Getting back into gym to recharge your health? This is how to give your investments the same sort of annual review.
The new year is a great time to review investments and superannuation portfolios, and assess “financial wellness”. Investors should take time to reflect on the habits that were beneficial and those that might need to change – and only make necessary adjustments to their portfolio if all is in line with their objectives and risk appetite.
But long-term investors may find comfort in the fact that while stocks and bonds looked expensive at the end of 2021, today’s markets are more attractively priced. So, when thinking about opportunities this year, the plan should be to add back portfolio exposures. While doing so, reflecting on the elements that underpin market returns can help investors focus on the components that increase a portfolio’s success and ignore those that detract.
While 2022 was rough for markets, investors thinking of moving to cash or staying in cash should consider that long-term equity ownership historically delivers vastly better returns than holding bonds or cash. A recent Vanguard study forecasts equity returns to range between 4-7 per cent, annualised for the next 10 years, whileare expected to deliver between 4-5 per cent over the same time period.
While equities provide growth opportunities over the long term, allotting the entire portfolio to equities requires careful consideration. This brings us to diversification. Diversifying a portfolio by investing across a range of assets – typically assets that behave differently from each other – helps produce more stable returns by spreading risk.
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