A Personal Anecdote Part 3: Where my wife and I invest $1m and why?
A quick recap: After our long-term tenant decided to move out of our investment property, my wife and I decided to sell and diversify our investments. Hating paperwork, hassle and fees, we landed on investment platforms as a possible solution.
Most offer multiple investment options, easy online administration and full tax accounting at the end of each financial year. The clincher was the fees. Whilst most platforms charge a variety of percentage fees, InvestSMART’s Professionally Managed Accounts are capped at $451 per annum.
Our final decision concerned our investment options. We wanted to be diversified over several different asset classes. This ruled out some asset-class specific portfolios so we concentrated on the diversified ones: Conservative, Balanced, Growth and High Growth.
We also wanted performance, which makes track record (the longer the better) an important part of the equation. The options we ended up with were invested in exchange traded funds that tracked their broader markets and had been beating their peers overtime. That made things a little easier.
But a Growth portfolio should beat a Conservative portfolio over time, albeit with more risk and potentially wilder swings along the way. For us, the decision was more about the asset allocation within each of these diversified portfolios compared to the other investments we had outside our Professionally Managed Account.
The ‘core and satellite’ approach was something we gravitated towards. The idea is to have most of your investments in a relatively diversified, less risky portfolio or fund, and the rest in something with a bit more spice - a greater risk versus reward trade off in other words.
We already had a fair bit of money allocated to direct Australian shares, especially through the companies we both work for, so a Balanced Portfolio worked best. This would be the core while the spice came from our direct allocation to Aussie shares, including my shareholding in InvestSMART.
After investing our $1m into the balanced portfolio, we now have around 80% of our money in growth assets like Australian equities, international equities and property and infrastructure. The remainder is in fixed interest and cash, plus some money set aside in a bank account for a rainy day.
Our ‘core’ investment is on a platform that we can manage ourselves, changing asset allocations as we get older or our financial situation changes. We can move up or down the risk curve, taking on more risk moving from Balanced to, say, Growth or less risk moving down to Conservative. For now, we’re happy contributing a little more to our account each month knowing that it will steadily grow over time because it's not being eaten up by excessive percentage based fees.
Here are the links to the rest of the series:
https://www.investsmart.com.au/investment-news/a-personal-anecdote-part-1-why-our-ceo-invested-1m-at-market-highs/149961
https://www.investsmart.com.au/investment-news/a-personal-anecdote-part-2-how-did-i-invest-keeping-it-simple/149966
https://www.investsmart.com.au/investment-news/why-our-ceo-is-investing-1m-at-the-top-of-the-market/149967
https://www.investsmart.com.au/investment-news/qanda-from-ceo-invests-1m-series/150003
Frequently Asked Questions about this Article…
We decided to sell our investment property after our long-term tenant moved out. This gave us the opportunity to diversify our investments and reduce the hassle, paperwork, and fees associated with property management.
We chose InvestSMART’s Professionally Managed Accounts because they offer multiple investment options, easy online administration, and full tax accounting. The standout feature was their capped fees at $451 per annum, which is significantly lower than the percentage fees charged by most platforms.
We wanted a diversified portfolio across several asset classes, so we focused on Conservative, Balanced, Growth, and High Growth portfolios. We also considered the track record of the options, preferring those that had consistently outperformed their peers.
The 'core and satellite' approach involves having most of your investments in a diversified, less risky portfolio (the core) and the rest in higher-risk, higher-reward investments (the satellite). This strategy allows for a balanced risk versus reward trade-off.
We chose a Balanced Portfolio because we already had significant exposure to direct Australian shares through our work. The Balanced Portfolio provided a stable core, while our direct shareholdings added the 'spice' or higher-risk component.
Our Balanced Portfolio has around 80% of our money in growth assets like Australian equities, international equities, and property and infrastructure. The remaining 20% is in fixed interest and cash, with some money set aside in a bank account for emergencies.
Yes, our investment platform allows us to manage our portfolio ourselves. We can change asset allocations as we age or as our financial situation changes, moving up or down the risk curve as needed.
We contribute a little more to our account each month, confident that it will grow steadily over time. This is because our investments are not being eroded by excessive percentage-based fees, allowing more of our money to work for us.
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