Football is big business and the stakes of winning are high. Getting the right team on the field each week, executing the right strategy, is important to achieving success.
Each year, the best football teams have a coordinated game plan and a strong pool of players to select from. Each week, coaches will look at the upcoming opposition, the available players, and select a team that can execute a plan to win.
In finance, selecting the assets for your investment portfolio to work towards achieving your goal is called diversification. This is one of La Trobe Financial’s Three Golden Rules of Investment.
For investors, it is unlikely that you will be picking a new team each week – in fact, patience is another one of La Trobe Financial’s Three Golden Rules. However, the same principles do apply and you should review your investment portfolio from time to time to ensure you have the right mix of assets to get a winning score! So let’s take a look at how football teams – and investment portfolios – are constructed.
Let’s start off with your ‘defenders’, who are there to stop losses. When selecting investments, it’s no different. Some investments aim to protect against losses, with their objective being to deliver income at all times across the cycle.
Then there’s ‘midfielders’. Midfielders are the engine room of a team, and help set the tempo, driving a team towards a big score. Occasionally, they will kick a goal themselves. Within the investment landscape, some assets will be your midfielders. These are the assets you will anticipate solid returns from, with some growth opportunities.
Finally, to the ‘offensive’ line. The best forwards will score goals consistently each week, and occasionally they can hit the scoreboard in a big way. But, you rarely see them helping out in defence, and they can have bad days at the office. Just like in the investment universe, some investments are all about growth opportunities… but they are no good at defending against losses.
When constructing a portfolio of investments, consider whether your investments are defenders, midfielders or forwards, including how those investments have performed across a range of scenarios and what value they really add to your portfolio.
If you have defined your investment goals, consider if your investment strategy is backed by a diversified portfolio of assets that are best positioned to achieve success. Are each of your investments playing their role? Are your investments working hard for you?
When setting your investment goals, consider your appetite for risk and whether you’re looking to get some early ‘wins’ on the board, whether you’re wanting to ‘flood the backline’ or ‘park the bus’ with a portfolio of more defensive assets, or somewhere in between.
Just as sporting teams select a team to deliver on a strategy, investors need to ask themselves similar questions. What are your investment goals? Do your investments align with those goals? Have you established suitable diversification in your portfolios?
At La Trobe Financial, our award-winning credit fund has a range of products to suit the return and duration profile of many investors. Our highly diversified portfolios of assets are designed to provide low-volatility income at all times across the economic cycle.