A little secret

01 May 2013

By Tim Breen

I'll let you in on a little secret - I don't know when the market will turn.

I'll let you in on a bigger secret - no one else does either.

In fact no-one really knows for certain what in 12 months the Dow Jones will be, what the ASX 300 will be, what the oil price will be, what property prices will be and, unless they are Glenn Stevens - the chief of the RBA - what the cash rate will be.

Unfortunately, this includes your financial adviser, your best friend, and even the resident expert on everything - your brother in law at the next family BBQ.

So what is an investor to do?

What we do know is that well diversified portfolio with a mixture of quality investments in each of the asset classes (cash, fixed interest, property, Australian and International shares) has a huge impact on the overall returns of your investment portfolio.

We also know that along the investment journey, there will be ups and downs of each asset class in terms of performance. One year's hero will be next year's villain.

At the moment, there is an overall fear and reluctance to invest in growth assets (like shares). And why wouldn't there be? An uncertain Government, Greece seemingly going off a cliff, 5 years of volatility and Europe in a mess.

But history tells us that an asset class produces stellar returns when least expected and more often than not, this includes the expert forecasters.

I am not for one moment saying that the last few years and current conditions aren't unsettling. It can be tempting to 'put it all into cash'. You may get 4% in cash on your remaining capital, but if you are underexposed to a particular asset class you may very likely miss out when this asset class has a strong performance. Or, you may buy in once the strong performance has already occurred.

A true destroyer of wealth is selling after a large drop in the market. This crystallises losses, sells good, profit making companies (which often produce a healthy tax effective income) at a discount, and results in missing out on the inevitable market recovery.

A quick history lesson, when the September 11 tragedy struck in 2001, the Dow Jones share market dived. The world was in shock, gripped by fear and financial markets worldwide went into free fall. Despite the completely understandable fear and panic. History shows however that over the last 10 years the ASX 300 returned an average of 7.8% pa - who would have predicted that?

Before you may make a decision which may be detrimental to your financial position, it is crucial that you discuss your portfolio and concerns with a fee for service, independent financial adviser who knows your situation and comfort levels and has your best interest at the forefront of their advice.

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