Download Asset Allocation Strategy workbook

Asset Allocation
Strategy
workbook
Issue Number 12 | March 2014
Prepared for
Adviser Name
The purpose of this workbook
Your financial adviser will use this workbook to help you
determine an asset allocation that best meets your needs,
taking into account the returns you want and the risks you
are prepared to take to achieve those returns.
What is asset allocation?
Asset allocation is the name given to the mix of asset
classes you choose to build your portfolio. The common
asset classes are cash, fixed interest, property, shares
and alternatives.
Your asset allocation is one of the most important factors in
determining the returns and risk in your portfolio. Selecting a
suitable mix will play a crucial role in ensuring your portfolio
achieves your objectives within your comfort zone.
Your asset allocation is the first step towards developing your
personalised investment portfolio.
What is a risk profile?
This workbook uses six risk profiles, each of which has
different return and risk characteristics. A risk profile contains
the mix of the specified asset classes that BT Financial Group’s
Research team currently believe is most likely to achieve its
target return over its minimum timeframe with the lowest
risk (given the target return objective). These risk profiles are
determined by reference to historical risk and return data,
economic forecasts and forecast risk and return information
(see ‘Important information’ on page 13 for more detail).
It may be that there is no one particular risk profile that
is appropriate for you and so with the assistance of your
financial adviser, you may need to vary your asset allocations
to suit your personal circumstances.
What happens after I’ve chosen
a risk profile?
The risk profiles presented in this workbook are a starting
point. Once you have determined your preferred portfolio,
your financial adviser will select your actual investments
to develop a portfolio that is aligned to your needs and
objectives and explain how this is appropriate to your needs
and circumstances. This will also be recorded in an advice
document, generally known as a Statement of Advice.
2 | Asset Allocation Strategy workbook
Stage One: Making a preliminary view of your preferred portfolio
Consider the following
Below are five key considerations when choosing a suitable asset allocation strategy:
1. Understand what risks you are prepared to take in regard to investing.
2. Ensure your investment timeframe is consistent with the minimum timeframe of your preferred asset allocation.
3. Ensure your preferred asset allocation is likely to achieve the return required to satisfy your objectives.
4. Ensure you are comfortable with the risk associated with your preferred asset allocation.
5. Ensure your financial situation can support your decision.
1. Investing involves risk
4. What is risk and risk tolerance?
Any investment decision you make involves taking a level of
risk. When planning for your future financial needs you must
firstly reflect and understand what risks you are prepared to
accept in order to achieve your objectives. Specifically, your
preparedness to accept loss of capital or lack of income will
help determine whether your objectives can be met relative to
your tolerance to accept risks.
The most commonly understood meaning of risk is the
probability of losing money. However, there are actually three
key areas of risk you need to be aware of:
2. Your investment timeframe is crucial
History has shown that assets such as shares and property
generally provide higher returns over long time periods
(10 years or more). If you are able to leave your funds
invested for 10 years it may make sense to invest in a
portfolio that has a greater proportion in these assets.
a. The value of your investment might decrease and you may
lose your capital (ie finish with less than you started).
b. T
he investment does not provide the income or growth
you’re expecting, so you don’t meet your investment goals.
c. Inflation increases at a higher rate than the performance
of your investments – ie the ‘real’ value of your
investments decreases.
5. Your financial situation
The downside of these assets is that they have considerable
volatility in the short‑term. Although they may rise significantly in
any one year, they may also fall significantly. Over the long‑term
this volatility usually smooths out. However, this same volatility
makes assets such as shares and property unsuitable for most
investors with short investment time-frames.
You should also consider your personal financial
circumstances. You need to make sure that you have enough
money put aside to cover any emergency expenses. You
should also consider whether your current situation is likely
to remain consistent over your investment timeframe. For
example, do you expect to have the same level of income for
the entirety of your investment timeframe?
3. The importance of returns
Choosing your preferred portfolio
Many people have specific goals (eg renovating their home,
becoming debt-free or providing for retirement). In most
cases, success in reaching your objectives will be largely
dependent on returns. You will therefore require your
investments to deliver sufficient returns to achieve your goals.
It may be that you have different timeframes, return objectives
or risk tolerance for different investments. For example, your
retirement may be 20 years away so the asset allocation you
choose for your super may be different to the asset allocation
you choose for a savings plan to buy the boat you want to buy
in five years. Therefore you can treat each goal separately so
that you have the correct asset allocation for each goal.
