Preserving wealth and securing your family’s financial future requires strategic investment.
Prudent financial management and smart investment decisions can help preserve and grow your wealth for your financial future and for generations to come ensuring a lasting legacy for your loved ones.
“To invest successfully one does not require a stratospheric IQ, unusual business insights, or insider information. What’s needed is a sound framework for making investment decisions, and the ability to keep emotions from corroding that framework.” – Warren Buffett
The ABC Way - The Four pillars of our investment philosophy
1. Avoid Speculation
We do not speculate. Speculation is usually very exciting and can be a lot of fun while you are ahead of the game, but in our experience, speculating usually ends in pain.
2. Diversification
The more an investor depends on their portfolio and the income it generates, the greater the importance for the investor to guard against the unexpected.
We protect your portfolio from unforeseen circumstances through diversification. “Do not put all of your eggs in one basket” is a common description of diversification. By spreading your portfolio over many different uncorrelated asset classes, you reduce the risk of suffering from massive losses.
Diversification doesn’t just minimise your odds of being wrong, it also maximises your chances of being right. That is, diversification isn’t just about managing risk, but diversification can also increase returns, or at a minimum make those returns more predictable and stable.
3. Invest directly to avoid third party fund manager fees
“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.” – Warren Buffett
One of our main objectives is to eliminate paying unnecessary fees to third party fund managers. Managed funds can be an easy and passive way to invest, but they do come at a cost. Fund Management fees can be up to 2% of the value of your portfolio. This is a large portion of your wealth going to pay for someone else’s retirement every year. The lower the fees, the higher the income you’ll enjoy in retirement.
We would be happy to pay third party fund management fees if these managers have a consistent track record of adding more value than they charge, but evidence suggests most fund managers fail to ‘beat the market’ especially after fees. For this reason, we prefer investing directly.
4. Tactical portfolio rebalancing
Your portfolio will be reviewed on a regular basis by the investment committee and your adviser. We will review the portfolio having consideration to the ever-changing economy, investment markets, and your changing personal circumstances.
While we review all holdings within your portfolio on a regular basis, every year we will meet to discuss your risk tolerance and changing personal circumstances and rebalance accordingly. If your situation has not changed then we will rebalance your portfolio back to the initial target asset allocation where possible.
This tactical rebalancing requires discipline and eliminates the need to attempt to predict the future. By rebalancing the portfolio on an annual basis to the initial allocation of defensive/growth assets, it forces us to take profits from our investments that go up (i.e. sell when share prices are high) and in the event the market has fallen, we buy more at lower levels by shifting some of the funds from defensive assets to take advantage of buying opportunities (i.e. buy when prices are low). This tactical portfolio rebalancing seeks to take advantage of market madness rather than participate in it
These four strategies sound simple and are what we consider to be common sense, but when it comes to investing so many intelligent people and professionals get it wrong.
“They could shut the share market for a year, or many years and it won’t affect our investment decisions. When we buy a share in a company, we intend to hold those shares for a very long time.” – Warren Buffett
Our focus on risk management does not mean we are risk averse. Our job is not to avoid risk. Our job is to ensure your portfolio is efficient. That is, we are maximising returns to achieve your long-term investment objectives having consideration to your risk tolerance.
Long-term Focus
Maintaining a long-term investment horizon is essential to creating and preserving wealth. While market fluctuations can be unsettling at times, avoiding knee jerk reactions is essential. Remain focused on your financial goals and avoid trying to time the market.
Our investment philosophy is not underpinned by a goal to beat the market. Attempting to time the market or beat the market is a dangerous sport adopted by many unsuccessful investors. We simply buy quality assets that are diversified across sectors and asset classes. The key ingredient to ensure its success is you. You need to be disciplined and patient. We will try to keep you on track to your long-term plan, but it is ultimately you who controls the decisions regarding your SMSF. You need the discipline to stick to our investment approach, and the patience to enjoy the gains such a philosophy will generate over time.
Contact us and speak to one of the team today – they would be delighted to answer any questions you may have.