Establishing an investment portfolio is often associated with building a home. In most instances the most damaging, yet unpredictable destroyer to the structure of a home is the weather. And just like your home, if you carefully build your investment portfolio based on solid foundations, you have a much better chance of withstanding a financial storm.
Quality and Value
Let’s look at the first two foundations, quality and value; this means to acquire assets that are expected to provide appropriate returns* relative to their risks. Applying this to shares, quality companies may have a good basis to their operations and growth, which means their earnings are not driven by fashion.
Quality and value may not always go hand in hand. But the key here is quality… the expectation is
that they will be around for a long time, not just a good time.
You’ve heard it before but it couldn’t be more true – “don’t put all your eggs into one basket”… meaning to diversify your portfolio. Diversity may act like the scales in a portfolio, potentially providing balance. Real diversity may provide the opportunity to take advantage of opportunities when they arise, whilst balancing the portfolio with solid quality assets. By taking a long-term view**, diversity is a tool used to smooth out a portfolio’s returns
Finally, one of the most important foundations is time… because it applies to all four principles, giving you the best chance of success. Every market will suffer periodic downturns, however, over the longer term the upturns have historically prevailed. The golden rule is don’t panic and refrain from getting caught up in the fear and greed cycle which is often fuelled by the media. Often volatility may create opportunities for future wealth growth.
*Please note that past returns are not a guaranteed indicator of future returns.
**7 years or longer
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Disclaimer: Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.