While investment returns are critical, it is crucial that you
understand and are comfortable with the risk you undertake
in order to achieve that return.
In the table below, please complete the details for each of your financial goals.
Your goals and objectives
Timeframe
(in years)
Amount Required
(todays dollars)
(1)
$
(2)
$
(3)
$
(4)
$
Client 1, Client 2 or Joint
Asset Allocation Strategy workbook | 3
How to read the Asset
Allocation Strategy Worksheet
Step 1: Determine your investment timeframe
Choose a portfolio with a recommended timeframe
that is consistent with your investment timeframe
Each risk profile has a recommended minimum amount of
time you should hold your investment in order to achieve
the portfolio’s objectives. For example, you can see in the
table on page 5 that a ‘Balanced’ investor should invest for
a minimum of five to seven years.
Consider the long‑term impact of different returns
to your portfolio
If you look at the long-term forecast return (over ten years) for
each of the asset allocations you will notice that they range
from 3.75% to 9.5%.
The impact of this difference over ten years for a $100,000
portfolio is significant. Average portfolio values projected over
ten years range from $144,504 to $247,823.
Step 3: Consider how much risk you
can live with – can you sleep at night
with this portfolio?
Time reduces risk
Risk of negative returns
You can see from the table on page 5 that the probable range
of average returns for a Balanced investor over five years
of investing is 0.2% to 15.2%. (This range may generally
be higher in the short-term, however any years — good
or bad — are generally balanced out by other years). If
you intend to sell your investments before the suggested
minimum investment timeframe, your risk of losing money
is much higher than if you intend to hold them for the
whole timeframe.
The probability of a negative return in any particular year highlights
the probability of your portfolio going backwards in any one
year. A Balanced investor could expect that their portfolio will
experience a negative return once every six years.
The higher the volatility, the greater the
potential returns
The table on page 5 shows that an investor with a Defensive
portfolio, while relatively stable, has a forecast average value
of $170,814 after ten years, whereas a High Growth investor’s
portfolio, which is very volatile, has a forecast average value
of $247,823 over the same period.
Step 2: Determine which portfolio meets
your required returns
Consider which portfolio has a similar objective
to yours
Each asset allocation has been developed with a return
objective in mind. For example, the Balanced portfolio seeks
a return of 5.0% over inflation. If the average inflation (CPI)
over 10 years is 2.5%, then the balanced portfolio aims to
achieve an average return of 7.5% over those 10 years.
4 | Asset Allocation Strategy workbook
Volatility
Based on the calculations on page 5, over any rolling 5 year
period of investing, an investor with a Balanced portfolio
could experience a return anywhere between 0.2% to 15.2%,
with the worst historical return for the portfolio in any single
year -26.2%.
This means that you need to accept that if you start with
$100,000, it is possible that you could have $73,800 at
the end of the first year based on the historical worst
case scenario.
Step 4: Ensure your financial situation
can support your asset allocation
strategy decision
You need to ensure that you can leave your portfolio for the
required timeframe, and that you have other money available
for emergencies.
Note: All information presented should be read with reference to the ‘Important information’ on page 13.
Benchmark portfolios
Cash
Defensive
Moderate
Balanced
Growth
High Growth
Suggested minimum Investment Timeframe1
Any
3-5 years
3-5 years
5-7 years
7-10 years
10 years+
100.0
25.0
12.0
5.0
3.0
3.0
0.0
42.0
36.0
24.0
12.0
7.5
Asset allocation (%)
Australian cash
Diversified fixed interest
2
Australian shares
0.0
13.5
23.5
31.0
37.0
38.5
International shares
0.0
6.5
13.5
23.0
30.0
31.0
Property and Infrastructure
0.0
8.0
8.0
8.0
8.0
10.0
Alternatives4
0.0
5.0
7.0
9.0
10.0
10.0
Portfolio Total
100.0
100.0
100.0
100.0
100.0
100.0
3.75
Inflation
+3.0%
5.5
Inflation
+4.0%
6.5
Inflation
+5.0%
8.0
Inflation
+5.5%
8.5
Inflation
+6.0%
9.5
0.5
4.5
6.5
9.0
10.5
11.5
Returns
Targeted long term portfolio objective
N/A
Expected Forecast return (10 years) (% pa)
~
Expected Forecast volatility (10 years) (% pa)
Value of $100,000 invested
$800,000
for 10 years3
~
Note: The darker the shading, the more likely the returns are
$672,750
$700,000
$569,468
$600,000
$480,683
$500,000
$400,000
$339,457
$259,374
$300,000
$200,000
$100,000
$151,621
$144,504
$170,814
$137,689
$110,462
$215,892
$226,098
$247,823
$90,468
$81,707
$81,707
$187,714
$100,000
$0
Historical Analysis
Range of 5yr rolling forecast range (% pa):
Returns Worst case historical scenario5
(pa).
