Investments: Getting into the Nitty Gritty
We at NMG Personal Wealth believe that education and awareness is one of the most important services we can offer our clients. It will enhances the level of advice we give to you enabling to ensure that the conversations between our clients and advisors is of the highest quality. Therefore, we want to make sure you are armed with the knowledge to deconstruct any jargon that is too prevalent in our industry.
So today, we have simple question: Do you really know and understand what you are investing in and why?
Endowments, Unit Trusts, and Retirement Funds are merely investment vehicles containing various asset classes. At a simple level, these assets classes can either be defensive or growth assets.
Defensive assets have a lower potential rate of return over the long term but are generally less volatile and have less potential to lose value over the short term. Growth assets have the potential to earn a higher rate of return over the long term but are also likely to fluctuate and be volatile over the short term.
Cash and fixed interest investments are examples of defensive assets. Cash and short-term securities include deposits, bank bills, money market accounts and other similar assets whose price is linked to short-term interest rates.
Fixed interest investments are longer term interest-yielding assets. These come in the form of bonds, including investment grade, high yield, emerging market, nominal government and inflation linked bonds.
Local and International shares and property securities are examples of growth assets. Shares can be expected to outperform any other investment classes over the long-term. However, due to share market volatility, investments are likely to fluctuate in value across all time periods, particularly short to medium-term.
One of the most effective means of reducing the different types of risk is to diversify your portfolio. No one type of asset class or investment manager provides the best performance over all time periods. So a well planned investments strategy should reduce the risk of your investments portfolio experiencing drops volatility in the medium term.
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