Insights

Learn this lesson quickly or lose the investment game; When you begin building your investment portfolio it can be easy to feel like you’ve already fallen behind. Get rich quick investment schemes might look attractive, however a lot of the time this leads to a worse long-term return.

In practice, the investments themselves are important in building your portfolio, but the real work is in having an appropriate investment strategy that you patiently follow. Strategy is what may be crucial to building long-term wealth.

Three Approaches to Strategic Investing

1. Index Only Investing

Index only investing is a strategy in which you only invest within funds that replicate a specific index. These passive funds offer significant diversification, typically with a lower fee compared to actively managed funds.

Long-term this style of investing historically produces an acceptable return; however, the return will always only be average as it is the index. Although this is a true set and forget style of investing, it does come with risks.

Being invested in passive investments, your portfolio won’t be able to adjust to different market conditions as they appear.

2. Core Satellite Investing

A core-satellite approach to investing is a hybrid between index investing and investing in actively managed funds.

This approach involves investing a majority of the portfolio in a ‘core’ group of investments, commonly these are index funds. These core investments should be well diversified, low cost and not need much attention. The remainder of the portfolio should be invested in ‘satellite’ funds, this portion of the portfolio should be actively managed, higher volatility funds that allow your portfolio to strive for a greater return compared to the index.

Satellite funds should allow your portfolio to take advantage of the current market conditions, while minimising the impact if a decision doesn’t work out. This type of strategy will provide you the long-term security of the ‘core’ funds while chasing the greater growth potential of the ‘satellite’ funds.

3. Actively Managed Strategy

An actively managed strategy involves investing solely within actively managed funds, with the overall aim of this strategy to provide returns greater than the index. This is the strategy we use, to help you reach your financial goals at Altitude.

Through actively managing your portfolio you can tailor your entire portfolio to the market environment. This is not to say that this strategy is any riskier than the previous strategies, all funds you invest in should be well diversified and long-term focused. This strategy does require a review more often, however most of the time you should only be tweaking the portfolio opposed to large changes. This strategy also provides you with a quicker reaction time to market changes and being actively managed should have a greater growth opportunity.

For someone at the beginning of (hopefully) a lifetime of investment, choosing the right strategy is crucial to ensure you are happy and have a better ability to meet your long-term goals. Identifying The right strategy for you will help you stay invested and allow you to be more comfortable through the volatility of the market.

Let us help you make informed decisions that align with your long-term goals. Contact your Altitude Adviser today to take the first step toward securing your financial future.

Altitude Financial Planning is a Corporate Authorised Representative of Altitude Financial Advisers Pty Ltd ABN 95 617 419 959 AFSL 496178

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