Life goals, timeframe and your appetite for risk are three of the biggest factors that should shape the way you plan and structure your investments. It’s also essential to use savvy structures and strategies. Here’s the YMM guide to getting your portfolio right.


Step 1: Set the scene


Look at your current financial circumstances in depth as a starting point. What assets do you own? What are your income requirements? What liabilities (debts or future payments) do you have? Do you have adequate insurances and what existing investments and tax structures do you have in place?


Step 2: kick a goal


Nicholas d’Emden from Shadforth says a goal is something to strive for, a challenge that can’t be too easy but needs to also be realistic.


Peter O’Toole, a certified financial planner with Godfrey Pembroke, says the best goals need to be specific, measurable and definable by a time. “’On such and such a date I want to travel overseas so I will need this much money’ is a well-framed goal,” says O’Toole.


Greg Cook, CFP and owner of Eureka Financial Group adds that a goal shouldn’t just be about “having a certain amount of money in super in seven years; it should be about making sure your finances take you where you want to be in life.”


Step 3: get real about risk


Make sure you understand both the different types of risk involved with investing and then the different level of risk associated with various investment types. Some of the risks that impact on all investments can be inflation, market cycles, sickness and untimely death, the risk that you could lose your capital.


Cash held in a bank term deposit, for instance, carries little investment risk. However, it does have an inflation risk as the interest earned may not keep up with the inflation rate so the value of your dollar can go down over time. Shares carry a much higher capital risk – you could lose money – but over the long-term they have delivered higher returns than less risky asset classes.


The important thing is to know how much risk you feel comfortable with. You can then structure your portfolio to match that risk profile. If you want 100% certainty that your capital is safe, you are a conservative investor and should steer away from higher-risk investments such as shares. If you have a long investment timeframe and feel comfortable with a lower level of certainty, higher-risk investments may be more suitable.


Greg Cook from Eureka Financial Group says many investors have changed their attitude towards risk as a consequence of the turbulence of recent years.


“Out of the GFC there are a lot of people who no longer regard themselves as having a risk profile that is comfortable with growth investments but if you build a diversified portfolio on the basis that growth assets are likely to produce a negative return in one out of every five years then you can build growth into your portfolio using diversified assets along the risk spectrum starting from government guaranteed bank deposits (1/10 on the risk spectrum) through to gearing to buy Australian shares (10/10 on the risk spectrum,” he says.


Step 4: time check


Nicholas d”Emden from Shadforth says it’s important to know what your “real” investment timeframe is. That’s the amount of time you have to achieve your stated financial objective. Coming up with the right investment timeframe is about balancing the competing priorities of attitudes towards risk with need for a certain level of return.


 If you can invest for a longer-term, for instance, you can consider high-growth assets that may have short periods of negative returns but offer superior long-term profits. Chasing high returns over a shorter time frame is going to make higher levels of investment risk unavoidable.


Step 5: diversify


Asset allocation is financial advice industry jargon for deciding what “types” of investments to put your money into and in what “proportions”.


Brian Taylor, executive director of Plan B Wealth Management says diversification is the key. “True diversification is a matter of spreading risk across markets, so that the portfolios are structured in a way that provides exposure to diverse equities and defensive assets in a balance to ensure that your growth assets do not reduce your probability of achieving your goals.


Another consideration when deciding on portfolio structure is whether you’re looking for income, capital growth or a mixture. A retiree will need investments that generate a regular income whereas a younger investor may want to maximize capital growth. The spread of investments chosen will be determined by these needs.


Nicholas d’Emden, a Certified Financial Planner (CFP) and private client adviser with Shadforth says cash flow is another important consideration.


“We make sure the client can meet their living expenses. The size of the cash buffer depends on the client and their life stage. A 30 year old doesn’t have to harbour enough cash to cover their week-to-week living expenses. A retiree does have to harbour at least two years in a cash account as a buffer against market volatility so they don’t have to sell growth assets for at least two years if there’s a period of negative returns,” he says.


Step 6: use savvy structures


The Aquilina family (see page XXXX) has managed to transform its portfolio by using tax-smart investment structures such as salary sacrificing into superannuation and income splitting, with the help of their financial planner. By making a few basic changes to how they invest, rather than where they invest, the Aquilinas will be thousands of dollars ahead every year.


Step 7: choose investments


The range of financial products and individual investments available to choose from seems to grow by the week. There are the ‘traditional’ product types: direct shares, managed funds, bonds and insurance products and direct property. Or you can incorporate products from the expanding range of new and innovative investments: exchange traded funds, contract for difference and other derivatives.


Some financial planners are using derivatives and “unconventional” products to hedge client’s portfolios against movements in the more traditional markets such as shares and property.  However, be warned that many of these new products are untested and complex and do come with high levels of capital risk. Diversification is always the best bet.


Block your ears


Don’t wait until you need to assume the crash position, adopt the “see no evil, hear no evil, speak no evil” position from day one as an investor and you will be sure to succeed.


Bryan Taylor, executive chairman of Plan B Wealth Management says in addition to setting goals and developing clear strategies, it’s essential to “tune out the media and other market ‘noise’ and steer clear of emotional decisions. In short, avoid distractions and keep your eye on the prize”.


“Even the most mainstream of media now assigns multiple daily segments to discussing the very latest in stock movements, currency values, interest rates and more,” says Taylor. He says this short-term chatter is nothing more than a distraction if you have the right structures and strategies in place.


“The need to fill segments with fast-moving and shocking ‘news’ means that vast amounts of information are readily available to us and it’s increasingly difficult to find what’s relevant and to know what’s really going on.


“The answer to this big question many investors are now facing when it comes to what’s in their portfolios – should I stay or should I go -- is far easier when guided by a strategy which articulates clear and achievable goals and addresses the real risks - not the distractions.


“In too many cases, we see people bumbling along without ever having started where they should - at the beginning. And the beginning is deciding exactly what your aims are, making sure they are realistic and achievable and then setting in place a clear path to achieving them.”