What are multi-asset strategies?

Wealth Management

1 July 2022

There is no doubt that managing your money without advice can be an overwhelming prospect. With so many investment options available and so much confusing jargon out there, it can be hard to figure out the best way to invest your hard-earned wealth.

To begin with, a solid wealth management plan should always include a multi-asset strategy. This type of strategy involves diversifying your money across a broad range of asset classes, such as shares, bonds, property, alternatives and cash. A multi-asset strategy seeks to bring you investment growth over a period of time, which, for some investors may mean setting themselves up comfortably for retirement while for others it may mean funding one-time goals, such as paying for a child’s education.

The main asset classes in multi-asset strategies

Shares

Also called equities, shares represent a part ownership of an Australian or foreign company, which is typically listed on an exchange such as the Australian Securities Exchange (ASX) or the New York Stock Exchange (NYSE).

Shares can be bought and held directly via online brokers such as CommSec or nabtrade or they can be acquired indirectly by buying units in a managed fund.

As an investor in shares, you will experience daily changes in the value of your investment, often referred to as volatility and you may also receive dividend payments from company profits.

Over the long-term, a quality portfolio of shares can add significant growth to a multi-asset strategy but be sure to seek appropriate advice as poor quality shares can just as easily erode your overall investment portfolio.

Bonds

In its simplest form, a Bond is a loan that is made to a corporation, or a government (borrower) for a fixed term whereby the borrower is obligated to make interest repayments back to the investor for the duration of the Bond (loan).

Bonds have a wide variety of durations and can range from lower risk Government Bonds to higher risk, high-yield Corporate Bonds. While Bonds are typically less volatile than shares, their long-term average returns are also usually lower than shares.

Bonds can be a complex asset class and given that their values are impacted by changing interest rates, it is important that multi-asset strategies have the right blend.

Alternatives

Alternative assets are investments that do not typically fall into one of the other major asset class categories. For instance, Private Equity, Hedge Funds and Venture Capital are all examples of alternative investments, amongst many others.

The popularity of alternative assets continues to increase as these investments tend to have a low correlation with the returns of other asset classes and can offer strong long-term capital returns. Because of these factors, alternative investments are an important consideration for a multi-asset strategy, but be sure to tread with caution, as alternative assets are often highly complex investment structures that are illiquid in nature, so it is critical that you seek guidance from an investment professional before investing in this asset category.

Property

A well-rounded multi-asset strategy will include exposure to a diversified holding of property investments, such as industrial, retail, office and commercial properties.

As many investors do not have the capital required to acquire these assets directly, exposure can be gained via the acquisition of units in Real Estate Investment Trusts (REIT’s) that are listed on an exchange such as the ASX.

As with shares, REIT’s can demonstrate volatility, but they can also generate consistent income and solid growth prospects over a long-term period.

Cash

Cash accounts allow you to see a small return while providing liquidity for your day to day expenditure requirements.

Funds retained in cash are usually held there for a reason, whether it is to cover ongoing living expenses, to cover a one-off major expense, or to safeguard against an unforeseen expense. Because there is typically a purpose for these funds, capital preservation and ease of access are two important considerations with cash holdings. It is for this reason that returns on this asset class tend to be much lower than other assets over a period of time.

Why advisers use multi-asset strategies

We have all heard the saying “don’t put all of your eggs in one basket.” When investing your money for long-term growth, it is imperative that you heed this idiom by using a multi-asset strategy to spread your capital across multiple assets and asset classes.

History has taught us that the asset classes outlined above tend to have different levels of correlation, which is to say their values often do not rise and fall in concert with one another. We can never know which asset or asset class will produce the greatest return in any given year, so adopting a multi asset strategy gives you the opportunity to at least have some exposure to the best performing asset class. The outcome can typically be a more stable, consistent return over a period of time.

Importantly, multi-asset strategies come in many shapes and sizes which means they can be tailored to build an investment portfolio suited to your personal circumstances, taking into consideration your time-frame for investment and your appetite for investment risk.

For these reasons, multi-asset strategies are usually the preferred investment approach adopted by Financial Advisers as they can work with you to design your very own personalised multi-asset strategy.

If you’re not sure where to start with a multi-asset strategy, help is waiting in the wings. Along with offering business advisory, tax consultant, and general insurance expertise, Findex has professionals who know how to create a holistic wealth management strategy for your personal finances. Reach out today to learn more about our suite of services or find out more about our investment approach.

Author: Matthew Swieconek

For more than twenty years, Matthew has held a variety of client advisory and corporate roles within the Wealth Management industry both within Australia and the UK. As the Head of Investment Relations within the Wealth Division at Findex, Matthew leads a team of experienced Financial Planning professionals whose strategic and investment advisory services seek to achieve the best possible financial outcomes for clients. His role encompasses a broad geographical footprint that provides Matthew with an intimate understanding of client needs across numerous regional and metropolitan centres. Furthermore, Matthew’s experience working in financial markets through several equity market down-turns over the last two decades allows him to offer an accomplished perspective in his capacity as a voting member on the Findex Investment Committee. Matthew holds a Bachelor of Commerce from the University of Tasmania and a Graduate Diploma in Applied Finance and Investment attained through FINSIA. He is a member of the Financial Planning Association of Australia (FPA) and the Financial Services Institute of Australasia (FINSIA).