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Archive for investment strategy

Investment Planning: What a “Back to Basics” Investment Strategy Could Mean for You

Debbie Alliston is the Head of Multi-Asset Portfolio Management for our parent company, AMP Capital. Her leadership is one of the many investment planning resources provided to us by AMP Capital.

In December 2015, Ms Alliston contributed an article to the AMP Capital blog called “Is it time to go back to basics?” We would like to provide you with some of the information from that article.*

Cash interest rates are low, not only in Australia but around the world. US rates are rising but the projected growth is slow. Consequently, investors may wonder how to make money in the financial markets. Bond yields are low, as are the yields in other asset classes.*

When the numbers for 2015 come in, it is expected that the equity markets will show positive performance for four consecutive years. However, the low-growth environment in financial markets has many investors unsure of future growth in the equity markets. Australian equities have produced negative earnings growth for the last three years. Ms Alliston doesn’t see it turning around until at least 2017.*

Ms Alliston is of the opinion that a “back to basics” approach may be appropriate.*

Back To Baiscs Investment Planning Strategy

Equity Risk Premium (ERP)

According to Ms Alliston, investing in equities provides a premium over investing in bonds and cash. Since 1900, what she calls the “realised ERP” has provided an average of close to 6.0% for Australia and 4.5% for the US. For the present, she predicts a 3.5-4.0% ERP in Australia and between 4.5-5.0% ERP in Asia and emerging markets.*

She sees the US market as “fully valued” while Japan, Europe and Asia “offer attractive value.” While the yields from cash rates and bonds are projected to remain low, she sees the equities market as one that will reward investors for their risk, making equities “an asset of choice.”*

However, she cautions that the valuation buffer has gone down while risk in the equities market has risen. Before the Global Financial Crisis (GFC), Australian equity shares had outperformed global shares. For the last five years, though, global markets have outperformed Australian markets.*

She believes Australian shares will continue to lag behind global markets due to subpar growth, pressure on banks to improve the strength of their balance sheets and the commodities sector still seeing slow growth.*


Diversification is a technique designed to mitigate equity risk. In most portfolios, equities represent the largest risk. Diversification means finding strategies and assets that are not associated with equity risk.*

Ms Alliston sees investing in Government bonds as “the most obvious diversifier.” When the economy fails to grow, cash rates are typically lowered. This increases capital value and lowers bond yields. Bonds become more sensitive to changes in their yields as the duration or maturity of those bonds becomes longer.*

While current yields are low, Ms Alliston feels that if there is a significant market correction, bonds will outperform equities, which can provide offset and mitigate a portion of one’s losses. Currency can also play a role because the Australian dollar can often underperform when equity markets are falling.*

Infrastructure and property have a connection to economic growth factors but they are also tied into factors such as supply and demand, cash rates and inflation. This can give them different performance dynamics than equities.*

Private equity provides diversity because while economic factors affect them, management can make a great difference in performance.*

What it All Means

Ms Alliston believes that investors should examine their portfolios closely to evaluate their level of diversification. She cites portfolio construction as a skill that is specialised and can help maximise returns for investors. In the quarter ending September 2015, diversified funds only suffered between 25-33% of the drawdown in equities markets.*

There are numerous multi-asset vehicles on the market for investors which are professionally managed to provide varying degrees of risk/reward. Ms Alliston sees a “professionally managed solution” as an investment that “makes sense.”

If you would like to learn more or would like an obligation-free consult, call Approved Financial Planners today: 08 6462 0888.

*AMP Capital, Debbie Alliston. “Is it time to go back to basics?” 09 December 2015.

Self-Managed Super Funds: Why It is Important to Have a Sound SMSF Investment Strategy

A sound SMSF investment strategy can go a long way towards providing peace of mind and a prosperous retirement.

Many Australians are taking advantage of the opportunity to set up their own SMSFs. However, this can be a double-edged sword. While a brilliantly-maximised SMSF can provide a prosperous lifestyle during retirement, mistakes in strategy can cost thousands of dollars. Due to the highly-regulated nature of SMSFs, it is our belief that one should always seek the help of professionals who are trained in the regulations and in maximising investments such as an SMSF.

Have a Sound SMSF Investment Strategy

To manage an SMSF, you must register as a Trustee. One of your mandatory duties as an SMSF trustee is to formulate and document an investment strategy. This is a financial plan that takes into consideration the current and future needs of every SMSF member, even if you are the only member.

Every SMSF is required to pass a test from the ATO called a “Sole Purpose Test,” which requires all investments “to have the sole purpose of providing retirement benefits or death benefits to the Beneficiaries of the SMSF.”

One of the most-cited benefits of an SMSF is having control of your investments. The SIS Act requires all trustees to formulate, execute and document all investment decisions and to monitor their performance on an ongoing basis. The SMSF investment strategy is an essential and mandatory part of this process.

The Investment Strategy Dictates Investment Results

Since all investments in the SMSF must be invested according to the investment strategy, the strategy must be sound in order to produce optimum results. All factors must be considered in an SMSF investment strategy. This includes assessing risk against possible return on investment.

It also includes the composition and diversity of the investments and maintaining a degree of liquidity within the fund. The SMSF must also have the ability to discharge any existing liabilities.

Putting It All Together

A sound SMSF investment strategy will contain diverse investments such as property, shares and cash. The SMSF must be able to pay expenses and should be protected by adequate insurance. It must also be able to pass an independent audit conducted on an annual basis.

To learn more, call our financial planners in Perth: (08) 6462 0888.