Innovative investing – the modern approach to growing wealth
December 17, 2018
Investing used to be a relatively simple process: buy some quality blue-chip shares, such as the big banks and Telstra, add some large resource companies like BHP or RIO, and then just hold.
As your investments grew you might diversify a bit further with some utility investments such as AGL and some consumer staple stocks – Wesfarmers or Woolworths perhaps.
Then sit back, collect the dividends, and enjoy the long-term capital growth.
But things have changed.
An explosion of choice
Many of these larger companies are not producing the returns that they once did, leading investors to seek better returns elsewhere.
With easy access to a growing volume of information, investors have become more sophisticated, as have investment products.
Australia has a large and well-developed managed fund industry that provides indirect investment opportunities to retail clients.
While many investors may still opt for standard, pre-diversified balanced or growth funds, there is now a veritable kaleidoscope of investment opportunities available via managed funds, offering access to a wide variety of assets, investment philosophies and styles.
Investors can now easily access international equities, commercial property, infrastructure assets, hedge funds, emerging markets, fixed interest, domestic and international mid-cap and small-cap equities, and other alternative investments.
Some funds offer access to specific opportunities or themes.
This could be an equity fund that invests in a specific geographic region such as Asian equities or emerging markets, or a fund that invests in a specific sector such as technology or energy.
Each fund will have its own targeted returns and level of risk.
Too much choice?
The downside to this huge growth in the managed fund products is there may now be too many options, each boasting its superiority, to choose from.
However, a qualified and experienced financial adviser, aided by external research providers, can help investors navigate the myriad products available, helping to sniff out the ones that best match an investor’s needs at a given point in time.
Of course, many investors prefer to invest directly rather than leave the investment selection up to a fund manager.
With greater information available via the Internet, media and investment newsletters and software programs, investors can do their own research. This requires more time on their part but, once again, an adviser or broker can assist.
More investors are seeking out opportunities beyond the traditional top stocks.
They are looking down the market capitalisation scale to invest in mid-sized or smaller companies with greater potential to deliver higher growth.
Globalisation and technology are enabling investors to do this on a global scale, investing in overseas stocks that were previously too difficult or costly to access directly.
Exchange traded funds evolution
Exchange traded funds (ETFs) have also become increasingly popular in Australia.
They are bought and sold like normal shares but enable investors to access a diversified mix of investments with ever-increasing opportunities available.
Older style ETF’s were generally index based, seeking to track the returns of the ASX200, for example, or the S&P500. This passive form of investment usually performed well over the long term, but wasn’t really exciting.
Recent ETFs have become more dynamic by introducing active investment through qualitative filters, or by providing access to specific investment sectors such as robotics and automation, global energy, lithium battery technology, global pharmaceuticals or cyber security to name a few.
These ETFs typically have lower fees than traditional managed funds, and buying them via the ASX also means less paperwork and greater liquidity.
Seek expert advice
Financial markets have grown in sophistication, and product providers have become increasingly innovative to satisfy the goals of consumers who are more aware of a wider range of investment opportunities and want to benefit from them.
Of course this does increase complexity and choice, and that can create its own problems. One is inaction – often referred to as ‘analysis paralysis’. Another is selecting investments that are not suited to the investor or the prevailing market environment.
The solution is to invest in some education and sound advice.
At LDB, we work in partnership with clients, helping them identify their goals and needs, and providing information that helps them make sound investment decisions.
If a collaborative approach to wealth management appeals to you, give us a call on (03) 9875 2900.
Or fill out the contact form below and we’ll arrange a time for a no obligation discussion of your needs.