Home  /   Our Services  /   Investment Management

Investment Management

At GFM Wealth Advisory, our focus is to ensure that your portfolio is positioned for the long-term whilst allowing for current market conditions.

We strongly believe that a well-diversified portfolio is one of the keys to the the creation of wealth over the long term and stability of capital.

Diversification allows you to participate in the growth and performance of financial markets while reducing risk in your portfolio by moderating the ups and downs in returns over time. This means that you avoid taking big bets in one asset class and/or a few investments that may adversely affect your returns if it underperforms.

Diversification avoids having your investment fortunes tied to the performance of a small number of securities or assets. It also allows you to have an exposure to a spread of assets and securities including both ‘growth’ and ‘defensive’ assets, which we explain later.

In essence, diversification provides a greater chance that your portfolio will experience smoother returns over time, particularly over shorter periods.

At GFM Wealth Advisory, your financial planner will seek to diversify your portfolio across a range of asset classes including:

  • Australian shares
  • International shares
  • Property, including direct, listed and unlisted
  • Infrastructure
  • Hybrid securities
  • Fixed interest
  • Term Deposits
  • Cash

At GFM Wealth Advisory, a collective team approach is adopted to investment advice.

All aspects of the investment process are discussed and agreed to by members of the Investment Committee. Your financial planner then incorporates these recommendations into your tailored investment strategy.

The right portfolio depends on the individual, their needs and circumstances. There are a number of things that each investor has to consider such as their investment time horizon (how long can the money be invested), the level of returns sought and the amount of risk that is willing to be accepted.

Investments can be categorised into specific asset classes according to a range of factors such as:

  • The type of investment
  • The risk/return profile
  • Whether they provide the potential capital growth or income

Generally speaking, assets fall into two buckets: Growth and Defensive.

Growth Assets Defensive Assets

Growth assets provide the potential for longer term capital gains, but have a higher level of risk over defensive assets, especially over the shorter term. A portfolio skewed towards growth assets may suit those willing to accept an increased risk of volatility over the short to medium term in exchange for capital gains over the longer term.

Growth assets include Australian shares, International shares and property.

Defensive assets generally offer lower risk and lower returns over the longer term. A portfolio skewed towards defensive assets may suit those wanting to reduce volatility in their portfolio and/or those investing for the short term.

Defensive assets include fixed interest, term deposits and cash.

A diversified investment portfolio should include both growth and defensive assets as well as exposures to several asset classes within those buckets.

Growth assets

Australian Shares
Shares represent part ownership in a company. There are different types of shares such as ordinary shares, preference shares or partly-paid (contributing) shares. Owning shares in a company entitles the investor to participate in any dividends paid by the company from its profits. This represents the income return from shares.

Dividends from Australian shares often include tax benefits in the form of franked dividends. Franked dividends are dividends paid by a company out of profits on which the company has already paid tax. The investor is entitled to a franking (imputation) credit, or reduction in the amount of income tax that must be paid, up to the amount of tax already paid by the company. This means that the investor avoids paying tax twice on the profits generated by the company – once by the company and again by the investor at their own tax rate.

Share ownership also exposes the investor to movements in the share price of the company. If the share price increases above the price that it was purchased, the investor will make a capital gain. On the other hand, if the share price falls below the price at which the shares were originally purchased, the investor makes a capital loss.

The price of shares can be influenced by a number of factors including the performance of the local and international economies, interest rates, inflation and the magnitude of competition in the industry the companies operate in, as well as investor sentiment.

Share prices tend to fluctuate substantially over short periods of time but over longer periods such as over five and ten years, their returns tend to be more reliable. For this reason, it is often suggested that investors consider share investments only if they are willing to stay invested for at least five years.

International shares
International shares are shares in companies that are domiciled in a country other than Australia. Investors often spread their money across a range of countries and industries. Like Australian shares, the return from international shares is made up of any dividends received as well as the capital gain or loss resulting from the change in the company’s share price. International shares are different to Australian shares in a number of key ways:

  • The dividends paid by international shares tend to be lower than those paid by Australian companies and therefore the income return tends to be lower. Also international shares do not have franking credits and therefore may not be as tax effective as dividends paid from Australian companies.
  • International shares offer a far greater range of investment options. International shares offer access to other countries with different economic prospects such as the United States and Europe as well as China and emerging markets. International shares can also provide exposure to industries that may not be well represented in Australia. The greater spread of shares across geographies and industries can result in lower risk to your portfolio because of the diversification.
  • The returns of international assets including shares are also affected by changes in the Australian dollar. Generally, if the Australian dollar strengthens, then returns from international assets are reduced because the currency movement results in a loss when the international asset is converted back to Australian dollars. However when the Australian dollar weakens, returns from international assets are increased because of currency gains.

Like Australian shares, the share price movement can be very volatile over short periods of time and it is best to invest in these only if the intention is to stay invested for at least five years.

Property
There are many different types of property investments. An investor can purchase a property or number of properties directly in which case they will be benefit from the rent received by the properties as well as the change in the valuation of the property over time. The returns of these properties will be dependent on the quality of the tenant and the rent paid as well as the location and type of property such as residential, industrial or commercial.

An investor can purchase property directly or via units in a trust that purchases properties on behalf of investors (these are called unlisted property trusts). Accessing property via a trust often allows the investor the ability to gain exposure to more properties than if they used their investment amount to purchase property themselves. This spread of properties can reduce the overall risk of the property investment.

Investors can also gain exposure to property by buying units in a property trust that is listed on the Stock Exchange (listed property trusts). Both unlisted and listed property trusts can borrow money as part of the trust structure and therefore returns to investors will be affected by the borrowings. Borrowing allows the trust to increase their purchases of properties and/or undertake development of properties. Returns to investors are paid after the borrowing costs are repaid. The level of borrowings can also add to the risk of the investment particularly if the valuation of the properties fall or the income generated by the properties is insufficient to pay the interest.

Defensive assets

Bonds (also called fixed interest)
A bond is a tradeable security, usually issued by a government, semi-government or corporate body to raise money. Investors in the bond have lent money for which they receive a fixed rate of interest over a set period of time. The bond is repaid with interest on the predetermined maturity date. Some bonds can be traded on the share market.

The returns from bonds are based on the fixed rate of interest paid over the term. If the bond is traded the price will be affected by changes to market interest rates. If market interest rates rise, the price of the bond will fall and the investor will have a capital loss which reduces their total return. Conversely if market interest rates fall, the value of the bond will increase meaning that there will be a capital gain that adds to the overall return from the investment.

Cash
Cash is one of the safest investments. It includes cash in the bank, cash management trusts and even cash in your pocket. Cash returns are based on the official cash or interest rate which is set by the Reserve Bank of Australia as part of its monetary policy. The Reserve Bank changes the official interest rate in order to attempt to control inflation.

GFM Wealth Advisory