance is moderate to high, and having still a few decades of work to go, my Asset Allocation is 70:30 (Growth Assets : Defensive Assets).  After assessing my current portfolio, it turned out to be pretty close to this.  I still wanted to then make sure I was happy with the performance of the investments I was in, so now began my research…

Step 3: Researching Investment Options

As a starting point I decided to look into what I was already in, to see what the performance was like, in comparison with what else was out there.  I wanted to exit a “Platform” (basically where hundreds of managed funds are offered under the one umbrella, which is supposed to save on admin, but ends up adding a layer of fees), so I also needed to make sure that whichever investment funds I went into were available to a direct investor.  Many more funds are offering this, and at achievable minimum investments of $5,000 to $25,000 (obviously the minimum of $5,000 is much nicer!).

There are a number of research agencies out there, and while you get a lot more detailed information when you pay for a subscription, they do still offer good information for free – Morningstar, Lonsec and Canstar are just a few.  I consulted these, as well as the Australian Financial Review’s annual Blue Ribbon Awards for best investment funds.

From here I researched the funds themselves, looking at past performance (which admittedly is no guarantee of future performance), fees, investment approach, fund manager experience and approach, unit price performance, and their level of funds under management.  Plus, some completely unexplainable “gut feeling”.

I know this may all sound complex, but if you set up a spreadsheet, and place each of the criteria and fund information in there, it makes assessing the funds against one another much easier and clearer.

Not being confident enough for direct share investing, I decided to go with a blend of managed funds.

It was a bit of a journey (and a leap of faith in my own ability), but worth every moment, and the feeling of empowerment is wonderful!  

Now to track how it all works in practice, so watch this space.