May 3, 2017

Avoid ‘piecemeal’ portfolio creation

How did you create your investment portfolio? Was it a carefully thought out, highly planned and disciplined process? Or was it a “piecemeal” approach? As analysts wrote in the paper, Vanguard’s framework for constructing globally diversified portfolios: “Without a plan, investors often build their portfolios from the bottom up, focussing on investments piecemeal rather than on how the portfolio as a whole is serving the objective.” Another way to characterise the piecemeal approach, the analysts add, is fund-collecting. “These investors evaluate a particular fund [or an individual asset] and, if it seems attractive, they buy it – often without thinking […]
April 26, 2017

Practical ways to control portfolio drift

Sticking to a disciplined strategy of regularly rebalancing a portfolio back to its target asset allocation can often seem counter-intuitive. This includes in the prevailing low-interest investment environment with expectations for lower returns over the medium-to-long term for broadly-diversified portfolios. In short, portfolio rebalancing can be an emotional decision for investors, requiring the selling of currently outperforming assets to buy currently underperforming assets. The basic reasoning behind periodically rebalancing is to recapture a portfolio’s intended risk-and-return characteristics. We have recently discussed how a broadly-diversified portfolio’s asset allocation is the primary driver of its return variability over time and how a portfolio […]
April 19, 2017

Life’s financial turning points: good and not-so-good

The marriage and divorce statistics for 2015 sadly suggest that 43 per cent of Australian marriages may end in divorce. Significantly, this number-crunching does not include separations of de facto couples. Unfortunately, the breakdown of a relationship is a reality for many couples and it is a reality with typically damaging financial and emotional consequences. We face a series of widely-shared financial turning points during our lives. Yet how we handle them obviously differs widely. ASIC’s personal finance website MoneySmart has long published a comprehensive feature, Life’s events – last updated this month – with tips about how to deal […]