While most investors focus on picking stocks to drive performance, in reality, this is just a part of it. Research has proven that over the long-term, 85% of your return is determined by nailing your asset allocation, i.e.: the right mix of equities, bonds, alternatives, property and cash for your goals.
In the final part of this three-part mini-series aimed at new investors, I sit down with Andrew McAuley the Chief Investment Officer for Credit Suisse Private Bank in Australia. Bringing it all together to complete this series, Andrew succinctly explains what asset allocation is and why it is important to get right.
This was an enjoyable interview with an industry luminary, and I hope you find it as useful as I did interesting.
- 1:50 – What are asset allocation and portfolio construction? And why are they important?
- 5:13 – Why deciding what assets to invest in is more important than picking stocks
- 6:45 – Breaking down asset classes – Bonds, Equities and Alternatives
- 9:54 – Why hold bonds?
- 15:04 – What asset allocation might look like for a 25 year-old?
- 17:18 – Similar profiles, different risk profiles
- 20:23 – When to use Active and Passive management
- 26:15 – Most common investing misconceptions
- 29:19 – Franking credits and investing home bias
- 30:50 – Biggest risks in markets today
- 33:10 – Andrew’s favourite rule of thumb for investing
- 35:22 – Favourite questions
In part one of this three-part mini-series, I spoke with Phil Richards, Director and Wealth Advisor at Endorphin Wealth to discuss setting yourself up to get started as an investor
In part two, I sat down with Hamish Carlisle from Merlon Capital to discuss 'How to pick stocks like a pro'.
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Thanks for another great episode in the series. I have a rudimentary question about Bond total turns. In a risk-on environment, when the bond prices fall and yields rebound as investors turn to the stock markets, what happens to bond fund distributions (e.g. a bond fund that tracks Bloomberg AusBond Composite 0+yr Index or Barclays Global Aggregate index)? When interest rates continue to stay low but the 5 and 10 year aussie and US treasury bond yields rise, how does it affect bond fund distributions? What I am unclear on is in this scenario, what happens to the bond fund total return? Does the bond price fall and distribution stay the same or is it likely go to higher or lower? I'd appreciate an answer from either Andrew or Patrick.
Hi Chen, thanks for your questions. Pat, is on leave (well earned) for a couple of weeks. I'll send your question over to Andrew at Credit Suisse and see if we can get a response for you. Appreciate the feedback, James