All-Terrain Motoring, All-Terrain Portfolios
More of us are equipped for all-terrain motoring but how ready are you for all-terrain investing?
Australians bought more new sports utility vehicles (SUVs) than passenger cars in February for the first time in any month on record, according to the Federal Chamber of Automotive Industries. More than 35,000 SUVs were sold in that month.
Just as we hopefully select our next cars on the basis of being fit for their intended purpose – although countless SUVs apparently never leave the bitumen – we hopefully take the same approach when creating our investment portfolios.
A robust, all-terrain portfolio could be defined as one that is designed to ride over short-term upheavals on investment markets to keep moving towards achieving our long-term investment goals.
As is often discussed in Smart Investing, two of the biggest influences on a portfolio's performance over the long haul are its long-term strategic asset allocation and its level of costs. The combination of an appropriate strategic asset allocation and low costs are a critical combination for a robust portfolio.
And as drivers of their all-terrain portfolios – to stretch the motoring analogy – investors should remain disciplined and focussed on the long-term without being distracted by the prevailing "noise" created by short-term market movements.
Rather than trying to second-guess investment markets, astute investors often choose to direct their energies into making the most of factors that are under their control.
The overall theme of Vanguard's principles for investing success publication is that investors should concentrate on what they can control, including in periods of uncertainty.
Investors cannot control, for instance, the mood of other investors nor can they control the impact of world stock markets and economies on local share prices. Indeed, it can take a bout of increased market volatility to make investors more aware of what is beyond their control.
However, individual investors can, for example, minimise their investment management costs, efficiently manage tax within their portfolios and, if appropriate, take more advantage of the concessionally-taxed superannuation system. (Keep in mind the lower contribution caps from July.)
Further, it is up to investors to decide whether to set sound, long-term investment goals; to set appropriate long-term asset allocations for their portfolios; to regularly rebalance their portfolios to remain within those asset allocations – perhaps with professional advice. And investors can do their utmost to take a disciplined, non-emotional approach to investing.
Some strategies that are clearly under an individual investor's control may seem disarmingly simple.
For example, Vanguard's chief executive Bill McNabb wrote in an opinion piece late last year: "In this confusing and sometimes contradictory [investment] climate, you may be asking yourself a question that I hear often: How do I make sense of all of this, keep investing, and still get a good night's sleep?
"As with any problem," he adds, "there are multiple ways to go at it. But there's one approach in particular that is simple, straightforward, and nearly foolproof: Save more money.
"Not only can saving more give you a greater sense of control over your investment plan, it can help compensate for long-term returns that, in our estimation, could fall short of historical averages." (See Vanguard's 2017 medium-to-long term economic and market outlook.)
Of course, the pressures of day-to-day living costs plus those inevitable unexpected costs can make it difficult to save more at times. But when the opportunity arises, a decision to save more is well under our control. And increased savings should keep strengthening your robust, all-terrain portfolio.
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia.
As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.