Date of worst case historical scenario5
Best case historical scenario5
Date of best case historical scenario
5
Expected long-term frequency of
negative return (estimated 1 in ‘x’ years)*
4.2 to 6.3% 3.8 to 9.8% 2.2 to 12.6% 0.2 to 15.2%
-1.6 to 17.2%
-1.7 to 18.5%
3.0%
-9.6%
-17.9%
-26.2%
-32.0%
-35.0%
Sep 13
Nov 08
Nov 08
Nov 08
Nov 08
Nov 08
7.8%
16.7%
23.3%
29.3%
34.1%
38.0%
Oct 08
Feb 10
Feb 10
Feb 10
Feb 10
Feb 10
0
11.0
7.5
6.0
5.5
5.0
inimum investment timeframe refers to the minimum period of time
M
an investor should be prepared to remain within a given benchmark
portfolio in order to recoup any past capital losses that could have been
incurred from the initial investment, obviously taking into account the
“entry point” and time needed to achieve the portfolio return objective
and a normal business cycle.
2
Diversified fixed interest includes investments such as Australian Fixed
Interest, International Fixed Interest, Investment and non-investment
grade credit and high yield debt.
3
The values of $100,000 invested for 10 years area based on an
exponential calculation using the long-term forecast return and the
forecast standard deviation of the portfolio which is adjusted for a
confidence interval using a student’s t distribution.
4
Alternative investments include but are not limited to investments such
as Hedge Funds, Fund of Fund Hedge Funds, Private Equity, Direct
Infrastructure, Derivative based funds, Currency and Commodity Funds.
1
he best and worst case historical scenario illustrates the best capital
T
increase and worst capital loss respectively that would have been
experienced over a rolling 12 month period. These figures have been
calculated by applying the asset allocations of the benchmark portfolio
against the asset class benchmark returns. This analysis has been carried
out with the first 12 month rolling return commencing January 2001.
* Frequency of negative return does not mean you can not experience
multiple years of negative returns. It reflects a distribution of expected
return outcomes relative to the expected risk of the strategy.
~ The returns and volatility for each benchmark portfolio are reviewed
annually as part of the strategic review of each of the underlying
asset classes.
Information based upon market data at September 2013.
5
Asset Allocation Strategy workbook | 5
Stage Two: The ‘Comfort Test’
The comfort test will help your financial adviser confirm
your understanding of the risk aspects of your preferred
portfolio(s). It allows you to compare the characteristics of
each of the different portfolios and confirm your tolerance
to risk against them.
If you are investing with a partner, you will both need to
complete the questions separately (providing responses on
pages 7 and 8 respectively). You can then determine which
asset allocation will be applied to joint investments (if any).
Only complete the comfort test for your preferred portfolio
with the longest timeframe. Put a tick against your preferred
portfolio at the top of the Asset allocation strategy worksheet
on page 7. Where completing the Comfort test with your
partner, your partner should select their preferred portfolio
at the top of the asset allocation worksheet on page 8.
You are now ready to complete the comfort test. Please
note your answers to the questions below on the Asset
allocation strategy worksheet at the bottom of page 7. Where
completing the comfort test with your partner, your partner
should note their answers on the worksheet at the bottom
of page 8.
(1) It is widely accepted that the higher the risk that you are
willing to accept, the higher the return you could expect.
