Finally, the last step is to work out the required return. In this current scenario, an annual investment return of about 6 per cent is required. While Australians have become accustomed to solid investment returns over the last 20 years, 6 per cent is a lofty target and will require risk-taking.
Investment selection – selecting the appropriate securities to support your asset allocation and preferences.
The reality is investing seldom starts with a blank sheet of paper – you normally have a super fund at the minimum – but to continue with our very simplified example let’s assume the $50,000 starting amount is in cash, you have no other investments, and you’ll make the investments personally.
We also know you’d prefer a passive investment style and, like the rest of us, you are time-poor. There are so many ways to approach this and that’s why many Australians seek advice, but let’s assume you did your research alongside a trusted adviser, you read the Product Disclosure Statements, and selected the Vanguard Diversified Growth Index Fund.
It has a mix of 70% in growth assets and 30% in defensive assets, and Vanguard do a lot of the work for you – so the time commitment should be low.
Finding the right trading platform
But how are you actually going to get your $50,000 invested? The fund can be accessed a number of ways, such as via a Commsec or NabTrade account, or you could invest in the unlisted managed fund. It’s important to weigh the pros and cons of the platform – including fees and costs, minimum and ongoing investment amounts, and platform features (like reporting).
It’s important to do the work upfront – you want to avoid selling down your investments in a few years’ time because you’re unhappy with your platform or the investment itself.
Oversight and emotional management
Vanguard will do a lot of the heavy lifting in terms of rebalancing to ensure the asset allocation is maintained at roughly 70% growth assets, but it’s important you oversee performance, make sure your ongoing quarterly contributions are invested, and periodically revisit your goals and preferences.
Avoid the temptation to measure the success of the investment over short timeframes, and avoid panicking if markets do dip. Stick to your plan, continue with your contributions and trust the work you did up front.
Today’s guide gives a taste of the many considerations when building a portfolio, but remember financial planning is about setting out a clear and realistic plan that suits your life and goals. There’s no right answer to building a diversified portfolio – it is a personalised process and ultimately depends on what you’re trying to achieve.
Annika Bradley is the director of manager research ratings at research firm Morningstar’s Asia-Pacific business.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Originally published at Sydney News HQ
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