Financial Principles

When making any investment decision, the following financial principles should be followed:

• You should have investments that carry a a level of risk appropriate to your personal financial circumstances
• And your personality - so you can sleep at night
• You want the highest returns possible commensurate with your level of safety
• You want maximum flexibility
• You want to minimise your tax.

Modern Portfolio Theory shows us that in order to obtain potentially improved rates of return and reduced risk, you need to spread your investments. In other words 'Don’t have all your eggs in one basket'. You can spread your investments (called diversification) as follows:

• Geographically with money invested both in New Zealand and offshore
• By using different fund managers
• By investing in different investment areas such as fixed interest securities, property, shares, and cash.
• By investing in different industry sectors.

Please note that diversification will not completely eliminate capital losses from investments.

Risk Profile

Correctly identifying your risk profile is critical for determining your investment asset allocation and selection of products. There are numerous techniques and tools available to us to assist you with this process.

Our definitions of the various risk profiles are:

1. Defensive: Investors requiring capital values to be protected and a regular source of income, and who are willing to accept below average returns in order to minimise volatility.
2. Conservative: Investors requiring minimal volatility in capital values and a regular source of income, and who are willing to accept average returns for average volatility.
3. Balanced: Investors requiring a relatively low level of income and above average long-term growth from a portfolio that maintains a balance between ‘income’ and ‘growth’ assets, and who are willing to accept moderate volatility.
4. Growth: Investors requiring minimal income, and who are willing to accept higher levels of volatility in return for potentially higher returns over the long-term.
5. Aggressive: Investors requiring little or no income and who are willing to accept very high levels of volatility in return for the potential to achieve very high returns over the long-term.

Asset Allocation

In the long run the bulk of investment performance is based on asset allocation as opposed to purely investment selection. Investments require regular review in case changes need to be made. Therefore, asset allocation is vitally important to the future continued good performance of your investment portfolio.
We use the five risk profiles (mentioned above) and asset allocations developed by Tim Farrelly. Tim Farrelly brings a unique combination of analytics, understanding of financial markets, knowledge of capital market history and insight into the practical requirements of asset allocations for financial planners' clients.