Diversification made easy

Paul Clitheroe
Paul Clitheroe


THE expression 'never put all your eggs in one basket' describes one of the key rules of investing.   Right now plenty of Australians have significant funds invested in savings accounts and term deposits. These are very safe options but without the benefit of long term capital growth, you could be short changed further down the track.   Sharemarkets globally have delivered a wild and very unsettling ride since the GFC, with great volatility continuing. No one likes this, however it's also important to remember that quality shares also offer dividend yields in the order of 4% to 5% annually. Unlike the interest you'll earn on a bank account, which is fully taxable, franking credits on dividends can boost your after-tax return by 30%.   Also remember that many shares are much cheaper now than they were previously. Buying good assets at a low price, when the market's down, is one of the most proven ways of building wealth over the long term. You just need patience, and nerve, to do it.   The commercial property market also offers opportunities, yet it's an investment class that can be difficult for ordinary investors to access.    That's where diversified managed funds are useful. They provide access to a broad range of investments, without the need for significant upfront cash.   Diversified funds hold a variety of assets spread across a number of investment markets. They can be divided into three general categories - 'capital stable', 'balanced' and 'growth' funds. However many funds go by various marketing names that don't always make the underlying investment approach crystal clear. That's why it pays to read the fund's product disclosure statement (PDS) to get a good idea of how your money will be invested.   Capital stable funds mainly invest in cash and fixed interest securities (like government and corporate bonds), sometimes with a small percentage of shares and property assets thrown in. These funds can be suitable for investors looking for regular, steady returns.   If you're looking for capital growth accompanied by some regular income, it's worth thinking about a balanced fund. These have around 70% of the fund's investments in growth assets like shares and property, often with the balance held in cash and fixed interest. You should be prepared to hold onto your investment for around three to five years.   Further along the spectrum, growth funds focus chiefly on growth assets with only a small holding of cash and income assets. This asset mix means you should hold onto this type of fund at least five years to allow for swings in the underlying asset classes.   The type of fund that's right for you depends on a variety of factors including your age, personal goals and how you feel about risk. But with thousands of managed funds to select from, there's bound to be one that suits your needs.   Managed funds are offered by many of our large financial institutions. Or, you could think about an exchange traded fund (ETF).   ETFs are listed on the Australian Stock Exchange, and represent an underlying index or portfolio, or in some cases, a commodity like gold.   Like traditional diversified funds, ETFs can offer exposure to a diverse portfolio. They are also very cheap as no entry or exit fees apply, though you will pay brokerage when buying and selling ETFs. The annual fund management fee can be as low as 0.09% annually compared to up to around 4% with traditional managed funds.    For a complete rundown on how managed funds work - and why diversifying is so important for investors, take a look at the new edition of my book Making Money.   Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit for more information.       

Topics:  clitheroe diversification investment

Stay Connected

Update your news preferences and get the latest news delivered to your inbox.

What catches your eye in the Whitsundays?

MARQUEE: The Airlie Beach Festival of Music marquee is where all the hottest music will be played at the annual event later this year.Photo contributed.

Have your say on Whitsunday landmarks.

Barra season nears close, but still time

TOP CATCH: Canonvale man Shane Allen holding a nice trout.

Looking for fishing tips for the weekend?

Won't stop fundraising until they get enough

FIGHT: Val McMahan-Kaden (front) with friends Barb Adamson and Jo Pillifeant, who say they won't stop fundraising until they get what they need.

Fundraising won't stop until Val can get treatment.

Local Partners

Azealia Banks won't take legal action against Russell Crowe

Rapper Azealia Banks

Rapper drops legal action against Russell Crowe

Festival's attracting the best

ROCKSTAR: International ambassador of Airlie Beach Festival of Music 8 Ball Aitken will take to the stage.

Airlie Beach festival is where it all started for 8 Ball Aitken.

Brad Pitt meets with his kids amid divorce proceedings

Actor Brad Pitt

Brad Pitt has met up with his oldest son Maddox

Pictures of Taylor Swift allegedly being groped are sealed

They could "complicate jury selection".

Bruce Springsteen finds therapy useful

Singer Bruce Springsteen

Singer encourages others to seek help

Kerry Washington wants one more child

Kerry Washington recently gave birth to her second child

Kerry has only just become a new mum again

Hit songwriter's Noosa mansion on market

SPECIAL PLACE: The Cintamani estate is going to tender, marketed by Tom Offermann Real Estate.

Is this Queensland's best property?

Kiwi siblings snap up Dotcom mansion for $32.5m

The new toy company owners of the Coatesville mansion want replace any controversy with positivity and fun. Photo / Barfoot and Thompson

The trio paid $32.5 million for the property in June

New $200 million development will create 580 jobs

Cassie And Josh with baby Alfie and daughter Andee. They have bought at new Lennox Head development Epiq.

Majority of new positions will be given to Northern Rivers locals

Cherrabah's mega resort plans axed

PLANS for a massive development at Cherrabah have been scrapped.

What our mayor thinks of the new draft SEQPlan

The plan to use the innovative technology as part of the new Maroochydore CBD was cemented on site today when Mayor Mark Jamieson and Envac Asia Region president Chun Yong Ha formally signed the contract for the $20 million underground waste collection system.

New plan accommodates Sunshine Coast Council's vision for growth.

Dusit Thani finance crisis 'just a small hiccup'

ON TRACK: Springfield Land Chairman, Maha Sinnathamby, Ipswich Mayor Paul Pisasale, Developer Richard Turner and Springfield Land Deputy Chairman, Bob Sharpless, at the recent resort sod turning ceremony.

Property developer says project remains firmly on track