INVESTMENT APPROACH - ExpandedStart Saving Early The BIG thing about wealth creation and planning for retirement is that it is not an immediate issue. So what usually happens?............Nothing! “I'll start planning for my future when …” • Mortgage under control • Kids have moved out • In another 5 years • After I get the car fixed/replaced • After I get a pay rise Some Types of Risk Market Risk – The risk that the share market enters a Bear market Specific Risk - The risk that an individual share has a correction Financial Risk – Gearing or leverage ie borrowing to buy an asset or debt in a specific company Liquidity Risk – Cannot buy or sell an asset in a thin or illiquid market Market Exposure Dow Theory Phase Analysis Bull Market - Reviving Confidence
- Increasing Earnings
- Rampant Speculation
Bear Market - Abandonment of Hopes
- Decreased Earnings
- Distress Selling
ASSET CLASSES - Cash
- Fixed Interest
- Shares
- Property
PORTFOLIO TYPES A Cautious portfolio will hold high levels of Cash and Fixed Interest assets and low levels of Shares and Property compared to a High Growth portfolio. Some examples of asset allocation are listed in the following table. Portfolio Type | Cash | Fixed Interest | Australian Shares | International Shares | Property | Cautious | 10% | 70% | 10% | 0% | 10% | Conservative | 10% | 50% | 15% | 5% | 20% | Balanced | 5% | 25% | 35% | 15% | 20% | Growth | 5% | 10% | 45% | 30% | 10% | High Growth | 5% | 0% | 50% | 35% | 10% |
Value Investing Value Investing revolves around selecting stocks that have good long term value, but poor short term performance. The following table shows how the market reacts to news for poorly performing and strongly performing stocks. News | Stock priced for failure | Stock priced for perfection | Good | large rise | minor move | Bad | minor move | large fall |
By taking a ‘value' and ‘contrarian' approach, one can aim to steer away from the crowd and reduce risk. This approach is not new and there are many fund managers who have long term success by following it. The bottom line is that investors consistently overvalue the so-called ‘best' stocks and undervalue the so-called ‘worst' stocks. Growth Investing – Does best in strong markets. Value Investing – Does best in weaker markets. It performs best over a full market cycle. |
