The Fundamentals: Balancing Risk and Reward
When retirement is on the horizon, it can be tempting to play it completely safe. However, being too conservative can leave your efforts vulnerable to rising living costs. To secure your financial future, we help you find the perfect balance between risk and return by diversifying your money across four core asset classes:
- Stocks (Shares): Though they come with higher volatility, they offer the highest potential for growth and dividends to outpace inflation.
- Property: Provides both rental income and potential capital growth.
- Bonds & Fixed Income: Provide stable returns, regular income, and act as a shock absorber for your portfolio.
- Cash: Offers ultimate security and liquidity, but the lowest returns.
By diversifying across these different options, we balance the need for growth with the stability required for your peace of mind.
To bring this all together, we often use a "Core and Satellite" approach. The core is the steady centre made of low-cost, broadly diversified investments like index funds, while the satellites are targeted or time-limited investments, potentially enhancing returns or to meet your specific personal goals.
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Ethical Investing: Aligning Your Money With Your Values
Once you have a clear picture of what makes for a great portfolio, the next question you should ask yourself is ”who do I want to invest with?” More and more Australians want to invest intentionally than in previous eras, with specific criteria in mind. They want to trust their money to companies whose priorities align with theirs.
The good news is that you don't have to leave your conscience at the door when you invest – your money can help impact the world for good! Many listed companies are engaged in community programs or charitable projects abroad, developing humanitarian technologies or following sustainable practices. While the options for ethical investment are endless, we have found two broad strategies helpful for tightening the focus:
- Negative Screening: This approach involves actively excluding companies or sectors that conflict with your values, leaving the rest of the field in play.
- Positive Screening: This strategy focuses on selecting companies whose values you want to support, concentrating your investment on what you want to prioritise.
Jumping In
So, how do you begin to decide? Corporations often adhere to principles grouped under a system known as Environmental, Social, and Governance (ESG). With many companies now subscribing to this influential set of criteria, ethical and sustainable investing is not merely a passing trend in Australia. The increasing integration of ESG factors into investment decisions signifies a broader commitment to sustainability and ethical considerations on the part of company executives.
While a corporation’s ESG policies are often outlined at its website, the Responsible Investment Association Australasia (RIAA) plays a crucial role in promoting ethical and sustainable investing practices across the country. RIAA provides resources and guidance for investors, helping them navigate the intricacies of responsible investments. Through its certification programs and advocacy, RIAA ensures that investment products meet rigorous standards, thus fostering trust among investors.
The Myth of Lower Returns
You may have heard rumours that you can’t invest ethically and make money. That is not the case. One of the biggest concerns pre-retirees have is the fear that investing ethically means sacrificing financial returns.
Responsible investment is no longer a fringe idea; it now accounts for $1.3 trillion, or 36%, of the Australian market. Data from the Responsible Investment Association Australasia (RIAA) shows that ethical investments frequently outperform traditional mainstream funds when compared over the medium to long term. Companies that adhere to strong ESG criteria often demonstrate better risk management and more robust long-term growth prospects, proving that you can do well financially while also doing good. A growing body of research supports this trend, highlighting that businesses with strong ESG practices tend to have more robust long-term growth prospects.
Managing the Emotional Rollercoaster
Financial markets will always experience ups and downs, and watching your retirement nest egg fluctuate can be anxiety-inducing. This emotional stress often leads investors to make detrimental choices, like panic-selling when the market dips.
This is why we have found that Personal Risk Insurance is a critical component of your wealth strategy. While we can manage your investment risk, protecting your actual ability to build wealth is the ultimate safety net:
Income Protection Insurance: If you are unable to work due to illness or injury, this insurance can replace up to 75% of your gross income. This allows you to manage ongoing expenses while you recover, without depleting your hard-earned savings.
Life Insurance: Provides a lump sum to your beneficiaries in the event of death, ensuring that outstanding debts (like mortgages) are covered and your loved ones can maintain their standard of living.
The Superannuation Advantage
Finally, we integrate your wealth creation plan with your superannuation. Super isn't just a holding account; it is a highly tax-advantaged environment designed for long-term wealth creation. By utilizing concessional tax rates on contributions and preparing for tax-free withdrawals after age 60, we ensure your super is working just as hard as your outside investments.
Let's Write a Better Ending
Managing your own investments can feel like navigating a maze in the dark. By partnering with a professional financial adviser, you gain personalised guidance, expert market insights, and a dedicated co-pilot to help manage risk. At Stream Financial, a major part of our role is risk management—not just managing the risk in your portfolio, but helping you maintain emotional control during market volatility. We provide the ongoing support and objective perspective needed to ensure you stick to your long-term strategy.
If you are ready to make the jump from knowing you need a plan to actually putting one in motion, let's sit down. Schedule a no-obligation discovery appointment with Stream Financial today, and let's start building a portfolio you can be proud of.
