The 3 ingredients of a sound investment strategy


Is there an industry with more noise than the financial services industry? We doubt it.

Market reports in the media. Ads promoting this or that investment. Economic commentators throwing their two cents in.

There’s no shortage of opinions on where you should invest your money. And it can be really hard to know which voice to tune in to.

At the end of the day – in our opinion – most people simply want a sound investment strategy that grows their investments over time, edging them closer to supporting their goals. Plus they also want to be able to sleep well at night.

So what makes a sound investment strategy?

For us, a sound investment strategy has three key characteristics:

1. It’s diversified

A wise investment strategy does not put all your eggs in one basket. Instead it spreads your investments across different asset classes, specifically among property, shares, cash and fixed interest. By doing so, if one sector dips, your entire portfolio does not take a hit. And at the same time, you get to participate in the gains made in each asset class over time.

To use a sports analogy, a winning team is made up of a mixture of talents. For example, a rugby team that’s filled entirely with ‘backs’ would not do well. You need a spectrum of talents to bring home the win. Investments are similar. If you invest exclusively in one type of asset, your returns are tethered to the peaks and troughs of that sector – and this can be material if you need to redeem your investment at a time of a market low.

2. It’s low cost

Some investments are promoted as having delivered exceptional returns. But to understand if it was a good deal or not, you also need to look at the fees that the investor paid. Some investments are structured in a highly complex way, with multiple levels of ‘fingers in the pie’, so to speak. As a result, the net return the investor achieves can be far lower than the promotion would suggest.

We believe that simpler investment approaches with fewer tiers of fees coming out can ultimately deliver better returns for investors.

3. It’s transparent

By this we mean that it’s an investment strategy that’s easy to understand. It does not rely on tricky theories or complicated concepts, but instead the investor is able to grasp where and how their money is invested. This simplicity helps the investor better understand and weather the inevitable ups and downs of the market with less likelihood of abandoning the strategy (and potentially missing out on gains or crystallising losses).

These are the crucial characteristics of the investment strategies we develop for clients at 5 Financial.

And they fit perfectly with our mission to help our clients gain financial clarity and peace of mind.

If you’d like to know more about anything raised here, please make contact with us.

2018-01-22T08:14:35+00:00 March 31st, 2015|