Research shows that, over the long term, Growth investments (shares, property etc.) typically generate higher returns than Defensive investments such as cash, fixed interest and bonds. However, growth investments are typically more volatile than defensive investments. You have to watch the daily movements of share markets to note that share prices can move around a lot.
Getting the best return on your money over the long term typically involves investing a greater proportion of your portfolio in growth investments rather than defensive investments. However, the value of a portfolio with a high level of growth investments is likely to move around more than a portfolio with a greater allocation to defensive investments.
The way financial planners assess the optimal portfolio for their clients is by measuring their ‘tolerance for risk’. Most financial planning firms use risk tolerance questionnaires to assist them in determining the best portfolio for each individual client. The best portfolio for any given client is the one that it is within their ‘comfort zone’ in terms of risk.
So, if you want to maximize the returns on your superannuation investments, you need to start by understanding your tolerance for risk. If you have never taken a risk tolerance survey, then that would be a good place to start.
The second element of maximizing returns is to make sure that you have the best combination of investments within your portfolio. Investment markets are dynamic and the best performing investment today might not be the best performing investment in the future. For this year most financial planning firms review their model portfolios at least once per year with a view to deleting the under performing funds and replacing them with funds they think will perform well in the future.
It is possible that if you portfolio is not being regularly reviewed and managed could fall behind other portfolios that are being actively managed.
Majenda Financial Pty Limited typically reviews client portfolios 2-3 times per year and prepares a Statement of Advice to communicate proposed changes to clients. We also review how clients are tracking in terms of meeting their short, medium and long term needs.