Why astute investors are a little like astute kayakers.

 

US financial planner and New York Times columnist Carl Richards remembers .....

 

 ..... a valuable tip he received more than a decade ago when learning to ride a river on a kayak.

The advice was straightforward: Avoid focussing on the rocks and other obstacles. Rather, concentrate on the "space between the rocks".

However, he didn't heed the tip and flipped upside down in the icy river.

In a recent article, Focus on the opportunities, not the shoals, Richards writes that investors experience a similar challenge when trying to maintain their focus despite all of the noise in the market about what could go wrong.

"Unfortunately, devoting all of our attention to the financial rocks," he emphasises, "makes it difficult to see the opportunities we have some actual control over."

Investors have faced a series of financial "rocks" in recent weeks to potentially throw them off course.

Besides the challenge of investing in a low-interest environment, there have been the headlines about the Greek debt crisis, the state of the Chinese share market and the latest iron ore price - to name just three.

In turn, investor concern is being reflected in heightened volatility on world share markets.

While investors can't control the markets or the emotions of other investors, there is plenty they can control.

As discussed in Vanguard's principles for investing success publication (PDF), things that investors can have much control over include:

  • Their investment management fees. High fees handicap returns; it's as simple as that.
  • The tax efficiency of their portfolios. Frequent trading, for instance, can trigger CGT in addition to extra transaction costs. On the other hand, the concessionally-taxed super system can provide excellent opportunities for greater tax efficiency.
  • Their portfolio's long-term asset allocation. Successive research has concluded that a diversified portfolio's strategic asset allocation - the proportions of its total assets invested in different asset classes - is responsible for the vast majority of its return over time. Appropriate diversification spreads both risks and opportunities.
  • Their own emotions. Investors who maintain a disciplined, unemotional approach to investing focus on the long-term without being swayed from their course by short-term market movements and the latest media headlines. This makes them less likely to fall into the trap trying to time the market - that is, attempting to pick the best times to buy and sell.

An investor's challenge is to look beyond the financial obstacles or rocks that will inevitably arise along the way.

By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
02 July 2015

  • COVID-19 resources - Jobkeeper Update

    Several new links have been added to the many already in this article, links that date back to the beginning of the COVID-19 pandemic. If you have any questions, or require further assistance, please send us an email or phone.

  • JobKeeper Phase 2

    The Government has decided to extend a lower JobKeeper for a further six months (13 fortnights) from 28 September this year, with eligibility based on actual rather than projected turnover declines.

  • Estate planning and investments

    It's a question most of us ask eventually: what happens to our investments when we die?

  • Pandemic spurs a rise in investment scams

    In the current low interest rate environment, an investment product offering low-risk, high returns may sound very tempting.

Read more latest Financial Planning news articles

General Advice Warning

The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Retirewell Financial Planning nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.