4 August 2023

Do I need an Investment Strategy?

Do I Need an Investment Strategy?

Investing can be a great way to grow your wealth over the long term. However, it is important to have a plan in place before you start investing. This plan, known as an investment strategy, will help you stay on track and make informed investment decisions.

Benefits of having an investment strategy include:

  • Stay on track with your financial goals. First, it will help you stay focused on your financial goals. When you have a clear investment strategy, you are less likely to be swayed by short-term market fluctuations.
  • Manage risk. By diversifying your portfolio, you can reduce your overall risk.
  • Make informed investment decisions. When you understand your risk tolerance and your financial goals, you are better equipped to make informed investment decisions.
  • Save time and money.
  • Reduce stress.

Tips for creating an investment strategy:

  • Start by understanding your financial goals. What are you saving for? Retirement? A down payment on a house? Once you know your goals, you can start to think about how your investment strategy can help you achieve them.
  • Consider your risk tolerance. How much risk are you comfortable taking with your investments? If you are risk-averse, you may want to focus on investments that are less volatile, such as bonds. If you are more risk-tolerant, you may want to consider investing in stocks or other more volatile assets.
  • Think about your time horizon. How long do you have until you need to access your money? If you need your money in the short term, you may want to focus on investments that are less risky, such as cash or bonds. If you have a longer time horizon, you may be able to take on more risk with your investments.
  • Do your research. There are many different investment options available, so it is important to do your research and understand the risks and potential rewards of each option.
  • Rebalance your portfolio regularly. As your financial goals and risk tolerance change, you may need to rebalance your portfolio. This means selling some of your investments and buying others to maintain your desired asset allocation.

Once you’ve decided on your investment strategy, it is important to review your investment strategy regularly to make sure it is still aligned with your financial goals, risk tolerance and investment horizon, especially as you get older or your life circumstances change.

Reasons to update your investment strategy include:

  • Your age. As you get older, you may want to reduce your risk and focus on preserving your capital.
  • Your financial goals. If your financial goals change, you may need to adjust your investment strategy. For example, if you decide to buy a house, you may need to sell some of your investments to raise cash.
  • Your risk tolerance. Your risk tolerance may change over time. If you become more risk-averse, you may want to adjust your investment strategy.
  • Your investment horizon. Your investment horizon is the length of time you plan to invest your money. If your investment horizon shortens, you may need to adjust your investment strategy to take on less risk.
  • The economic climate. The economic climate can also impact your investment strategy. For example, if the stock market is volatile, you may want to reduce your exposure to stocks.

Self Managed Super Funds

Trustees of Self Managed Super Funds are required by law to document and regularly review their investment strategy.

Under the super laws, your strategy must consider the following specific factors regarding the whole circumstances of your fund:

  • risks involved in making, holding and realising, and the likely return from your fund’s investments regarding its objectives and cash flow requirements
  • composition of your fund’s investments including the extent to which they are diverse (such as investing in a range of assets and asset classes) and the risks of inadequate diversification
  • liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses such as the cost of managing the fund and income tax expenses)
  • fund’s ability to pay benefits (such as when members retire and require a lump sum payment or regular pension payments) and other costs it incurs
  • whether to hold insurance cover (such as life, permanent or temporary incapacity insurance) for each SMSF member.

Super laws also require you to invest with the best financial interest of all members.

Creating an investment strategy can be a daunting task but it is important to do if you want to achieve your financial goals. If you are not sure where to start you can give us a call and one of our financial advisers can help you create an investment strategy that is right for you.




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