Investment planning is at the core of most financial planning, since it is the investments you own and the returns they generate that are often of the greatest importance in achieving your goals. This is especially true for your retirement income.
FiveWays’ investment approach is based on the fact that for most people, preserving capital is more important than making higher returns on their money.
Because of this, we take a fundamentally conservative approach, designing portfolios that limit potential losses in the next ‘once in a generation’ crash. In our experience, these crashes occur more than once in a generation. If you are depending on your capital for retirement income, you need to avoid their potentially disastrous effects.
At FiveWays we do what we can to generate reasonable returns on your investments while limiting and containing risk with a Risk and Suitability Assessment.
We regard risk as having three dimensions:
- Your need for risk
- Your capacity for risk
- Your tolerance of risk
We evaluate all three as part of your Risk and Suitability Assessment to decide what level of risk will help you achieve your goals.
Looking to the future
To determine what your investments might earn, we look at the long-term rates of return that have historically been earned on the major asset classes, including cash, bonds, commercial property and equities.
From our investment history and experience, we believe that taking the long-term average as the likely rate for future returns is a reasonable approach. The proviso is that the actual rate of return you get over any period of up to 5 years can be much higher or lower than the long-term average.
Since inflation has varied a lot, it is more practical to think in terms of the ‘real’ rate of return, which is the return in excess of the rate of inflation over the relevant period. This represents the real spending power of your money.
For a balanced portfolio, an average annual return of 3-4% in excess of inflation would be a realistic projection for a term of ten years or more.
Under our ongoing advisory service, we will review your goals and circumstances regularly. This enables us to adjust the risk-return characteristics of your investments if necessary, as well as your holdings within the different wrappers.