Ask An Adviser: In My 50s and Sorting My Finances: Should I Invest or Hold Back After Trump’s Return? (3)

Top answer provided by:

Rory D'Agostino

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Firstly, congratulations on reaching an exciting milestone in life – with your children becoming independent. Not an easy feat to get them out of home with the current cost of living.

“Getting my finances sorted” can mean many different things to different people so as a starting point you should get really clear on what your short-, medium- and longer-term objectives are so you can map out the best course of action to meet each of your priorities.

Before diving into your investment journey, there are a number of different areas of your finances you should also consider including but not limited to: your current and future cashflow, debt position, risk management and estate planning. For example, in my view, there is little point investing cash if you’re paying 20% interest on a credit card.

Once you have sorted out the base level finances and you are in a comfortable position to start investing there are some key consideration to take into account to make sure you’re on the right path.

1. Your risk profile and investment time horizon

A core principle of a solid financial plan is understanding your risk profile. Your risk profile reflects your capacity to tolerate investment fluctuations and losses, as well as your need for returns to meet your goals. This is particularly important during periods of extreme market volatility and Trump’s “flip-flop economics shaking up global trade”. The last few weeks have been a great testament to the benefit of holding your investments through different market cycles.

At your stage of life:

* If you have high risk tolerance and a longer timeframe to invest (e.g., 10–15 years to retirement), you may still afford some exposure to growth assets such as International and Australian shares and property.

* If you have lower tolerance or are planning to retire sooner or need to access cash in the short term, a more conservative or balanced investment approach, with greater emphasis on income and capital preservation, is often appropriate.

I believe that it is essential to match your investments to your investment timeframes:

Short-term objectives (generally 0–3 years) should focus on defensive assets like cash and fixed interest to preserve capital. 

Medium term objectives (3- 6+ years) can reasonably include some allocation to growth assets to outpace inflation and build wealth. It is important to have an exist strategy where you can realise wealth without having to sell investments if the markets are not ideal

Long term objectives- (6 + years) – should focus on long term growth and a higher allocation to growth asset classes would be appropriate provided the allocation is in line with your risk profile

Some typical strategies to consider protect your savings

In volatile times, it is not about timing the market, but time in the market that builds sustainable wealth. However, putting a significant amount of money into shares and then seeing the value drop 10-20% over the space of a couple weeks might make you re-think your risk profile and investment decisions.

Some proven strategies to both reduce the risk to your capital and provide smoother long-term growth I’ve outlined below:

1. Diversification

Diversification is your best defence against a single investment failing or one asset class performing poorly (for example, the share market falling or one fund manager failing). Spreading investments across asset classes (shares, property, fixed income, cash) and regions (Australia, international developed and emerging markets) to reduce reliance on any single market event.

If you diversify your investments, when some fall in value, others may rise and balance out the fall. Diversification lowers your portfolio risk because, no matter what the economy does, some investments are likely to benefit. 

2. Dollar-cost averaging

Rather than investing a lump sum all at once, investing gradually (e.g., weekly or monthly) into your investment portfolio to smooth out volatility risk and benefit from buying more assets when prices dip. 

3. Rebalancing portfolios

Regularly reviewing and adjusting asset allocations back to your strategic targets in line with your risk profile, objectives and investment timeframe. This ensures you are not inadvertently overweight in riskier assets due to market movements and vice versa with defensive assets.

As time goes on and your longer term goals come into your medium term time horizon, it is worth reviewing your risk profile, adjusting your allocations to match your time horizon.

4. Focus on quality investments

There is a lot of noise about the next best stock, the next cryptocurrency to revolutionalise the world, the next best regional town to buy a property. What you don’t hear much about is the next best idea that didn’t quite work out. Be careful not to be tempted by the next best thing or the highest returning investment over the last 12 months and focus more on quality investments that align to your goals. 

Investing in high-quality companies with strong earnings growth and balance sheets or low cost diversified passive or active investment managers. If your considering buying an investment property stick to the fundamentals- Location, location, location.

5. Building a defensive asset base

Holding sufficient cash reserves and stable income-producing investments to protect against short-term market shocks and to fund near-term lifestyle needs. This defensive base is appropriate for the short-term goals mentioned above or if an unexpected expense comes up which requires your immediate attention.

Should you invest or sit tight?

While it is tempting to "sit on cash" in uncertain times, doing so carries its own risks – particularly inflation risk, where the purchasing power of your money erodes over time. A carefully constructed investment portfolio, aligned to your goals and risk appetite, generally provides a better long-term outcome than trying to time markets based on political events.

Markets often price in expected outcomes rapidly, and history shows that reacting emotionally to news cycles tends to harm long-term returns. Therefore, after proper personal analysis and professional advice, remaining invested with a diversified, disciplined strategy is typically preferable to staying completely on the sidelines.

Final thoughts: Seek tailored professional advice

It is essential that any course of action is tailored specifically to your personal objectives, risk tolerance, and timeline rather than applying a generic market view. Given your circumstances and the complexity of today’s financial environment, I would strongly recommend undertaking a comprehensive financial review with a financial adviser

While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.

Article by:

Rory D'agostino

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