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While there are some investment principles that are universal , there are also individual preferences to be considered. And while we acknowledge no one can accurately predict future investment market movements, is it enough for a financial planner to record your answers in a questionnaire that determines your “risk profile” to then simply match you with a managed fund?
We think there is more to it than that.
Diversification. We all know about putting eggs in baskets! But is a range of the same sort of eggs in similar baskets really diversification? And on the other hand , after a certain point, is adding more and more investments to a portfolio reducing risk or diluting your returns?
Our belief is that you should achieve real diversification by having a spread of different assets but the number of individual investments within those asset classes should be concentrated on “best buys”. For instance a direct share portfolio following a researcher’s model may be made up of the 12 best stocks as identified by that researcher. Just because you have significant funds in your share portfolio, did you reduce risk by increasing your holdings to 30 stocks or did you reduce your performance by buying 18 more that the researcher didn’t like in the first place? We think that is a conversation worth having with you.
How much involvement do you want in investment decisions? We understand that there are people who are simply not interested, there are investors who like to be involved but value advice and assistance and there are self -directed investors doing everything themselves. We don’t have the right to tell you what category you fit. We need to explain your options and listen to your views to help you work it out and then discuss an investment approach that suits you. And guess what, that includes telling a self- directed investor who is doing a good job that they don’t need us!
And there is administration and review to consider. All the paperwork from a direct portfolio is onerous. Tracking the investment movements, dealing with issues such as re invested dividends or corporate actions is essential to keep portfolio tracking up to date. Of course this is all largely avoided by using managed funds! But if you would enjoy discussing whether buying shares in ANZ is a better idea than shares in Rio Tinto for example, then a managed fund won’t be the answer for you. We believe that outsourcing the administration makes sense and then you and your adviser can concentrate on reviewing investment decisions, not updating reports!