Elise Burgess | Financial Standard Online | August 15, 2011
A return to safe investments and investor aversion to risk is predicted following recent market fluctuations, but advisers are firm that strong planning principles remain the same.
Perpetual Private Wealth has predicted a return to ‘back-to-basics’ investing with a focus on timeless strategies that protect from additional risk because investors will be risk-averse to highly complex assets in the immediate future, after being unsettled by market behaviour this week.
“Put simply, if you don’t understand an investment, you can’t understand the risks. This still rings true and we expect to see highly-leveraged or speculative investments continue to fall out of favour,” said Nick Langton, general manager, Perpetual Private Clients.
Langton said once the markets settle, risk will be the focus of investment strategies, recommending robust asset protection and choosing the right asset classes such as companies to hold assets or estate planning strategies.
“Quality investments yield benefits over the long-run and we base our investment recommendations on this foundation. It’s not always fashionable, but it’s a tried and tested philosophy,” said Langton.
Financial planner and AFA Financial Adviser of the Year, Steve Salvia told Financial Standard the basic fundamentals of investment are as relevant now as they have ever been.
Salvia said an integral part of a good overall strategy is to spend time educating clients on the upside of investing and strategies to implement when markets are volatile.
“We talk to our clients about concepts like ‘buy in doom – sell in boom’, ‘when they zig – we zag’. The missing ingredient is time.'”
Salvia said that a well constructed portfolio of quality assets, that are regularly rebalanced and reweighted back to benchmark and ensuring various investment time frames are adhered to and reviewed will enable long term goals to be reached.
“Understanding the rollercoaster of investor sentiment is also crucial to assisting clients as it is more often our clients’ perspective of the problem rather than the problem itself,” said Salvia.
Simon Dowd, financial planner, Noall & Co, said that while it is a complex time for investing, it the adviser’s role to act accordingly.
“I agree that clients are cautious towards complex assets. That being said it’s the financial planner’s role to break down the components of such assets and educate clients on how they work. If the product is appropriate for the clients’ needs and the planner has a trusted relationship with the client then the complexity of an asset is no barrier to investing,” Dowd told Financial Standard.
Dowd said that it is becoming clearer that since the GFC many clients are demonstrating more tolerance towards volatility and appreciate that ‘back-to-basics’ investing is about the mid- to longer-term and markets do recover.