September 2013 Newsletter 

In this edition:

Welcome

Election 2013: A summary of key tax and business policies

ATO to target unpaid employee super

Compliance in Focus

What is Diversified Investing and why do it?

The old adage remains true today, "you shouldn't have all your eggs in the one basket." This is the basic principle of Diversified Investing. It is reducing your total risk by ensuring that if any one investment underperforms your whole portfolio doesn't.

The 3 main ways to diversify your risk are:

Across Asset Classes
The major types of asset classes are Cash, Fixed Interest, Credit, Property, Shares, Alternatives. Each asset class has its own unique characteristics in terms of risk and return. For example, while cash is relatively risk free it also has a low level of expected return when compared with property. By ensuring you have investments in each of the asset classes you are limiting the effect of any significant event having an undue adverse effect on your portfolio.

Across investment styles
There are different techniques used when determining investment philosophies. These are used by professional investors to determine when they are buying, holding and selling. The 3 main types of investment styles are Value, Growth and G.A.R.P. (Growth at a reasonable price). Each style has its pros and cons and will outperform or under-perform depending upon market conditions.   




Across Markets
As investors, Australians are very focused on Australian investments. This can be to our detriment, as there are significant international investment opportunities that perform well when our local market does not. As an example over the past 2 years the US Share market has significantly outperformed the local share market, not even taking into account the recent fall in the Australian dollar..




Finally why does all this matter?
By diversifying your portfolio you can effectively reduce your total risk without reducing your potential for return or conversely increase your potential return without increasing the total level of risk over the long term. For example, a diversified portfolio (which has holdings across all the major asset classes, invests locally and internationally), would have outperformed the ASX top 20 companies over the past 5 years whilst taking less risk.




Please note that past performance is not a guarantee of future returns. The above is only included as a guide and should not be taken as a guarantee of future outcomes.

If you would like more information please contact our office to speak to one of our financial advisers.