Invest Well… Rest Well

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Since taking over as the Managing Editor at Port Phillip Publishing in October, I’ve reviewed a lot of reader mail. Yes, we really do take the time to read your input! What’s more, we appreciate it. And when we see a strong theme emerge, we act on it.

One of the topics that keeps coming up is how to grow your money without exposing yourself to too much risk. Where do you even start? The investment world and all its jargon rich products can be an intimidating place for new investors. Truthfully, it can even be daunting if you’re experienced.

Yesterday, Meagan Evans and I introduced you to the Albert Park Investors Guild. If you missed that, click here  to get up to speed.

Today, I’d like to look at the Guild’s portfolios. Importantly, I want to tell you why we chose these three separate portfolios, and why they are the only three portfolios you ever need to bother with again. And I’ll keep the financial jargon to a minimum.

But first, a quick look at how some companies performed on the ASX 200 yesterday. Specifically, some of the best and worst performers.

Resource sector service provider, NRW Holdings, had the best show of the day, returning a handsome 5.61% to shareholders. The prize for the best five day run goes to gold producer Northern Star Resources, with an impressive 25% gain.

If you had a crystal ball and had invested in Northern Star last week, you’d be a pretty satisfied investor today. But of course you don’t have a crystal ball. And, regardless of what they tell you, neither does your financial planner.

Without that magic talisman, you might just as well have invested in oil and gas explorer, Buru Energy. They lost 9% yesterday, and 18.75% in the last five days. You wouldn’t be a very happy investor in this case.

I focused on these companies today, because they tie into the most important rule for successful investing. 

Last week my good mate, and your regular Daily Reckoning editor, Dan Denning, was talking about one of life’s Golden Rules. ‘Do unto others as you would have done unto you.’ Dan mentioned how this isn’t just a Christian idea. In fact, it really has nothing to do with religion. Every culture throughout history has some version of this rule. And there’s a reason for that. If you want to a live a good life and be a good person, the Golden Rule is the most important rule to remember.

Well, there is a Golden Rule for investing too. It’s all about having a portfolio that meets your retirement or income goals without taking on too much risk. The truth is, no matter the depth and quality of your research, the world is an uncertain place. To limit the unknowable, you spread your investments across different types of investments, or asset classes. In financial jargon, you’ll hear this strategy called asset allocation. Your investments are then further spread — or diversified — among those assets.

This blend of asset allocation and diversification is the single most important factor in whether you make or lose money as an investor.

Of course, you can’t just invest blindly in any diversified group of companies. If you want to succeed as an investor — and I assume you do — you first need to know how to identify good businesses.

The key to preserving and growing your wealth is investing in the proper allocation of high quality companies. It’s a simple philosophy, and one of the cornerstones on which the Guild’s portfolios are built.

Investing shouldn’t be exciting. If you want exciting, head to the casino. Or book an afternoon of skydiving. When you get that out of your system, you’ll be ready to get back to the more mundane task of sorting out your investments.

What you really want is a portfolio that isn’t going to keep you up at night. Invest well in the day, and you’ll rest well at night. You want to own a portfolio that is going to do well, regardless of what the market is doing. You don’t want to have to watch the news to see what effects the latest developments in China or Ukraine have on your retirement plans.

If regular, dependable profits and funding a comfortable retirement is boring, then bring on boring!

We’ve called the Guild’s three portfolios the All Australians, the World Dominators, and the Wealth Havens. I didn’t come up with the name Wealth Havens, by the way. But I really like it. A haven, after all, is a safe place during good times and bad. It’s a place without many surprises, where your money comes in reliably, and in good quantity.

The Wealth Havens portfolio is largely made up of secure investments like exchange traded funds (ETFs) and listed investment companies (LICs). If you’re not familiar with ETFs, they’re simply investment funds made up of a variety of assets. These can include stocks, but also bonds, currencies and commodities. And they trade just like regular shares. LICs are an affordable alternative to traditional managed funds and can also be bought and sold like regular shares.

Wealth Havens invests in both Australian and international assets. However, even the funds tracking foreign markets are listed on the ASX. That means they’re easy to buy and sell, and the fees stay low.

As you may have guessed, the All Australians portfolio is comprised solely of Australian listed companies, available on the ASX. And every company in this portfolio is a high quality business with a proven track record of success.

Australia is one of a very few countries that hasn’t had a recession in 23 years. And it’s right on China’s doorstep. A handful of companies are set to make billions over the coming years because they have a dominant position. They are almost immune from competition. Who wouldn’t want to own those businesses?

Of course, the investment world stretches far beyond Australia’s shores. That’s why we looked abroad for the third portfolio, aptly called the World Dominators. Why?

If you restrict your investments solely to Aussie companies, you’re missing out on outstanding international businesses with great ideas and proven track records. And you’re limiting your bets because so much of the Australian stock market is made up of the banks and miners. If you want great tech companies, great manufacturing companies, or great pharmaceutical companies, you have to invest outside Australia. There’s no other way to own these businesses.

The second reason? The Golden Rule!

No one wants the economy to crash. But what if it does? If your portfolio isn’t ready for that, then you’ll lose money. The sensible thing to do is to own stocks in different countries. If it’s done properly, you’ll have less overall risk, which means you can sleep better at night…while you make money.

Fluctuating currency rates are another reason to invest overseas. No one knows what the Aussie dollar will be trading at next year. (Trust me, no one.) But if it does crash, you can actually make money.

Let’s say you invest in Bayer AG. The German pharmaceuticals company trades in euros, and your Aussie dollar is worth 70 euro cents today. If you invested $10,000, you’d have the equivalent of €7,000 in shares. Now imagine the Aussie dollar falls to only 60 euro cents. When you sell your shares and exchange your money back into dollars, your $10,000 investment will have returned $11,666, even if Bayer’s share prices remained flat.

Of course, this can work both ways. But the important point is that spreading your investments across a number of different currencies not only lessens your risk, it allows you to make the most from a bad situation.

If you have any questions or suggestions, send them to cs@portphillippublishing.com.au with the subject line ‘Albert Park Investors Guild’.

That’s all for today. Tomorrow I’ll introduce you to the Guild’s Australian board members.

Regards,

Bernd Struben
Chairman, Albert Park Investors Guild

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Bernd Struben

Bernd Struben

Bernd Struben is the Managing Editor of Port Phillip Publishing. Bernd has worked on four different continents, and has more than 20 years of professional finance, editorial, and management experience. He holds a degree in economics.
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