Stockspot recognises that the most important investment decision is choosing how much to put in each asset class, rather than trying to pick winners within an asset class. As a general rule, more asset classes in your portfolio will reduce the amount of risk you need to take to achieve higher returns.
Asset classes have different risk profiles. Share prices are volatile but if the economy grows shares may outperform other asset classes in the long run. On the other hand government and corporate bonds provide safe and steady income but little capital growth. Investing overseas means that not all your investments are exposed to the Australian economy. Investing in emerging market countries provides the opportunity to share in their faster growth.
|Australian shares||The top 300 listed companies on the ASX including Telstra and BHP.|
|Global shares||Some of the worlds largest companies like GE, Toyota, IBM & Apple.|
|Emerging markets||Companies from fast growing economies like China, India and Brazil.|
|Bonds||Government bonds provide reliable fixed interest returns.|
|Gold||To protect your portfolio against inflation and volatility.|
We provide you with a blend of these five asset classes which best corresponds to your goals and personal financial situation. We allocate the percentage of each asset class in your portfolio using Mean-Variance Optimisation, the foundation of Modern Portfolio Theory. The economists who developed this, Harry Markowitz and William Sharpe, received the Nobel Prize in Economics in 1990. Today it is the most widely accepted framework for managing diversified investment portfolios.
It is very hard for fund managers to consistently beat the market in any asset class over the long term because as a group, they are the market. For example, the price movement of individual Australian shares is mainly caused by fund managers trading to beat each other. This is a ‘zero sum game’ which means that over the long term fund managers just earn the market return minus their fees. Of course some fund managers will beat the market over a given period and some will underperform. Unfortunately there is no proven way to pick fund managers who are more likely to beat the market in the future. If anything, managers who have recently beaten the market tend to underperform over future periods due to the ‘mean reversion’ of their strategies.
We are less risky than the average active fund manager as we don’t try to beat the market. Traditional advisers and active fund managers will claim that their unique skill allows them to beat the market. In reality, 70% of Australian general equity fund managers underperform the market return after you include their fees.
In the Fat Cat Funds Report we found that only 1% of fund managers benchmarked to the S&P/ASX 200 consistently beat the market for the last 5 years.
Instead of trying to beat the market, we offer portfolios that track a broad range of global assets with low fees. The funds track a wide spread of assets, thereby reducing risk via diversification.
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