Cushioning your investment from the wobbles

Investment markets have had a pretty good run over the last few years - but recent wobbles are a good reminder that they can go down as well as up. Our investors often ask us how we look after their investments in challenging periods. The key is having a rigorous, disciplined investment process that is underpinned by proven investment principles. And just as importantly, it’s about sticking to it during market downturns as well as upturns.

At ANZ Investments, we take an active management approach. This means using all our experience, research capabilities and connections to select and manage investments – as opposed to a passive approach of simply tracking a particular market index. We believe this allows us to offer our investors downside protection when market conditions are challenging, while also taking the best advantage of upwards swings in markets.

Our approach is built on three key principles – quality, liquidity and diversification. We consider quality, liquidity and diversification in every aspect of our decision making, including:

  • When we decide which asset classes (such as shares, bonds, or property) to invest in,
  • When we select individual investments for the portfolios we manage directly, and
  • When we choose third-party investment managers to work with.

 

Let’s look at why we believe these factors are so important.

Quality

In difficult market conditions, high quality investment assets tend to hold their value better than low quality assets. Low quality assets tend to be more volatile, meaning investors who hold them are likely to be in for a roller-coaster ride. Something else to note is that the prices of higher quality assets tend to bounce back more quickly as markets recover.

Liquidity

When we talk about liquidity, we usually refer to how quickly we are able to buy or sell investments. Investing in highly liquid investments means we can divest quickly if we need to, or if our view on a company or an asset class changes. Investing in illiquid investments means there’s a chance we may not be able to quickly ‘get out’ of an investment, and investors could be forced to hold onto it if the price of that investment continues to fall.

Diversification

Holding many different investments helps to smooth out the returns for our investors. Importantly, it means that if the price of one investment falls in value, its weaker performance can be easily absorbed by other better-performing investments elsewhere in their portfolio. Diversification ensures our investors have a spread of different types of investments, such as a combination of bonds, shares and property, and it also gives them exposure to different industries and geographic regions.

 

Markets can be unpredictable, as they’re driven by financial and economic factors as well as emotion. That’s why it’s impossible to ‘time’ the market. But history shows us that markets generally recover from short-term downturns - and the long term trend is currently upwards.

We believe our disciplined investment approach based on quality, liquidity and diversification is the best way to manage the inevitable ups and downs of markets.

It's important you take the time to consider your fund options and invest in a fund that suits your investment objectives, timeframe and risk/return profile. We have a handy Risk Profile Tool, which you can use to figure out which fund is right for you. If you want personalised advice, contact our Wealth Direct team on 0800 269 238.

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