Unfortunately, volatility and negative market cycles are all part of investing. At W2 Wealth, we believe that it is important that you do not get thrown by the short-term. We believe that you should stick to your game plan and ignore the ‘noise.’ You should control what you can control and not make emotion-based decisions.

Diversification is a key tool used to manage portfolio risk. As we all know, it can be dangerous having all your eggs in one basket. Our portfolios have diversification across asset classes, countries, market sectors, fund manager investment styles as well as the underlying direct investments. This prevents one ‘bad egg’ from significantly impacting the portfolio in a negative manner.

As we see it, one of the biggest risks for clients is having to sell a sound investment at a tough time purely to fund ongoing living expenses. We place a strong focus on maintaining liquidity within our portfolios. This provides clients with time to ride out any unfavourable market cycles. Hopefully, it also provides peace of mind too!

Within our portfolios, we prefer to generate income. This objective has proven more challenging in recent times as global interest rates have fallen and some companies, such as the Australian banks, have temporarily cancelled or reduced their dividends. However, we will not compromise the quality of investments held within our portfolios by chasing income. Exposing clients to increased potential for capital loss, is not a good trade off in our minds.

Having a portfolio of high-quality investments is key. We are comfortable with our Approved List of Investments (APL), and we are in regular contact with all the fund managers that we utilise within our portfolios. We believe that all our underlying investments are of a high quality. Even so, this will not necessarily stop them from going down in value during a market wide correction. However, high quality investments and/or active fund managers are often the first to make a recovery after a market fall.

Managing portfolio risk versus the likely return is another key tool. Typically, the higher the potential return, the higher level of risk you assume. Conversely, the lower the risk, the lower the return. Our portfolios are personalised to consider each clients personal goals and objectives. We also overlay your individual views on risk and return. A target risk profile is not something that should change weekly or monthly based upon market events.