Healthy investing is as important as healthy eating
Just as you need a balanced diet for healthy eating, you need a balanced portfolio for healthy investing. The key to both is having a variety of inputs to deliver a desired outcome.
Healthy eating focuses on balancing the five food groups: protein, grains, dairy, vegetables and fruit in your daily diet. For healthy investing, it's about holding a wide variety of assets from five different asset classes: equities, real assets, alternatives, fixed income and cash in your super investments.
So let's take a quick look at the essential food groups, or asset classes, required for healthy investing.
EQUITIES: The proteins of investing
Just like protein, equities (or shares), are important for healthy growth. A diverse allocation to both Australian and global equities is a core ingredient to a healthy investment portfolio. It’s really important to have a variety of different local and imported equities. In other words, a Texan steak, Japanese sashimi, and a British Sunday roast should all be in the mix.
REAL ASSETS: The grains of investing
Real assets are a staple of an investment portfolio; just like grains are a staple part of a healthy diet. Real assets are property, infrastructure and agriculture. The objective of investing in real assets is to target returns that are highly correlated to inflation. A good real assets portfolio is much more than just an investment property in Mandurah, it should include commercial, retail and industrial property along with several types of infrastructure assets. Similar to choosing the traditional grains of wheat, oats and rice, then throwing in some couscous and quinoa.
ALTERNATIVES: The dairy of investing
A well-constructed allocation to alternatives helps your portfolio have strong bones, i.e. resilience to market downturns. This comes through reduced reliance on listed sharemarkets to drive returns.
Alternatives can be in the form of hedge funds, private equity and more exotic investment strategies, such as reinsurance. Most of these should be included in moderation. Like dairy, you can often substitute these types of assets for something else like soy or almond milk. Equally, you need to tread very carefully to ensure you’re actually meeting your dietary requirements and not filling yourself up with ice-cream.
FIXED INCOME: The vegetables of investing
Fixed income could be considered uninteresting - much like plain green vegetables - but it’s often the overlooked hero of a healthy investment portfolio. Primarily in the form of bonds that provide stable income, and inflation-linked bonds that protect against inflation, fixed income keeps your portfolio ticking along. So remember to add a portion of peas and broccoli to your plate; they will play an important role in your healthy investment mix.
CASH: The fruit of investing
You generally need less cash than fixed income, just like you need less fruit than vegetables. Cash is still important to have on hand to take advantage of when assets are cheap, or to fund expenses if you’re in retirement.
A healthy investment plan should include all five of the above asset classes. And speculative investments, just like soft drinks and sugary snacks, should be kept to a minimum.
Eating healthily can be tricky, especially when you must keep track of everything in your diet. The same is true for healthy investing. Fortunately, healthy investing can be left to us, your trusted experts.
Note: Our investment options invest in these asset classes in different amounts. All of them can go up or down. Those asset classes that are higher risk can go down more frequently and can generally fall more than lower risk asset classes.Download PDF