Ahead of The Game – EPISODE 9: Investment Fundamentals (Changing the Game Part 1)

Ahead of The Game – EPISODE 9: Investment Fundamentals (Changing the Game Part 1)

Welcome to Ahead of the Game, a podcast brought to you by KMT Partners. I am Andrew Montesi. Our next few episodes will be focusing on “Changing the Game”, which talks about various aspects of your own personal finances. KMT Director Lachlan Kennet provides short and sharp business and wealth tips and insights, and also drawing on issues raised by the guests throughout the show. The first episode is mainly talking about the fundamentals of investing.

KMT Partners – Ahead of the Game – Episode 9

 

Speaker Key:

 

AM             Andrew Montesi (Host)

LK               Lachlan Kennett (Guest Speaker)

00:00:00

[Music]

AM             Welcome to Ahead of the Game, a podcast brought to you by KMT Partners. I’m Andrew Montesi. This is the first episode in our miniseries which we’re calling Changing the Game, where KMT Director Lachlan Kennett provides short and sharp business and wealth tips and insights, drawing on issues raised by our guests throughout our show. In this episode, Lachlan talks about investment fundamentals. Lachlan, welcome to the podcast.

LK               Thank you.

AM             So we’re talking about investment fundamentals. Can you kick off by telling us; what does the relationship between risk and return look like?

LK               Well it’s something quite basic in principle but to implement it, it can be quite hard. It comes back to, I suppose, two broad, I suppose, areas of investing. One is a defensive asset. So, you might think, maybe, cash in a bank. You know what interest rate you’re going to get, within reason, into something such as property or shares. Where you’re getting roughly what the market says you’re going to get. That being very hard to predict.

00:01:15

AM             Absolutely. So then if I’m setting out my investment structure, how do I determine where to start?

LK               Yes. So, there’s a few things to consider. Ultimately, you have to look at what sort of return you want. Okay? Do you want something that’s very stable? You know roughly what return you’re going to get. Or do you want to really maximise your investments over the long term? And you need to consider areas such as tax and where best to accumulate your money. And so, it’s something that’s very personal to each person. And something that you should really sit down and think about; what am I trying to achieve, and what areas should I be considering?

AM             in terms of actually working out what to achieve. I think about myself. It’s like; jeez, I just want a good return. The best return possible. But to actually drill down; where do I start with setting out goals?

00:02:16

LK               Yes. It’s something that people probably don’t do enough. It sounds very easy, again, in principle. But the important part is to ask as many questions of yourself as possible. Okay? So, a lot of people will say; I want to invest because I want more money. Well that’s fine. But that’s not really a goal. Having more money isn’t a goal. Why do you want more money? Well, it might make you happier. Well okay, why is it going to make you happier?

And really drilling down as to; is it financial security that you want, or is it because you want to support family, or…? Really drilling down as to the underlying cause of saying, well I want more money, is really what you’re trying to do when you get to goals. Okay? And that might be; I want to retire a little bit earlier, because my parents didn’t get to enjoy their retirement. I want to enjoy mine. Something like that is really what you’re trying to uncover when you look at your own goals.

AM             Right. So then in terms of setting out my investments; what does diversification look like?

LK               Yes. So, again, I suppose the basic concept of diversification is simple. But implementing that, again, it can be quite hard. Diversification, as it suggests, is simply not having all your eggs in one basket. Okay? So moving your investments, so that you might have some in Australian shares, international shares, maybe some property, some cash, maybe some term-deposits.

00:03:50

A whole range of different investments so that when you go to rely on your money, you know that you’ve got all of your investments spread around, and that you’re not relying on certain investments. Okay? The one real trick is to make sure you’re not trying to cash in your chips when the markets are down. Okay? And diversification helps to achieve that.

AM             So is that where, I guess, we learned some lessons from market falls in the past?

LK               Yes. Definitely. 2007/2008, the global financial crisis, provide a number of lessons in regards to investing. Okay? I saw some clients who were very comfortable with what happened. Because they had a long-term strategy in place and they could stick to that strategy. They were comfortable with the possible outcomes. And, essentially, what an event like that proves is that over the long term, the investments came back. Okay?

If you’re well-invested and you’re diversified then, yes, it wasn’t great to look at your statement when it came in, but ultimately there was no real need to panic, sell. All those things that people did tend to do. So, it creates a lot of lessons in regards to making sure you’re aware of the risks you’re currently taking, and making sure that aligns to your goals and what you’re trying to achieve.

0:05:19

AM             With superannuation where we’re all in this position to consider these type of issues that we’re discussing today, do you think that people are aware enough of what’s actually happening in their super?

LK               Yes. No. They’re definitely not. I see a lot of clients that will come in and say; well, I’ve got money in Australian Super or Super SA [?] or what have you. And the question I ask them is; okay, where’s it invested? Okay? And the answer isn’t; with Super SA or what have you. It’s ultimately; where is your money? Is it in Australian shares? Is it international shares? Is it all in cash? That question you should be able to answer. Okay?

Regardless of your age, whether it’s your first day of work today or whether it’s your last day, you should know where this money is going to be invested. Because for most people, it makes up the biggest asset outside of their home. Okay? And so, although when you’re, especially when you’re young, you can’t access it for a long time. And so, people tend to, I suppose, not pay attention to it. Paying attention to it early, and setting it up well, can really make a big difference going forward.

00:06:39

And when you’re close towards retirement, making sure you’re not taking unnecessary risks can, I suppose, solve a lot of heartache at retirement time. There was a lot of people didn’t know where they were invested, and then decide to retire in 2008, and didn’t get the best result.

AM             Trouble. So, in terms of investment fundamentals, people listening to you and going; okay, I want to get proactive with this. What’s the first step that they should take?

LK               Yes. The first step is to really do some research. And we’d always obviously suggest coming in, sitting down and having a chat about your goals and what you’re trying to achieve. And discussing; well, how are you currently positioned? Is there something you should be doing better? Is there, perhaps, value we can add? And so that’s where we come into it.

AM             Thanks very much, Lachlan.

LK               Easy. Thanks.

AM             Thanks for listening to this game-changer episode with Lachlan Kennett from KMT Partners. Your next step? Contact KMT and arrange a time to meet. KMT will wear the cost of this initial discussion. Get in touch and find out more about KMT’s accounting, business, management, growth, compliance and advisory services. Get in touch at kmtpartners.com.au.

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00:08:18

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This podcast is brought to you by KMT Partners. KMT is a leading accounting and wealth management advisory firm in South Australia, assisting you to emerge, renew, grow and build resilience in business, themes which are central to this podcast series. For more information visit KMTpartners.com.au

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This podcast is hosted and produced by Andrew Montesi from Apiro Consulting apiroconsulting.com