Putting the investment odds in your favour

Putting the investment odds in your favour

Managing investment uncertainty

Whether we like it or not, there’s a lot uncertainty involved in predicting the future. Despite the increasing availability of information, our ability to predict has not improved. This means that we have to learn to live with an element of chance when it comes to managing our investments.

You can manage this element of chance by managing the level of investment risk you hold. An appropriate strategy will consider a) how much risk is appropriate and b) how you will manage this risk exposure over time (or across varying market conditions).

In this article we look at another area of life where the need to manage elements of chance arises and make some comparisons on how we might apply this experience to investment management.

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Is your investment risk strategy paying off?

Is your investment risk strategy paying off?Are you an intelligent risk taker?

Most investors accept the notion that risk and return are related and that those who are prepared to take on more risk will ultimately get rewarded for their risk taking. As we’ve seen with the implosion of some investments during the GFC, increased risk taking does not always guarantee higher returns, it simply exposes you to the opportunity for higher returns.
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Choosing your target asset allocation

Choosing your target asset allocationThe determinants of your asset allocation choice

In our previous article, “Understanding asset allocation”, we focused on the questions “What is asset allocation?” and “Why is it important?”. In this article, we provide an overview of what is most important when choosing your target asset allocation or investment risk exposure.

At the highest level, we measure risk exposure by how your investment wealth is divided between defensive (low risk) and growth (higher risk) investment assets. In “The asset allocation decision” we explained that your mix between defensive and growth assets should be determined after a careful weighing up of the following sometimes competing considerations:
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Should past performance affect your willingness to take investment risk?

Past investment performance is seductiveShould past performance affect your willingness to take investment risk?

It’s a difficult task being a good investor. You’re keen to celebrate when your investments perform well, yet you’re also looking for opportunities to acquire new exposure when prices are low. Unfortunately, good investment performance and low prices rarely go hand in hand. This creates an ongoing dilemma for wealth accumulators – do you want your investments to go up or down in the short term?

Many investors are reluctant to invest new money in asset classes that show poor recent performance, instead preferring to increase their exposure to the better performing asset classes. This seems to be a logical thought process, but is it conducive to the achievement of your wealth accumulation plans?
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Five Things To Remember In Difficult Times

“I have not looked at any of my holdings and don’t intend to. I don’t want to be tempted to jump because I think I’d be more likely to jump in the wrong direction than the right one. My advice has always been to choose a sensible diversified portfolio and stop reading the financial pages. I recommend the sports section.”

Quotation attributed to Richard Thaler, professor of behavioral science and economics, University of Chicago Graduate School of Business.[1]

These are difficult times – nobody knows how and when markets will stabilise. We appreciate the emotions they arouse. But you should take some comfort  that our planning process is not driven by what is happening in the market at any point in time. It focuses on achieving your long term financial objectives, based on reasonable projections of long term investment returns.
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