Good portfolio hygiene – three tips to take advantage of volatility

Investment markets have been very volatile over the past few months and looking forward towards the upcoming Australian company reporting season in August, could have a bumpy road ahead.

Things are not certain. Economic impact of COVID 19 restrictions, higher unemployment rates and impacts on company balance sheets are just a few examples of what we expect to see from the data over the coming few months.

But yet the market continues to march upwards due to the economic stimulus ‘drug’ that is being pumped into the system.

So in this light, below are a few tips to think about when addressing your own portfolio hygiene in times like these.

1. Take profits off the table, periodically.
It’s easier said than done. After March’s lows in equities markets, we have seen a stellar rise since that point. Maybe it’s time to check in to see whether some profits should be taken. Understand what is good enough for you return-wise, either by percentage or by dollar target and be strict about sticking to those targets. Sometimes we are our worst enemy when investing – try not to fall in love with the investment so that when you are reassessing the investment, aim to do it with fresh eyes and opinions.

Taking profits off the table is really important portfolio hygiene. As companies or asset classes run, rebalance your portfolio to take advantage of other opportunities at a cheaper price.

2. Diversification
Diversification is super important to be able to weather the ups and downs over the long term. This means across asset classes (equities: growth assets, and fixed interest: defensive assets) but also within asset classes (number of securities held). However getting the balance right is key as over diversification can also be detrimental. Each asset class differs with their sweet spot in diversification numbers. For example, this may be over 100 securities for some fixed income assets. Achieving adequate diversification yourself in this asset class may not be attainable without tapping into the expertise of the professionals. Active ETFs can be useful if you don’t have time to ensure that you are on top of adequate diversification in your investment portfolio.

3. Don’t invest for the hype – Invest for the long term
As Warren Buffett once said: “Someone’s sitting in the shade today because someone planted a tree a long time ago.” This quote sums up all that long-term investing is about.Investing on hype can get your fingers burnt. I think we’ve all made this mistake before one time or another. Analyse and really understand the fundamental drivers of your investments and utilise the bumps along the way as opportunities to invest in the lows. Again if you don’t have the time or the inclination to understand the fundamentals, active ETFs might be able to help take the burden off.

Disclaimer: Please note that these are the views of the writer, Camilla Love, Managing Director at eInvest and is not financial advice..

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ETF Investments Australia Pty Ltd trading as eInvest Australia, (‘eInvest’). ABN: 88 618 802 912 eInvest acts as the distributor for Perennial Investment Management Limited ABN 13 108 747 637, AFSL: 275101, the Responsible Entity of the eInvest funds. eInvest a corporate authorised representative of PIML. CAR number issued by ASIC is 001261747. Whilst every effort has been made to ensure that the information in this presentation is accurate; its accuracy, reliability or completeness is not guaranteed. Perennial expressly advises that it shall not be liable in any way whatsoever for any loss or damage which may be suffered by any person relying upon such information or any opinion, analysis, recommendation or conclusion contained in this presentation or otherwise arising in connection with the content of, or any omission from, this presentation. The fact that particular securities may have been mentioned should not be interpreted as a recommendation to either buy, sell or hold those securities. This information does not take into account your investment objectives, particular needs or financial situation. Past performance is not a reliable indicator of future performance. The PDS can be found on eInvest’s website

Camilla Love
Managing Director

Senior funds management professional | Passionate about education and investing | MD, eInvest - Active ETFs | Board Director | Founder, F3 - Future Females in Finance | Skier, theatre-goer, dog lover |

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