Spotlight on Investing

By Jim Farrell, Senior Financial Adviser (FPA & MFAA)

Establishing an investment portfolio can be likened to building a home. The most destructive, yet unpredictable predator to the structure of a home is the weather.  Even in these most technically advanced days, we are still unable to accurately predict the weather.

And so too, a man is a fool if he thinks he can successfully predict the future of the global economy.  Like the weather it can be the most unpredictable and destructive threat to your investment earnings. “But with a carefully built portfolio based on sound foundations, you have a much better chance of weathering a financial storm.” says Jim Farrell, Senior Financial Adviser at Soundbridge Financial Services in Rockhampton, Central Queensland.

The foundations of a strong portfolio rely on four key ‘pillars’ or investment principles…

Quality, Value, Diversity and Time.

We are probably all tiring of the old line, “don’t put all your eggs into one basket” – meaning to diversify your portfolio – but that is only one pillar on which to rely. The other three are equally important.

“Let me briefly explain why all four pillars are crucial to your investing success” explains Jim Farrell from Soundbridge Financial Services in Central Queensland.

If we look at the first two pillars, quality, and value, it’s obvious this means to look for assets that are expected to provide higher returns relative to their risks.  Remember that investing in the share market is generally a long-term strategy.

Quality and value don’t always go hand in hand. Quality stocks may trade at such high prices that they offer low initial value, or it could be that expectations for these companies are sometimes too high. The key here is quality… the expectation is that they will be around for a long time, not just a good time.

This takes us back to diversity. Diversity acts like the scales in a portfolio, providing balance. True diversity in a portfolio gives the investor the opportunity to take advantage of “hot stocks” or asset classes, whilst balancing out the risk with quality stocks and asset classes. It can provide a buffer against mistakes in assessing value because nobody gets it right all of the time. A well-balanced portfolio should be designed to cope with occasional losses.

And finally, the pillar of time applies to the previous three. It can give you the best chance of success. Every market will suffer periodic downturns, however over time the upturn will always triumph. The golden rule is don’t panic and get caught up in the fear and greed cycle.

Make sure your investment portfolio is based on solid foundations.

While every care has been taken in the preparation of this article, Soundbridge Pty Ltd (ABN 40 151 134 146) and AFTA Pty Ltd (ABN 18 624 984 550, AFSL 507423) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts.

The information and any advice provided in this document is general and has been prepared without taking into account your objectives, financial situation or needs, and might not be appropriate to your situation. Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to those things. Past performance is not a reliable indicator of future performance.  AFTA Pty Ltd does not warrant that future forecasts are guaranteed to occur.

The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

Soundbridge Pty Ltd (ABN 40 151 134 146) is a representative of AFTA Pty Ltd (ABN 18 624 984 550), Australian Financial Services License (507423), Registered office at 166 Quay Street, Rockhampton QLD 4700. Any advice on this website is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

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