Strategies for turbulent times


As an investment adviser dealing with the current financial markets day in and day out it is easy to become sensitive to every news snippet and announcement.

Whether it is locally or halfway across the world the constant information feed can begin to cloud your thinking.

At present this is happening on a global scale, not just in banking and stockbroking offices, but also in the studies and lounges of mum and dad investors.

This is understandable because we are living in abnormal times. There has been a once-in-100-year credit boom that lasted 30 years (and is still unwinding) plus the simultaneous (possible) collapse of the European Monetary Union and the end - for the moment at least - of the Chinese commodity boom.

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As most Australians have some of their wealth invested in the share market, such as their superannuation, they are naturally expressing a level of concern.

As bad as it may seem, it is probably a good time to sit back, take a deep breath and decide how to take control of your investments starting with managing costs and risk.

With the Australian share market trending sideways over the past three years, it may be time to look beyond paying a standard fund manager a one to 3 per cent fee (per annum) to track the index. In the new share market environment you need a more selective investment strategy and one that has the flexibility to go to cash when share market risks are skewed to the downside.

There are now companies that are evolving with the new world and challenging the norm to develop products that ensure the client's interests are aligned to that of the investment manager. One way this has been employed is through performance- based accounts.

This type of account is a fully transparent individual account that allows you to see your holdings and transactions, gives you the opportunity to opt out if you need your funds and reports on performance the activity of your account. Now most investors would understand that there is a cost involved in such activity and would be happy to cover this. But how do they work for the broking company (investment manager)? They charge on performance.

The client covers the costs of the online reporting and transactions, which is minimal and the broking company's fee is performance based.

Such an account gives you the confidence that the broker will try to protect you from a downturn because it affects their back pocket, especially as it is easy to make money while the market goes up but the key to keeping that profit when the share market turns down.

If you do not have access to such accounts, or brokers who deal in derivatives which can allow you to profit from the share market when it isn't going up, then you may need to reassess your strategy.

As like running any business adapting to change or being active to 'move with the times' can be the difference between not just survival, but growth.

Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time.

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