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About UsThis section is provided as a supplement to our Statements of Advice and may be referred to in our advice. Whilst generic risks are outlined here, all specific risks associated with our investment recommendations will be identified in our Statement of Advice. The Personal Advice Disclaimer should be read in conjunction with any personal advice given to you
Summary of Investment Risks
This document outlines many of the generic risks of both individual investments and asset classes.
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Ten-step checklist when choosing an investment advisor
- Is the advisor owned by bank, fund manager or other financial institution that produces investment products? The advisor can be under pressure to promote the owner's product to the client over other possibly more suitable products.
- Is there an in-house research capability? The absence of an in-house research capability means the advisor is vulnerable to possible biases of research provider, reduced capacity for independent thought.
- Are there entry fees for investments? A way of earning income for advisors not necessarily reflecting the value of service.
- Are there numerous layers of fees, and are they clear and transparent? This can be a way of drawing attention away from the size of aggregate fees.
- Are fees being charged on cash or term deposits/cash investment products producing less than direct cash/term deposit after-fee returns? This is not in interests of client.
- Are credit products masquerading as cash products? This obscures the risk being taken by the investor.
- Is there an absence of standard and comprehensive performance reports? Focus may be diverted from core role of advisor.
- Is there an absence of benchmarking? Relative performance is as important as absolute performance to determine if advisor is adding value.
- Is the person promoting the service different to your advisor? If so, that person is likely to be a sales rather than advisory culture.
- Are there gifts/benefits/rewards for clients? If so, then it is likely to be a sales rather than advisory culture.
The characteristics of fixed interest securities, including hybrids and other debt instruments, are outlined in this document. The main features and investment risks associated with these investments are also considered.
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FIDO Money Tips - Risks and Returns
FIDO is the consumer website of the Australian Securities & Investment Commission (ASIC). FIDO provides financial tips, safety checks and warning for consumers of financial services.
Negative returns: the dark side of investments
People invest because they expect to make money. However, nobody can guarantee what will happen in the future. With the important exceptions of cash and 'capital guaranteed' investments, negative returns are always a risk that you have to reckon with.
By negative returns, we mean a net annual capital loss after taking into account any income you received. The capital loss might be small or large, and certainly need not mean the loss of all your capital.
How big a risk could you face?
FIDO asked our licensed actuaries for advice about the probability of negative returns for:
the most common types of investment strategies offered by major super funds and managed investments the major asset classes
Here's what our actuaries told us:
|
Investment Strategies |
A negative annual return |
|
Once in every 6 years |
|
Once in every 7 years |
|
Once in every 10 years |
|
Negligible risk |
|
Asset Classes |
A negative annual return is not expected more frequently than |
|
Once in every 4 years |
|
Once in every 6 years |
|
Once in every 8 years |
|
Negligible risk |
The expected frequency of negative returns is a reasonable estimate of what's probable. It's not a guarantee. Taking shares as an example, expecting negative returns no more than once in every 4 years is really the same as a 25% chance of a negative return occurring in any one year. In some cases there may be consecutive years of negative returns (as occurred in the 2002 and 2003 financial years), but over the long term negative returns for shares would be expected no more than once every 4 years.
Do you need to do anything?
In a great many cases, you may not need to do anything. You know the risks, and you know to expect negative returns every so often. It won't be pleasant, but you don't need to panic.
Risk and future returns are linked
Investment strategies and assets expected to produce higher overall returns generally bring a higher risk of negative returns. On the other hand, reducing the risk of negative returns by choosing lower risk strategies or lower risk assets can be expected to produce lower overall returns.
For example, if you're saving up for retirement through your super fund, you're quite likely to be investing in a 'growth' strategy. Although you may experience negative returns, over the long term it's reasonable to expect positive returns that will more than compensate you for that risk. (Even if you're retired, you may still need growth assets like shares and property to maintain your living standards for the rest of your life.)
If you've chosen a very conservative investment strategy, you may decide that you could afford to take a little more risk, if that's necessary to meet your future needs.
The above information is ©Australian Securities & Investments Commission and reproduced with permission.
Please click here to be taken to the ASIC website.
This advice has been prepared upon your instructions and is provided for your exclusive use and benefit. It must not be distributed to, used or relied on by any other person, without our prior written consent.
The advice is prepared on the basis of information that you have provided to us regarding your objectives, financial situation and needs. Please let us know immediately if there are any changes in that information or if there is any other relevant information that you have not provided to us, as our advice may therefore not be appropriate and must not be relied upon.
We make no promises, representations or warranties as to:
- the accuracy or reliability of any information contained in this advice or upon which this advice is based that we have obtained from you or any third party;
- the accuracy or reliability of any forecasts or projected returns that form part of our advice. Those forecasts and projected returns depend upon future events and so their outcome cannot be assured;
- our interpretation of tax laws or calculations based on those interpretations. Those interpretations and calculations are intended as a guide only.
To the maximum extent permitted by law, neither we nor any of our representatives will be liable for any loss, damage, liability or claim whatsoever suffered or incurred by you or any other person arising directly or indirectly out of the use or reliance on this advice by any person other than yourself, any inaccurate, out-of-date or incomplete information that you have provided to us, any information that we have obtained from you or any third party, the achievement of any forecasts or projected returns or our interpretation of any tax law or calculations based on those interpretations.
We may provide services to companies and fund managers who appear on our Listed Security Authorised List and Managed Fund Approved List. Where such a relationship is known, we will disclose the nature of those services at the time of providing our advice.
Warning
Our advice is based on the information that you have provided to us relating to your relevant personal circumstances which may be incomplete or inaccurate. Accordingly, before acting on our advice you should consider the appropriateness of the advice, having regard to your relevant personal circumstances.