With this in mind, what level of fluctuations in the value
of your money would you be willing to accept to achieve
your goals?
a) No fluctuations in capital would be acceptable
b) Low to medium fluctuations in my capital value over
the short-term
c) Medium fluctuations in my capital value in short-term
d) Medium to high fluctuations in my capital value in the
short to medium term
e) High fluctuations in my capital value in the short to
medium term
f) Very high fluctuations in my capital value in the short
to medium term
(2) What potential annual ranges of return are you
comfortable with to achieve your investment goals?
a) 3.0% to 7.8%
b) -9.6% to 16.7%
c) -17.9% to 23.3%
d) -26.2% to 29.3%
e) -32.0% to 34.1%
f) -35.0% to 38.0%
6 | Asset Allocation Strategy workbook
(3) What is the maximum amount of your portfolio value, in
percentage terms, that you would be willing to lose in any
12 month period?
Percentage decrease Value of $100,000
a) 0% $100,000
b) 10%
$90,000
c) 18%
$82,000
d) 26%
$74,000
e) 32%
$68,000
f) 35%
$65,000
(4) Based on your investment goals and tolerance to
risk, what is your tolerance of a negative return in
any one year?
a) No tolerance
b) 1 year in 11
c) 1 year in 7.5
d) 1 year in 6
e) 1 year in 5.5
f) 1 year in 5
You may feel that the responses to these questions are now
not entirely consistent with your preferred asset allocation.
Likewise it’s not uncommon for your answers to these four
questions to lead to more than one asset allocation. This is a
natural part of the process and highlights the trade-offs that
you need to make when selecting an asset allocation. Do you
go with higher returns and accept the higher risk or do you
reduce your risk and live with lower returns?
There is no right or wrong answer in relation to the risk
you are willing to accept. The key is that you need to feel
comfortable sticking with the risk of the asset allocation for
the minimum investment timeframe. Your financial adviser
can only assist you to make an informed decision.
You can now work with your financial adviser to select the
asset allocation you wish to consider when developing your
investment recommendations.
Asset allocation strategy worksheet
Note: All information presented should be read with reference to the ‘Important information’ on page 13.
Benchmark portfolios
Suggested minimum Investment Timeframe1
Asset allocation (%)
Australian cash
Diversified fixed interest2
Australian shares
International shares
Property and Infrastructure
Alternatives4
Portfolio Total
Returns
Cash
Any
High Growth
10 years+
100.0
0.0
0.0
0.0
0.0
0.0
100.0
25.0
42.0
13.5
6.5
8.0
5.0
100.0
12.0
36.0
23.5
13.5
8.0
7.0
100.0
5.0
24.0
31.0
23.0
8.0
9.0
100.0
3.0
12.0
37.0
30.0
8.0
10.0
100.0
3.0
7.5
38.5
31.0
10.0
10.0
100.0
N/A
Inflation
+3.0%
5.5
4.5
Inflation
+4.0%
6.5
6.5
Inflation
+5.0%
8.0
9.0
Inflation
+5.5%
8.5
10.5
Inflation
+6.0%
9.5
11.5
Targeted long term portfolio objective
~
3.75
0.5
Expected Forecast return (10 years) (% pa)
~
Expected Forecast volatility (10 years) (% pa)
3
Value of $100,000 invested for 10 years
$800,000
Defensive Moderate Balanced
Growth
3-5 years
3-5 years
5-7 years 7-10 years
Note: The darker the shading, the more likely the returns are
$672,750
$700,000
$569,468
$600,000
$480,683
$500,000
$400,000
$339,457
$300,000
$259,374
$200,000
$151,621
$144,504
$137,689
$100,000
$170,814
$187,714
$110,462
$100,000
$0
Historical Analysis
Range of 5yr rolling forecast range (% pa):
Returns Worst case historical scenario5
(pa).
Date of worst case historical scenario5
Best case historical scenario5
Date of best case historical scenario5
Expected long-term frequency of
negative return (estimated 1 in ‘x’ years)*
Comfort test answers
a
$215,892
$226,098
$90,438
$81,707
4.2 to 6.3% 3.8 to 9.8% 2.2 to 12.6% 0.2 to 15.2%
3.0%
-9.6%
-17.9%
-26.2%
Sept 13
Nov 08
Nov 08
Nov 08
7.8%
16.7%
23.3%
29.3%
Oct 08
Feb 10
Feb 10
Feb 10
0
11.0
b
7.5
c
$81,707
-1.6 to 17.2%
-32.0%
Nov 08
34.1%
Feb 10
-1.7 to 18.5%
-35.0%
Nov 08
38.0%
Feb 10
5.5
5.0
6.0
d
$247,823
e
f
1) Capital volatility
None
Low/Med
Medium
Med/High
High
Very High
2) Potential ranges
3.0% to 7.8%
-9.6% to 16.7%
-17.9% to 23.3%
-26.2% to 29.3%
-32.0% to 34.1%
-35.0% to 38.0%
3) Fall in value
0%
-10%
-18%
-26%
-32%
-35%
Nil
1 year in 11
1 year in 7.5
1 year in 6
1 year in 5.5
1 year in 5
^
4) Negative return tolerance^
inimum investment timeframe refers to the minimum period of time
M
an investor should be prepared to remain within a given benchmark
portfolio in order to recoup any past capital losses that could have been
incurred from the initial investment, obviously taking into account the
“entry point” and time needed to achieve the portfolio return objective
and a normal business cycle.
