CEO report: Notes from the road

InvestSMART CEO Ron Hodge offers a few thoughts from our national roadshow.

I've been everywhere, man
I've been everywhere, man
Crossed the deserts bare, man
I've breathed the mountain air, man
Travel, I've had my share, man
I've been everywhere

Johnny Cash, I’ve been everywhere (Written by Geoff Mack)

 

When the third leg of your trip up the east coast of Australia involves fourteen hours of driving and the same three guys (Alex Hughes, Mitchell Sneddon and I), you better have a good playlist.

From Rockhampton to Cairns, the Bruce Highway gave birth to a 191 song, fourteen hour and three minute long playlist. Cash’s lyrics in particular came to mind as we travelled what felt like everywhere on our latest roadshow. Unlike Cash, we didn’t perform in a jail (although when you’re out with Mitchell Sneddon, anything can happen).

Fleetwood Mac, Prince, Neil Young, Radiohead and co. supplied the background music as we discussed companies, blockchain, mangos and a crumbed steak from the Pinnacle Family Hotel that none of us will forget.

Getting out of the office and talking to members has been fantastic.

If you were able to join us, thank you. If not, you may want to check out the videos from our events here. And if you live in Sydney or Canberra there’s still time to come and say hello. Canberra is this Thursday (7 June).

Many stories were shared at each of our seminars, some quite harrowing. Too many Australians continue to get taken for a ride by ‘trusted’ advisers, fund managers and even friends and family that mean well but shouldn’t really be offering advice.

The understandable confusion and mistrust in this industry demands that investors spend as much time and energy researching advisers and products as they would a new house or car. Then there are the common mistakes born of a recession free 27 years. Here, at least, I believe InvestSMART can help.

These are my four takeaways from the recent roadshows, based on the comments, questions and feedback received from members over the past few weeks.

 

1. You may be expecting too much

The Australian 10-year bond yield currently sits at 2.75 per cent. You might not pay much attention to it, but this is the market’s best guess about where interest rates will be over the long term. The answer is still ‘low’. In this kind of environment, it’s unrealistic to expect double-digit returns.

If you’re basing your retirement projections on the returns you’ve generated over the past decade you’re probably over-cooking it. The long-term bond yield is telling us that returns from the sharemarket over the next decade are more likely to be 5-7 per cent than the 10 per cent plus we’ve become accustomed to.

 

2. Asset allocation is really important

Many experts suggest that asset allocation is more important in determining your long term returns than individual stock or fund selections. There’s more than a grain of truth to that. Just ask investors that were over-exposed to banks in the run up to the global financial crisis or held too much cash in the aftermath because the collapse scared them off. Both were disastrous for portfolio performance.

For years now we’ve been advising members not to have more than 10 per cent of their share portfolio in the big banks, and to not be over-exposed to property. The data available from InvestSMART’s portfolio tool suggests that many investors have not heeded this advice.

At each seminar I took members through the HealthCheckTM tool. It allows members to track their asset allocation against target asset allocations or risk appetite. If you want to know when you may be getting overweight one asset at the expense of another, it’s a simple and easy way to find out.

 

3. No, we’re not just flogging products

I’m very proud of InvestSMART’s, Intelligent Investor’s and Eureka Report’s unwavering transparency and humility, especially when we get stock recommendations wrong. If you want to voice your displeasure at something you can do so in the comments section, like the one below (go on, please use it). We invite feedback of all kinds because we think this makes us better at what we do and it holds us accountable.

One of the critical themes from the recent events is that some members believe we should be independent researchers above all else and that running or even promoting our own funds challenges the ethos of the business.

There’s no denying we are expanding our suite of products, the latest being our new income-focussed active ETF (see below; there, I’m doing it again).

The reason is this: with over 600,000 members of varying experience, backgrounds and portfolio balances, no one approach meets everyone’s needs. For some members it pays to buy our independent research based on value investing and replicate our ideas in their own trading. That’s why we let Intelligent Investor’s team of analysts get on with their job of providing independent research. Eureka Report does the same for wealth management.

But for other members without the time or portfolio balance to warrant this kind of service it may be better and cheaper to simply invest in our funds. Then there are the many young investors who are just learning the ropes. Our free content and research tools helps them get to grips with the world of investing without spending a cent.

It really is horses for courses. If you don’t want to invest in any of our products that really is fine by me. If by using our free tools and research you become a more successful investor that makes me very happy. But if you think one of our products might suit you I would like to tell you about it. You are always free to ignore it.

Our new active ETF is a case in point. For those that need greater diversification in Australian equities, especially those already overweight the banks, it’s worth looking into. But it is not meant for everyone.

 

4. We eat our own cooking

Which bring me to my final point. Even if you don’t like reading about our products I’d like to think you can take some comfort in the fact that me, the board and our staff are happy to invest in them.

Registrations of interest for our new active ETF fund, which is closing next Friday 8 June 2018, is a case in point (there will be a reminder about it with more details on the website tomorrow). I’ll be investing $100,000 of my family’s money in this fund, alongside other staff members, including our chairman Paul Clitheroe (watch Paul’s video “Why I am investing in this fund”).

With a long-term focus on undervalued stocks with sustainable and growing cash flows that can pay out growing dividends over time, it’s perfect for my personal situation. I have a concentrated portfolio of Australian stocks and this fund allows me to diversify my exposure without being too concentrated in the big banks. And I like the team’s approach and good 17 years track record.

Of course, that does not mean it’s perfect for you. All I’m asking is that if you think it might be useful you take a look for yourself. If not, just ignore it and move on.

Once again, if you’ve attended one of our seminars in recent weeks, thank you. If not, hopefully you’ll come and say hello at a future event. Or feel free to drop me an email at r.hodge@investsmart.com.au.

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