Have you ever heard the term Asset Diversification and wondered what this means?
When fund managers are investing your superannuation assets, the goal is to obtain as much growth with as little loss to your wealth as possible.
Dividing your superannuation into growth and defensive assets, whether that be Australian Equities, Overseas Equities, Infrastructure, Bonds, Cash or Property Assets as some examples, there is a very broad scope of different sectors that are utilised when diversifying.
The fund managers that are responsible for these investments will be looking to see where the stocks are thriving and performing best in many different sectors, this could be – Financial, Medical, Energy, Technology, Consumer, Real Estate, Agriculture, amongst many other areas.
Based on the performance of these various industries and what the economy is doing, they are looking to maximise your returns and take advantage of as much growth as possible while minimising the risks and consequences of a market downturn.
A recent example of such performance would be when COVID19 affected the markets heavily in a negative manner and the aviation or tourist sector had almost come to a standstill with the halt of travelling both nationally and internationally, but positively affected the technology or consumer sector, with the dramatic increase in online shopping and services, such as Amazon, EBAY, Woolworths and online conferencing.
More people working from home and changing the dynamics of the playing field (but still) within the specific diversifications.
The percentage invested into each of the asset classes will play a big part on what level of risk the client is exposed to. (The fund managers constantly monitoring the influencing events in these areas subsequently will change the class of the investments accordingly).
The type of investor also, will determine the risk to reward scenario.
Obviously to a point, the broader the diversification in the right areas, the lower the risk – as in the old analogy of “Not having all your eggs in one basket” but of course there has to be a good balance of the high and low risk classes to maximise the reward.
If you require help with understanding what’s best for you, the team at Superannuation Advice Australia can help. Contact us today!