2
Diversified fixed interest includes investments such as Australian Fixed
Interest, International Fixed Interest, Investment and non-investment
grade credit and high yield debt.
3
The values of $100,000 invested for 10 years area based on an
exponential calculation using the long-term forecast return and the
forecast standard deviation of the portfolio which is adjusted for a
confidence interval using a student’s t distribution.
4
Alternative investments include but are not limited to investments such
as Hedge Funds, Fund of Fund Hedge Funds, Private Equity, Direct
Infrastructure, Derivative based funds, Currency and Commodity Funds.
1
he best and worst case historical scenario illustrates the best capital
T
increase and worst capital loss respectively that would have been
experienced over a rolling 12 month period. These figures have been
calculated by applying the asset allocations of the benchmark portfolio
against the asset class benchmark returns. This analysis has been carried
out with the first 12 month rolling return commencing January 2001.
* Frequency of negative return does not mean you can not experience
multiple years of negative returns. It reflects a distribution of expected
return outcomes relative to the expected risk of the strategy.
~ The returns and volatility for each benchmark portfolio are reviewed
annually as part of the strategic review of each of the underlying
asset classes.
Information based upon market data at September 2013.
^For the purposes of undertaking the Fall in value and Negative return
tolerances, the numbers used have been rounded from the data in the
above table.
5
Asset Allocation Strategy workbook | 7
Stage Three: My Preferred Asset Allocation
1. Please complete the table below with the goals and benchmark portfolios you would like your financial adviser to use
when constructing your portfolio.
Financial goals
Benchmark portfolios
(1)
(2)
(3)
(4)
OR
Alternative asset allocation
I would like to choose my own asset allocation
Cash
%
Diversified Fixed Interest
%
Property and Infrastructure %
Australian Shares
%
International Shares
%
Alternatives
%
2. Did you find that any of your answers to the comfort test covered more than one asset allocation strategy?
Yes
No
If Yes, please note your basis for choosing the above asset allocation:
3. Where you hold joint investments with your partner, based on the results of your individual Comfort Test results,
which asset allocation would you like applied to these investments?
Client 1
Client 2
If other, please specify:
8 | Asset Allocation Strategy workbook
Other
Stage Four: Are my objectives
achievable or is there a gap?
2. C
onversely, if it is likely that you will clearly meet
your needs and objectives, would you like to make
any adjustments?
By this stage you should feel comfortable with the level of
risk in your selected portfolio(s), but the question remains,
will it meet your investment objectives? Even though your
financial adviser can explain how to maximise your current
investments, you may still find that there is a gap between
where you want to be and where your selected asset
allocation will allow you to go.
For example, you may have selected a Defensive portfolio
but given the time you have to invest you may only be able to
meet your objective by investing in a Growth portfolio. If any
gaps are identified, you may need to reconsider your options
and make the necessary trade-offs. Good planning is about
helping you understand your options so you can select the
ones that suit you best.
Spend more (save less)
Decrease your income, retire earlier or work
part time
Decrease your investment risk
Revise your goals
Other
Comments
Your financial adviser will conduct further analysis of any
gaps as required. However, it is helpful in the planning stage
for your financial adviser to understand any trade-offs you
might consider.
1. If your goals are unlikely to be met, please indicate
which options you would consider:
Save more (spend less)
Downsize lifestyle assets
Increase your income resources: work longer, part-time
Preparedness to increase your investment risk
Borrow to invest
Revise your goals consistent with your risk
tolerance
None
Other
Comments
Asset Allocation Strategy workbook | 9
Investment Objectives
All clients seeking Self-Managed Super Fund advice need to complete this section.
