A well constructed financial plan has two parts – wealth creation and wealth preservation. Wealth preservation helps you protect your ability to create wealth. PGFS can assist you to identify the risks, determine the most cost-effective solution and implement a risk management program which has been tailored to suit you. This can include advice on the following areas:
Managing Risk
Gearing Risks
Mention negative gearing and most people automatically think of tax savings. You borrow to invest and claim a tax deduction for your borrowings. To the extent that these borrowings – and other costs on your investment – exceed the income you earn from the investment, you can use that tax deduction to reduce tax on your other income.
But think about it for a moment. To claim a tax deduction using negative gearing, you have to spend more on your investment each year than you earn from it. In other words you have to lose money. It might make sense to do that for a time as part of a long-term wealth creation strategy, but as an aim in itself it hasn’t got much to recommend it.
Clinton says for negative gearing to make sense, you need to eventually plan to recoup all those losses and more. The tax benefits are real, but shouldn’t be the primary focus. After all, if all you wanted to do was to save tax, you could go on losing money indefinitely. How smart is that?
A PGFS Financial Advisor can asssist in helping you determine whether property gearing is appropraite for your individual circumstances.
Business Key Person Loss
There are always risks involved in business. The unexpected death or disablement of a person that is key to the operation of a business, may seriously risk its ongoing viability.
Adequate keyperson insurance can help to minimise this risk and protect the security of those that depend on its financial stability.
There are three basic insurance needs that typically apply to businesses:
- Asset protection.
- Revenue protection.
- Ownership protection.
The financial issues relating to business protection needs can be complex and therefore require informed consideration. A PGFS financial adviser can help you secure the appropriate keyperson insurance cover.
Defining Your Risk Profile
Successful investing requires an understanding of the fundamental risk and return relationship – the more risk you take, the higher your returns are likely to be in the long term. And the higher the long-term returns, the more volatility you may have to endure in the short term.
A PGFS financial advisor will help define your risk profile via an easy to understand series of questions. The answers to these questions are used to help determine your risk tolerance. From this, PGFS will recommend the most appropriate investment portfolio which is consistent with your risk profile and wealth creation goals.
Below is sample of the questions used by a PGFS financial advisor as part of the risk profile definition process.
How much of your income would be spent on servicing current debts eg: credit cards, rent or mortgage payments:
- more than 30%
- between 10% to 30%
- less than 10%
In the event of an emergency, how much cash savings would you have?:
- less than 3 months of living expenses
- 3 to 6 months of living expenses
- greater than 6 months of living expenses
Is your current state of employment:
- Insecure
- Relatively Stable
- Highly Secure
Do you require any income from your investment portfolio?
- all income earned to be received
- partial income earned to be received
- all income earned to be reinvested
Do you require access to your investment capital:
- I require it for spending
- in case of emergency
- I have no requirement for access to my investment capital
Would you change to another investment if:
- your investment drops in value
- the value drops more than 20% during a given year
- I would not sell in the short term based on negative returns
Where do you currently invest most of your money?
- mainly cash and term deposits
- shares, investment, diversified managed funds etc.
- aggressive investments including small company shares or speculative investment opportunities
Which statement best describes your investment objectives:
- a secure safe place for my investments with no loss in capital
- investments that show steady growth, and have minimal risk to my capital
- an aggressive mix of investments and mostly those with higher risk and the chance for higher returns
What type of return would you expect from your investment?
- regular income
- both income and capital growth
- mainly capital growth
What is your investment time frame?
- one to four years
- five to ten years
- more than ten years
Understanding Investment Risk
Managing risk
There are an increasing range of investment options in the market today. These different investments pose different levels of risk. Generally, the riskier the investment, the greater the potential returns – and losses.
However diversifying your investments may help to reduce risk you could be potentially exposed to as well as increase earnings.
A financial adviser can help you determine the level of risk you’re comfortable with and can help guide you in your choice of investments.
Risk and return
Before making any investment decisions, you should understand the relationship between risk of loss and return (earnings).
What’s risk got to do with return?
Simply put, the riskier the investment, the greater the potential gains or losses.
For example, shares are one of the riskiest asset classes as their value can fluctuate dramatically either up or down.
Shares however, also offer the greatest potential to make returns or losses over the long term.
How does time affect risk?
Generally, by taking a long term investment view, you can reduce your exposure to risk by investing over a longer period of time. This is because over the longer term the short-term ups and downs in the market have more chance of being smoothed out or counteracted. Having a short term investment view does offer the opportunity for some fast gains but also fast losses.
While your personal risk outlook may differ, generally the following categories exist:
- The short term (under 12 months) is likely to be better suited to low-risk investments.
- medium term (1 – 5 years) are suited towards medium-risk investments
- For long term (5+ years) a profile holding a greater proportion of high-risk investments is more suited.
What level of risk are you comfortable with?
Understanding your risk profile can help make you feel more comfortable with your investment choices. It will also guide you find the investments that best suit you.
Helping to understand your risk profile, you should consider the length of time you’ll be investing for and the level of returns you’re hope to achieve.
Diversification
It’s generally risky to put all your eggs in the one basket. Diversifying your investments can help reduce risk and may improve your returns.
How does diversification work?
Diversification is the act of spreading investment money over a wide variety of different areas such as:
- asset classes (property, shares, bonds and cash)
- sectors within asset classes (e.g. manufacturing, mining)
- overseas markets
Further more uou can also diversify by targeting different Fund managers for their particular investment style and also choosing from a range of managed funds sectors.
Fund managers also provide diversification through their managed funds. A PGFS Financial Adviser can assist you to determine
Why diversify your investments?
Not all asset classes perform as well as each other year after year. We all want to be able to pick the investment that’s going to perform best.
This is not an easy job. There are many investment options available and markets can be unpredictable. You must also consider that the best-performing asset class or sector can change each year.
By diversifying your investments, you have more chance of picking the best-performing asset class and therefore reducing the risk of low and poorer returns.
How do managed funds make it easy to diversify?
Managed funds allow you the benefits of diversification and with only the minimum investment amount. Managed funds invest your funds with that of many other investors there by creating ‘economies of scale’. This allows investors to invest in a larger range of asset classes and industries as well as open the doors to investment opportunities they would not normally have access to.
Remember: it’s important to keep in mind your appetite for risk and particular financial goals before choosing from the wide range of managed funds on offer.
Contact Information
Adelaide
Address: 1 King William Road
Unley, South Australia 5061
Email: admin@pgfs.com.au
Phone: 08 8373 7277
Fax: 08 8357 0366
Facebook: PGFS
Darwin
Address: Suite 13. Terminal 1
396 Stuart Highway
Winnellie, Northern Territory 0820
Email: admin@pgfs.com.au
Phone: 08 8373 7277
Fax: 08 8357 0366