Saving Meets Investing
June 24, 2015

You would have been living in a very lonely place to not understand that real estate prices are high and still going higher. Then there is the local sharemarket which is teasing with the index threshold of 6000 having risen about 10% in the first three months of this year, though having fallen back a little recently.

Such is the power of the 24-hour news cycle and the fascination in Australia with house prices and share market moves.

What about overseas shares? A similar story as they are up 9.6% for the first quarter of 2015 on an unhedged currency basis and 5.2% if the currency impact had been hedged.

Perhaps head up the risk scale to emerging markets. Again a story that rhymes as the index has shown a 9.1% gain for the first quarter.

How about that pillar of reliability – the bank term deposit or fixed income investments. Falling interest rates are naturally compressing return expectations and 90-day term deposits are sitting around the 2.2% mark.

The great irony is that investors are seemingly caught in a near perfect storm of strong past performance. Now that is clearly a better challenge to be facing than the opposite return scenario.

The development of investment markets in the 30 to 40 years has been positive in many ways with investors gaining much greater choice of where and how they can invest. Exchange traded funds, for example, have been a particular boon for investors looking for market exposures at low costs.

But through it all the humble diversified portfolio has continued to deliver good risk-adjusted returns for investors in a straightforward, disciplined way.

We know from decades of investment market research just how hard it is to pick or time market moves. The beauty of a diversified portfolio is that rather than try and forecast where the next winning segment will be instead it invests across several asset classes which we then regularly rebalance in a disciplined way to manage the portfolio’s risk level.

Diversified portfolios typically come in a range of risk flavours from conservative through balanced and on up the risk scale to high growth.

So to return to the original question – where to invest now? Why not everywhere?

Peter Rodgers
Peter Rodgers
Peter Rodgers, the founder of Direct Advisers, holds a Bachelor of Arts degree and has been a practicing financial planner since 1986. With a background in law and economics, Peter is particularly skilled in understanding investments and investment portfolio construction. His main role is developing investment strategies for clients.