Investment Objectives are the stated, desired outcomes the portfolio of assets should achieve for your Self-Managed Super Fund
(‘the Fund’). At a minimum it should state the expected range of investment returns for a given level of risk over a set timeframe.
An example of a Fund’s objective could be:
‘The investment objective of the trustee is to achieve a moderate to high level of return (1%–3% above inflation over a five-year period
or longer) and to diversify investments such that a capital loss over any three-year period is unlikely.’
Please state in the space provided below the Fund’s objectives (i.e. the overall intention or purpose of investing the assets of the Fund).
Important: The Fund’s objective must be minuted within the Fund’s administration documentation.
10 | Asset Allocation Strategy workbook
Investment Strategy
All clients seeking Self-Managed Super Fund advice need to complete this section.
An Investment Strategy is the plan to follow to achieve the objectives of the Fund.
It should relate to the classes of assets required to achieve these objectives, rather than individual investments.
Where individual members of the Fund have different objectives, the investment strategy should reflect those differences
through an acceptable combined strategy of individual investment strategies.
According to Regulation 4.09 of SIS, an appropriate investment strategy MUST be formulated and implemented by the trustee.
Failure to do so may result in the Fund losing its complying status and tax concessions, while incurring monetary and punitive
penalties, including possible jail terms.
Regulation 4.09 states that, when formulating an investment strategy, the trustee(s) must take into consideration the
following factors:
• The likely risks and returns of different assets classes;
• The need to spread risk by having an appropriate range or diversity of classes; and
• The Fund continuing to be in a position to pay benefits to members as they fall due (ie. liquidity of assets).
An example of an investment strategy is:
‘It was resolved that in pursuit of the Fund’s objectives, the trustee has/trustees have determined the following
investment strategy.’
Note: That more than one investment strategy may be appropriate where different Fund members have different objectives.
Allocation Rate (%)
Benchmark (%)
Australian Cash
Asset Class
0–10
5
Diversified fixed interest*
0–15
10
Australian shares
30–50
40
International shares
20–40
30
Property
10–20
15
0
0
Alternatives**
* Includes investments such as: Australian fixed interest, international fixed interest, investment and non-investment grade credit
and high yield debt.
** Includes but it is not limited to investments such as: hedge Funds, Fund of Fund hedge Funds, private equity, direct infrastructure, derivative based
Funds, currency and commodity Funds.
What is the Fund’s current investment strategy?
Asset Allocation Strategy workbook | 11
Investment Strategy Summary
Step 1. A
fter completion of the Risk Profiling for each member, you need to determine the appropriate asset allocation to
recommend, based on whether or not the SMSF segregates the assets per member or if all the assets are pooled
Step 2. Transfer your recommended asset allocation below.
Step 3. Determine the variance for each asset class.
Step 4. Determine and document how the recommended investment strategy will be achieved. (See important notes below.)
Step 5. Prepare an investment strategy report for trustee(s) based on step 4.
Note: For new Funds commenced with 100% cash, the recommended strategy can be adopted after consideration and ratification by the trustee(s)
of the Fund.
Asset Sector
Current Allocation
Recommended allocation
Variance in allocation
Australian cash
$
%
$
%
$
%
Diversified fixed interest*
$
%
$
%
$
%
Australian shares
$
%
$
%
$
%
International shares
$
%
$
%
$
%
Property
$
%
$
%
$
%
Alternatives**
$
%
$
%
$
%
Total
$
%
$
%
$
%
* Includes investments such as: Australian fixed interest, international fixed interest, investment and non-investment grade credit and high yield debt.
**Includes but it is not limited to investments such as: hedge Funds, Fund of Fund hedge Funds, private equity, direct infrastructure, derivative based
Funds, currency and commodity Funds.
Important notes
If the recommended strategy requires a restructure of existing investments to achieve the recommended asset allocation, then
consideration is required as to how this will occur.
For example:
Is the trustee/Are the trustees happy to sell existing investments to achieve the recommended asset allocation?
If not, the recommended asset allocation may have to be developed over time. This can be achieved by directing future
contributions and income to the asset classes under the variance allocation percentage.
How will the recommended risk profile asset allocation be achieved and when?
By restructuring assets?
By selling current assets?
By directing future contributions and income?
