Investing is an art form. At Chris Humphrey Private Wealth Management, the way we invest our clients’ money is different to our competitors. Below is an insight into some of the key investment considerations.
Risk adjusted returns
Risk adjusted returns is a concept that refines an investment's return by measuring how much risk is involved in producing that return. When comparing two or more potential investments, an investor should always compare the same risk measures. This will ensure that each different investment can be compared in order to get a relative performance perspective.
We also use risk adjusted returns as a method to avoid unwanted risk. We do this by assessing a client’s target investment return and recommending investments with the lowest level of risk which is required to achieve that return.
Diversification and portfolio construction
Diversification is the investors ‘free’ lunch as it consistently reduces a portion of the portfolio’s risk. Our portfolio construction is structured to maximise investment returns while reducing overall investment risk.
We don’t diversify for the sake of it; our recommendations are to add value for the client and therefore we do not overcrowd fund managers.
Tax and investing
When appropriate for our clients we always prefer investment managers that consider after tax investment returns.
After tax investments returns are usually enhanced with low investment turnover and the ability to sell stocks before year-end to crystallise capital gains or losses.
Low investment turnover results in:
- a higher portion of tax credits attached to dividends (due to the 45 day rule); and
- higher unrealised capital gains, which reduces taxable income and hence tax (capital gains tax can be discounted by up to 50% if investments are held for more than 12 months).
We generally only recommend ‘liquid’ investments with direct property being the main exception. High liquidity is important because it enables capital to be freely switched from one investment to another while at the same time minimising opportunity cost. For this reason we believe illiquid investments are best accessed via an exchange traded investment vehicle to avoid them becoming frozen.
Investing internationally can provide access to industries, companies and bonds not available in Australia. As Australia represents less than three per cent of the total world share market we can achieve diversification benefits by adding international exposure to a client’s portfolio.
Foreign exchange risk
When investing internationally we carefully consider the foreign exchange (FX) risk to a client’s portfolio. Foreign exchange risk in international managed funds can either be hedged, unhedged or managed.
Depending on the strength of the Australian dollar relative to the currency exposure of the investment together with the objectives of a client’s portfolio determines how we manage a client’s FX risk.
Direct property and shares have many characteristics and ultimately provide different advantages and disadvantages to each investor. We assess our clients on a case by case basis and endeavour to derive the best mix of direct property and shares to suit them.
We do not recommend specific properties, however if requested we may recommend a buyer’s agent.
"Since engaging Chris Humphrey, I have benefited from his comprehensive financial, investment and tax knowledge. Chris and his team are always quick to respond to my queries and pro-active in updating me on any changes that may affect my financial situation. "
Dr Jason Stone