Investing is putting your money to work to create income for you or to grow your wealth for the future.
Our investment advice is based on your specific goals. We will work with you to develop a plan that is appropriate for you based on your current and future needs. We can then assist you to implement the agreed strategy, ensure your investments are managed efficiently and then review your investments and strategy on an ongoing basis. It starts with setting some goals.
Before you invest, it's important you set realistic goals. Take the time to work out why you're investing, how much you have to invest and when you need a return.
Once you have these foundations in place, it's easier to make decisions about your investment strategy.
As things change we can help you. You'll have different financial needs at different life stages - marriage, children, a move, an inheritance or a divorce can have a major impact on your lifestyle and financial goals.
We can help you work out the most effective investment strategies so you can:
establish your goals and put in place a plan
build wealth and accumulate assets
maximise and protect your wealth
consolidate wealth for the future
reap the rewards and enjoy the life you want
Spreading your investment funds or "not putting all your eggs in one basket" is considered by specialists to be one of the fundamental keys to effective investment. Smart diversification allows you to factor out much of the risk, or volatility, associated with your investments. The key is to shape an appropriate portfolio of investments under your overall strategy, rather than considering investments individually.
There are several forms of diversification:
Company Diversification - where you counter the potential for falls in the returns of one company you've invested in, by purchasing shares in other companies not exposed to the same falls. For example, say a company that produces pulp and paper experiences a downturn in demand due to an oversupply on the world market. There is a subsequent drop in profit, and the share value falls. At the same time you've invested in an energy company that is operating at a time when demand for energy is high. By ensuring you're not exposed to one particular sector, you reduce the risk to your overall share portfolio.
Regional/Geographical Diversification - where you buy some shares in the New Zealand market as well in some in other parts of the world where economies are larger and there are industries which are not found here. This is a means of factoring out under-performance by the whole share market in any single country, and expanding your options for company diversification.
Manager Diversification - where you don't have enough funds to purchase your own diversified parcel of shares so you buy into a managed fund which enables smaller investors to participate in a wider range of investments. You can diversify even further by choosing several different fund managers, as each may have expertise in different areas.
Asset Class Diversification - where you buy into a variety of asset classes to counter downfalls in other classes. Investors who spread their risk among several asset classes should expect a better risk-adjusted return than those who use a single asset class.
Time is another critical factor in determining the earning potential of your investment portfolio.
If you've got time to reach your savings goals, you will be able to consider higher risk (more volatile) long-term investments such as shares. These investments generally reward you, over the long term, for the additional risk that you are prepared to accept with higher investment returns. Most of these investments require you to ignore short-term fluctuations in value, even though some of these fluctuations may be reduced by diversifying across a variety of asset classes, countries and companies.
Of course some short-term investors may get lucky and buy a high-risk investment at a time when it is beginning a rapid upswing in value - and be able to make a big gain in a short period of time. But if you're not careful it's equally possible that the opposite will happen.
In general, if you haven't got time on your side to reach your savings goal (e.g. you need money for an overseas holiday in the next year), more volatile share investments, even if fully diversified, are not suitable. Short-term investment options, such as term deposits and cash or fixed interest portfolios, may be a better option.
It's vital that you have a clear understanding of what you are actually aiming to achieve by investing. Your objectives and timeframes will directly affect what investments you should hold, how much you should invest in them and the range of returns you may expect.
Factored into your strategy will be your tolerance of investment risk and, accordingly, the degree to which you'll need to diversify to cover risk. Your attitude towards risk, as wells as your capacity to take on risk will have a significant bearing on asset allocation within your investment portfolio. We can work with you to quantify these factors and taking into account other personal wishes, construct a portfolio just for you.
Once you've established your investment strategy, stick with it - and stick with the investments and the timeframe that you've selected to fit your strategy. If you have a plan, then you will be more likely to stay the course and avoid the temptation to bail out if you see the value of investments fall unexpectedly. Equally, you should avoid the temptation of withdrawing from your investments if they experience an attractive short-term gain in value.
Your Rede adviser is there to help you stick with your plan, but also to review your portfolio on an ongoing basis, to ensure that profits are taken where parts of your portfolio become overweight. Investment specialists advise that achieving the desired result from your portfolio requires a generous dose of both patience and discipline!