Is it time for a portfolio review?
Christine St Anne  |  05/12/2012Text size  Decrease  Increase  |  
Christine St Anne: It's now nearly the end of the year and many people would be looking to review their investments. Today I'm joined by Westpac's David Simon, to talk about whether it's time to review your portfolio. David, welcome.

David Simon: Thank you Christine.

St Anne: David, what part of the portfolio do investors need to review?

Simon: Look, I mean we encourage portfolio reviews all time. So, it's a continual discipline that's done on a regular basis and we found that all asset classes need to be reviewed on an ongoing basis. I suppose gone are the days of being a spectator. And taking I suppose the original footprint of the asset allocation for granted.

So, indeed not just markets, not just financial markets that change, the economies continuing to change and certainly legislation, regulation is also continuing to change. All of these are factors have an impact or influence in terms of portfolio performance. But indeed there is the personal circumstances and objectives of the individual investor they continue to change as well.

So, it's about going back to those and reiterating are they still current, (others) do imply and then matching up the portfolio to making sure that they are quite consistent. But other factors such as cash flow, ideology on risk, timeframes, liquidity requirements these are whole range of factors that need to be tested and addressed at every single point in time to ensure that clients remain on track to achieve their objectives.

St Anne: You mentioned personal goals, so do investors need to be maybe rethinking their retirement goals?

Simon: Christine, it's a really good point because I mean times are great oversight retirement seems a lot closer and achievable in its end, and accessible and retirement income expectations again are a little bit more generous than would otherwise thought to be.

But when markets move into a more bearish or in a more depressive state, that's what we've experienced in recent years, retirement objectives certainly change. So, expectations for people change. So, they pull certain levers which means they could work longer. So, they could work for five years more, they could in fact reduce their expectations on their lifestyle needs in retirement.

They could reduce their expectations and what they from an income stream, or try to make that capital work harder by attaining a higher risk portfolio, asset allocation or indeed trying to mirror that capital with their life expectancy. So, really retirement objectives continue to change and evolve due to several factors around work, but also dominated also by market influence.

St Anne: David, we're facing unprecedented volatility particularly with what’s happening with Europe, and to a certain extent the US, should investors look at those sorts of factors when reviewing their portfolio and what other key elements should they look at?

Simon: Look you've always got to remain cautious and I believe that if you're going to be a spectator and take the portfolio or anything for granted then you probably going to get on stock. So, seeking quality advice and by that I mean an excellent adviser on an ongoing basis is absolutely imperative.

Continuing to check with research is also critical, because things are changing so quickly and so is research. So, keeping tune to information is imperative. I mean the current headwinds are apparent and certainly dominant. So, you mention the US absolutely, the US fiscal cliff, which is effectively $600 billion worth of tax increases and expenditure cuts are meant to automatically come in on the first of January, that could have catastrophic impacts on the market. And could potentially put the US back into recession unless the politics can resolve that indeed, information on recent evidence that's come from Europe, is confirming that Europe is currently in a recession.

So, these are again examples of the headwinds and now we're talking about the Middle East conflict if that does, perpetuate then that could have in-adverted impact in oil prices and energy costs and then again have an impact on agro markets. So, it's important to be nimble, it's important to be to completely informed through quality research and quality advice to ensure that you are might going to be right decisions of along the path.

Overall, it's still important to have that long-term view. So, it's unnecessary to make those wholesome changes, but taking a longer process ensures that you're not getting caught out.

St Anne: David, you mentioned keeping a long-term perspective. What about underperforming assets? What should investors do with those sorts of assets in a portfolio?

Simon: Underperforming assets are going to be a part of everyone's portfolio. It's absolutely impossible to hold all assets that are all going to be - that are going to truly outperform. So, those underperforming assets it’s important to understand why they're underperforming? So, the rational and the reasons of why you purchased these assets in the first place do those reasons prevail.

Other micro fundamental characteristics of those assets do they still, or they still relevant are they still the same? Or is it just they are underperforming due to more noise related and macro reasons. If you find that they are due to more macro and broad issues that are particularly directed at the characteristics of that asset, well then over the long-term it still could be a good asset to hold.

St Anne: David, thanks so much for your time today.

Simon: Thank you.

Video Archive...

to Morningstar Premium Membership

1 stock that's close to perfection
29/08/2014  Morningstar head of equities research Peter Warnes discusses results from the likes of Ramsay Health Care and Woolworths as the curtains close over the fiscal 2014 earnings season.
Why moats matter
26/08/2014  Morningstar Australasia's co-chief executive Heather Brilliant talks about finding great companies in a new book she co-authored titled Why Moats Matter.
BHP, Wesfarmers and investor returns
22/08/2014  Morningstar's Peter Warnes takes a look at the latest results from BHP Billiton, QBE Insurance, as well as a "shareholder's dream," Wesfarmers.
CBA stands out, Telstra gives back cash
15/08/2014  Morningstar's Peter Warnes takes a look at the latest earnings results from the likes of Commonwealth Bank, CSL, Telstra and ANZ, and gives investors an idea of what to expect from these companies going forward.
2 energy stocks with strong returns
08/08/2014  These two Australian energy companies should see strong returns over the next decade.
This wide-moat stock has been a star performer
05/08/2014  With its record of high profitability and very strong shareholder returns, this banking firm stands out.
How diversified is your portfolio?
31/07/2014  Morningstar’s Tim Murphy talks about an effective investment tool that helps investors achieve a diversified portfolio.
Seeking small-cap opportunities
30/07/2014  Morningstar's Tom Whitelaw shares some insights gained from recent talks with small-cap fund managers and provides some tips for those looking to increase their exposure to the smaller end of the market.
Key insights into quality stock-pickers
31/07/2014  Morningstar’s Julian Robertson talks about recent research into Australian large-cap managers and how some quality managers are approaching the market.
7 reasons why SMSFs outperform
22/07/2014  The key advantages to running a self-managed superannuation funds have also translated into strong performance.
Top investment prospects in 2014
16/07/2014  Morningstar's Peter Warnes explores the key issues, trends, risks and opportunities that lay ahead for investors over the next year.
What the advice reforms mean for SMSFs
09/07/2014  SPAA’s Graeme Colley outlines what SMSF trustees need to do to ensure the advice they are getting complies with the government’s proposed reforms.
Woodside, Santos in solid position
02/07/2014  Morningstar's Mark Taylor shares his views on future global energy demand and explains why Australia's major gas companies are well-positioned to benefit from favourable market dynamics.
Stockland poised for growth
30/06/2014  Stockland’s managing director Mark Steinert outlines the company’s growth strategy and gives his outlook for the housing sector.
Quality emerging-markets investments
25/06/2014  Morningstar fund research analyst Alex Prineas equips investors with what they need to know when it comes to getting quality exposure to emerging markets.
Quality emerging-markets investments
25/06/2014  Morningstar fund research analyst Alex Prineas equips investors with what they need to know when it comes to getting quality exposure to emerging markets.
Giving investors access to the world
19/06/2014  By investing in companies outside the banking and resources sector, investors can get a diversified portfolio that will perform across a variety of market cycles.
Emerging investment opportunities
16/06/2014  Ibbotson’s Daniel Needham talks about the need to confront existing investment thinking in order to improve investment outcomes for investors.
Maximise quality, minimise risk
11/06/2014  Morningstar's Mathew Hodge shares some insights into the portfolio construction process, as well as the role of stewardship in stock selection.
Reliable growth from property
04/06/2014  AMP Capital's Wholesale Australian Property Fund aims to provide SMSF trustees with both reliable income and some steady capital growth.