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“Back to Basics” Approach to Investment Planning Mitigates Risk

Announcement posted by Approved Financial Planners 29 Feb 2016

Investment planning advisers in Perth reveal why the basic principles of diversification and equity risk premium (ERP) can contribute to a sensible investment strategy.
Perth, WA, 29 February 2016 - According to the Head of Multi-Asset Portfolio Management for AMP Capital, Debbie Alliston, it could make sense for investors to employ a “back to basics” approach to investment planning. The basics to which she refers: portfolio diversification and professional management of equity risk premium (ERP).*

Low cash interest rates, not only in Australia but globally, have caused returns in many financial market investments to soften. Yields from bonds and other asset classes are currently low and Ms Alliston believes that growth will continue to be sluggish.*

Globally, 2015 is expected to mark four consecutive years of positive returns in the global equities markets. However, some markets are better than others, leaving investors unsure of the future of their equities investments. Australian equities, after years of outperforming the global average, began underperforming in 2013 and continued through 2015. Ms Alliston doesn’t predict an upturn until at least 2017.*

Equity Risk Premium (ERP)

Equity risk premium means that investors are rewarded for their risk by a higher return on their investment. Since 1900, Australian equities were close to 6.0% ERP, compared to 4.5% from US equities. However, Ms Alliston predicts an Australian ERP of between 3.5% and 4.0% in Australia and 5.5% to 6.0% in Asia and other “emerging markets.”*

Overall, Ms Alliston believes that equities will be what she terms an “asset of choice” due to returns that will be better than those of cash and bonds. She is not bullish on Australian shares, however, as they have underperformed global shares for five consecutive years.*

Diversification

Diversification is a way to protect one’s portfolio from equity risk. Diversifying a portfolio means using different investments that are not all dependent on one set of economic conditions to prosper. When one economic indicator or market lags, another can “pick up” or at least remain constant, mitigating losses.*

Ms Alliston mentions Government bonds, which can outperform equities in times of market corrections. Other examples are property, infrastructure, currency and private equity, all of which depend upon different factors for prosperity.*

Back to Basics

Ms Alliston feels that investors should examine their portfolios for diversification or the lack thereof. She believes that portfolio construction is a very specialised skill that can be used to maximise results for investors. She also believes that professionally managed multi-asset vehicles are a “sensible” investment.*

Daniel Stevens is a financial planner for Approved Financial Planners in Perth. Approved Financial Planners are affiliated with AMP capital. According to Mr Stevens:

“Ms Alliston is a great resource and one of many that AMP Capital provides for us. This allows us to give our clients the right financial advice. We agree wholeheartedly that a ‘back to basics’ approach and professionally managed multi-asset vehicles can help reward investors for their risk while mitigating potential losses.”

 
*AMP Capital, Debbie Alliston. “Is it time to go back to basics?” 09 December 2015.

Approved Financial Planners provide investment planning and a full menu of financial planning services. They have been a trusted name in Perth and are now affiliated with AMP Capital, giving them the resources of one of Australia’s largest investment firms to offer to their clients. To learn more or for a free consult, call 1300 787 274 or visit their website: http://www.approvedfp.com.au/.


Approved Financial Planners

Daniel Stevens, Authorised Representative and Credit Representative of Approved Financial Planners Pty Ltd ABN: 52 116 910 528, trading as Approved Financial Planners, Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327, Australian Financial Services Licence 232706 and Australian Credit Licence 232706.

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