How to build resilient investment portfolios

Constructing a robust and resilient investment portfolio is essential to success in investing but many aspects need to be considered. To begin with, investors should define the objective and constraints of their portfolio, often known as an investment mandate. As Ken Fisher said,

“Time IN the market beats TIMING the market”.

Having a suitable mandate provides a framework for decision-making. This can help investors stay disciplined and maintain a more consistent long-term approach in times of volatility, helping them avoid the pitfalls of panic selling or taking too much risk and then not being able to survive through tough periods.

Common considerations to define your investment mandate:

• Liquidity and access to capital
  When building a portfolio, it's important to assess how easily you need to access your investments. Liquidity needs will influence which assets are appropriate for your portfolio. Balancing liquid and illiquid assets help you meet both your immediate needs and long-term growth objectives.
• Return objectives and risk profile
  The return you expect from your portfolio is a defining factor in choosing your investment strategy. Understanding your risk tolerance and how much volatility you can endure will help dictate your asset allocation. Aligning your return objectives with your risk tolerance allows you to make investment decisions that support your long-term financial success.
• Yield considerations
  Depending on your financial goals, you might prioritise investments that provide a regular yield, such as dividends or interest payments. Balancing yield and growth ensures you’re meeting your immediate income needs while still working toward your long-term wealth-building goals.

Once there is a well-defined investment mandate, implementing a portfolio requires significant work. Having the right investment team, investment process, risk management and portfolio construction process are all important. While there are many ways to approach these, there are key tenets to abide by to build a resilient investment portfolio.

Key tenets for building a resilient portfolio

• Diversification and low correlation
  Harry Markowitz, a Nobel Prize laureate for his work on modern portfolio theory, said

“Diversification is the only free lunch in investing”.

By spreading investments across various asset classes, sectors, and geographical regions, you can mitigate risks from market fluctuations. A well-diversified portfolio ensures that losses in one area are often offset by gains in another, leading to a more stable investment experience.

• Portfolio monitoring and rebalancing
  A resilient portfolio isn’t static. Regularly monitoring and rebalancing your portfolio is crucial to maintaining alignment with your investment mandate. By regularly reviewing and adjusting your portfolio, you ensure it stays resilient and focused on your long-term objectives.

While building and managing your investment portfolio is important, there are many other factors to consider when thinking about building your wealth so the entity structure in which you invest should be closely considered as well.

Other things to consider beyond the investment portfolio

• Tax efficiency
  Understanding how different investments are taxed is crucial for maximising your after-tax returns. By considering tax-efficient strategies such as superannuation or investment bonds, you can keep more of your investment returns.
• Wealth protection
  Apart from investment risks, there are other risks to consider such as claims or creditors. A trust, an investment company or other entity structure could help provide some legal protection from external claims, while proper estate planning is crucial to ensure that wealth is transferred as per your intentions.

Constructing an investment portfolio requires careful planning and thoughtful consideration to define an investment mandate while building and managing the investment portfolio is an ongoing process. However, building your wealth requires thoughtful consideration beyond just investing.

Some people opt to create and manage their own portfolio. While this can be a positive experience with good returns, advice across several key areas such as investment, tax and legal plays a key role in building and preserving wealth for you and your family’s future.

Partners Wealth Group can view your circumstances holistically and provide personalised advice across multiple areas,  and can also act as a conduit for other experts both internally and externally. If you know of anyone who may benefit from a consultation with us, please encourage them to contact us. Alternatively, if you wish to speak to your advisor about any change in circumstances, contact your advisor. 

 

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.