× Home Modules Articles Videos Life Events Calculators Quiz Jargon Login
☰ Menu

Keeping your long term focus

Written and accurate as at: Feb 03, 2016 Current Stats & Facts

Link to Video

Video: Morningstar's Christine St Anne and David Simon

Video Transcript

Christine St Anne: With the volatile market, it's understandable that investors may want to reevaluate their long-term goals. But even in these markets, investment principles still apply. Today, I am joined by Westpac's David Simon to discuss strategies to keep that focus on your long-term goals. David, welcome.

David Simon: Thank you, Christine.

St Anne: Firstly, David, what are the key objectives investors need to look at to get the asset allocation mix right?

Simon: Good question, Christine. Investors need to consider quite a range of objectives before they actually make a final investment decision. So, some of them include their investment return. So, what type of return is the investor seeking? Are they seeking income to improve their cash flow or are they prepared to defer their income in order to seek capital growth?

Other considerations investors need to think about is liquidity. Do I need access to their investments in the immediate sense or are they prepared to lock them away? Time frame is also important. Is an investor looking to invest for a short period, a medium term, or are they prepared to invest for the long-term such as for their retirement?

Other aspects such as tax is also very important. Has the investor considered the most appropriate method from a tax point of view. And one pitfall is, many investors don't think about the estate planning impacts. So, when they make an investment decision, have they considered how it impacts their immediate family, their beneficiaries, dependents, and indeed their overall estate through their future generations? Overwhelmingly, what's important is that once they consider these aspects and factors, have they assessed whether they are relevant or adequate to meet their overall personal needs and objectives?

St Anne: How do you stick to your plan even during market volatility?

Simon: Look, investors need not panic during the market volatility. Instead, they need to be methodical and effectively reevaluate their strategy, their needs, and the plan. After this assessment, if it still seems that the plan isn't working, then they may need to make some tweaking changes, but ultimately, we believe sticking to the plan is vital even though it may require some minor alternations.

It's important that investors avoid certain pitfalls, such as taking on way too much risk because they have had previous losses or continually looking back and thinking about what could have been, and indeed what's the worst thing they can do is to avoid investing completely just because they have made a bad decision in the past. It's important that investors refocus on the future making sure they stick to the plan.

St Anne: David, you mentioned tweaks and changes. Is there a time when investors can actually tweak their plans?

Simon: See, my experience is that investors' situations always change, whether it's their personal circumstances, the economic environment, market conditions, they're always changing. So, at Westpac, we generally believe that continued development and continued robust and consistent changes on a regular basis are very, very important. So, it's important that we do make tweaks rather than wholesale changes, ensuring that investors stick to their plan.

One example that's particularly relevant is the current market volatility. So, what we're recommending our class is to continue rebalance on a regular basis and effectively rebalancing is the technique where investors are taking profits from the asset classes that have disproportionately grown and then using those profits to invest in those asset classes that have become undervalued.

St Anne: David, on that point of rebalancing, wouldn't investors be a little nervous about making losses?

Simon: Yeah, sure. Look there are many approaches that we use and there's many considerations that we take upon before we recommend the rebalancing, but it's a disciplined approach we use that allows people to effectively take profits and so sell when assets are high and buy when assets are low. It's actually a natural default of that particular strategy.

So, we don't make wholesale changes. So, an example is, if an investor's risk appetite or asset allocation, the relevant one for them maybe they're comfortable with having half their money in Australian shares and only half their money in another asset class such as property. So, for instance, if the Australian share asset class outperforms property, we would then take the profits that have actually grown disproportionately to the other asset class, take them out and then reinvest them into the other sector.

St Anne: David, thanks for sharing your views with us today.

Simon: Thank you.

You may also be interested in...

no related content

Follow us

View Terms and conditions