Wednesday 28 August, 2019
Taking a long term view? Always smart.
It’s one thing to chase a short-term dividend – but another to create robust, reliable returns through economic cycles and shifting market conditions. Setting clear goals up front based on measured, accurate assessments helps to ensure that the strategy you choose will deliver the outcomes you need.
Accurate, realistic investment goals are a key factor that influence your overall investment strategy. While your investment adviser should play an active part in helping you set these goals, we’ve provided a useful framework to help you appreciate the returns that different investment types will generally create. But remember, the higher you set your goals, the more aggressive your strategy will tend to be – and the more potential exposure to risk you will tend to take on.
And in setting your expectations of future returns, it’s also worth remembering that:
- Passive assets such as term deposits are generally low risk – they tend to provide relatively low returns, especially after you take inflation into account. The longer your ‘investment horizon’, the more you can take advantage of potentially higher returns that quality bonds and shares deliver.
- Funds which are actively managed – rather than ‘set and forget’ – also create greater possibility for strong returns, with fund managers and analysts providing ongoing reviews of the performance of the equities within their funds – and looking for new opportunities.
- As market conditions change, the performance of different assets will rise and fall. The decision whether to ‘ride out’ these fluctuations – or re-evaluate your strategy in light of them – is an important one. It’s a good idea to have a conversation with your investment adviser.
THE MAIN ASSET CLASSES ARE:
Cash is the lowest risk asset class with historic returns of about 1-2% above inflation. Credit exposure is a key risk to manage.
Fixed income includes government bonds and high quality company bonds through to higher yielding (with more risk) bonds.
Historically property has offered returns between those of Fixed Income and Equities. They’re more exposed to changes in interest rates so diversification is key.
The higher risk investment class historically offering 3-4% above cash over the long term.