What (not) to invest in right now
2 February 2022
I recently ran a little experiment and subscribed to every investment portfolio or share market tip website and mailing list that I could - what I found was slightly concerning.
Initially, I wanted to see whether there was any correlation between the hot tips and recommendations. I quickly found that so many of these websites have morphed into pay-for-view content.
Scrolling through the endless recommendations, I was left wondering - if these were such fantastic investment ideas, why would they need to charge me to receive them?
To give you an idea of scale, I looked back at my emails from one month to see how many different ‘hot tips’ I had received during that period - I stopped counting at 45. All were telling me where I should place my money to get a return, some promising numbers as high as 50% and even 100%.
In this current market, there is a temptation to look to gain higher returns by taking higher levels of risk but there’s a few things we should keep in mind.
Firstly, these ‘hot tips’ often use their best performer, making sure we know about the win, with no mention of the ones that didn’t go quite so well - of which there could be many.
While there might be a place in your portfolio for a little bit of speculation - it is still speculation, not investing. So, when it comes to taking a little bit of high risk albeit in a cryptocurrency, or that small mining share that the bloke at the pub told you about, it's all about deciding what you can afford to lose.
I recommend breaking your portfolio up into the core component, being the wealth you want to accumulate or the money you cannot afford to lose. If you want to, then leave a little on the side for that speculative investment that may or may not deliver those famed extraordinary returns.
You must be prepared to lose that money, every single cent of it. It’s important to remember that for every example of someone that doubled or tripled their money, there is a story you won’t be hearing about someone who lost 100% of it.
Investment is all about diversification. It might sound obvious, but in reality it's actually very hard to do. Humans get bored easily, we get distracted and we all want to find that shortcut that allows us the financial freedoms we want just a few years or months earlier.
Here’s the thing - deciding on and sticking to an investment strategy over the long term will enable your wealth to grow consistently and strongly, while limiting risk to your personal comfort levels.
The randomness of returns each year means it’s very hard to know which asset class will be next year’s winner. For example, it’s often reported how well the Australian Share Market has done over the last 30 years. Amazingly it has only been the best performing asset class three times. However, over that 29-year period, it has delivered an annualised return of 10.4%.
So, a final word on these emails, which by the way I’m having great difficulty unsubscribing from. For most purporting to have a crystal ball telling you where the next big thing is, they are probably guessing (albeit some with strong belief) or doing it out of self-interest.
My tip - stick with a professionally managed, diversified portfolio of assets (all kinds) that suits your long-term goals, objectives and tolerance for risk and you can’t go far wrong.
Get in touch with the Wealth Management team if you’d like help building an investment portfolio that helps maximise the likelihood of achieving your goals with the minimum amount of acceptable risk for your individual circumstances.
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