12 | Asset Allocation Strategy workbook
Important Information
Do not act solely on this workbook
The information in this workbook has been prepared as a
guide only to help you choose an asset allocation for your
investment and/or superannuation portfolio. Any investment
decision you make should consider a number of issues as
well as those considered through this workbook. You should
consider the specific risks and other characteristics of a
particular financial product before acquiring that product.
Your financial adviser will now continue to work through the
financial planning process with you to fully understand your
objectives, financial situation and needs. You should not
make any investment decisions until your financial adviser
has considered your personal circumstances and you have
been provided with, and have read the advice document
provided (ie a Statement of Advice) and any relevant Product
Disclosure Statements or other offer documents.
Forecast return information
The forecast information in this workbook has been prepared
by the BT Financial Group Research team. Long-term
forecast returns and risk for each asset class have been
based on the analysis of historical and forecast market data,
fundamental economic factors and historical co‑variances
between the asset classes and are best estimates of asset
class returns and risk.
These forecast figures provide a guide as to the likely future
behaviour of returns for asset allocations.
The long-term forecast returns in no way provide any
guarantee of future performance and are based on the
strategic long-term view of each asset class as at the end
of September 2013.
The forecast average return for each asset allocation is based
on the long-term forecast returns of each asset class within
the asset allocation and the weight allocated to each asset
class within the asset allocation. Currently this produces
higher forecast returns than the minimum long-term asset
allocation objectives.
An inflation rate of 2.5% has been used for the Australian
asset classes. The exposure to international asset classes
required consideration of relevant economic factors for
each country.
A confidence level is a statistical measure that illustrates
the likelihood of an event taking place. In the case of this
workbook, it looks at the likelihood of a return falling within
the stated range and the likelihood of the value of an
investment of $100,000 over 10 years falling within a stated
range using a 95% confidence interval. ‘95% confidence’
means that for the value of $100,000 invested for 10 years,
there is a 5% probability that the expected returns fall outside
the stated range. This is described as ‘95% confidence’.
Forecast returns don’t make provision for investment fees
and taxation as this will depend on the investments you
select and your personal financial circumstances. However,
the domestic equity forecasts do incorporate grossed-up
franking credits and assume 80% of the dividends accrue
franking credits.
What’s happened in the past
Historical market data from January 2001 to September
2013 has been used in preparing the asset allocation
strategy worksheet.
Historical market data demonstrates how each of the
asset classes has performed in the past. From this we can
gain insights into typical market trends, cycles and the
relationships between different asset classes. These insights
allow us to establish a starting point for the construction of
the asset allocations. It’s important to note that because no
market cycles are ever the same, historical returns are not an
accurate indicator of likely future returns. We therefore also
need to consider the current economic outlook, as well as
other market related factors in determining expected asset
class returns.
The economic outlook
The economic environment and outlook provides a
backdrop as to what to expect from investments in the future.
Fundamental economic factors such as the expected rate of
inflation and the expected earnings growth rate of companies
and valuation ratios, combined with indicators as to the
direction of the economy provide a basis for expected returns
for each asset class.
Whilst every effort has been taken to ensure that the
assumptions on which the economic forecasts, outlooks
and other forecast risks and returns are based are
reasonable, they may be based on incorrect assumptions
or may not take into account known or unknown risks
and uncertainties.
Portfolios have been constructed on the basis that 25% of
the International Shares allocation has been hedged and 75%
has been unhedged.
Asset Allocation Strategy workbook | 13
Client Declaration
I/We can confirm that my/our financial adviser has helped me/us make an informed decision about my/our asset allocation
by explaining and/or confirming my/our understanding of:
• investment risks, including volatility and the risk of capital loss
• the characteristics of each of the asset classes and the likely nature of risk and return
• the benefits of diversification
• the recommended minimum timeframes for different asset allocations
My/Our financial adviser has done this by using:
This Asset Allocation Strategy Workbook
Other educational material (as specified below)
Tick the following box where a gearing discussion has been held:
I/We confirm that my adviser has discussed Gearing as a strategy with me/us, including but not limited to the long-term
nature of this strategy, the increased impact of positive and negative returns due to borrowed funds, the risks involved
in a gearing strategy and the importance of understanding options in relation to unwinding the strategy should my/our
financial circumstances change or the strategy no longer be appropriate for us.
I/We understand that the information in this workbook is subject to the Important Information on page 13.
Notes
14 | Asset Allocation Strategy workbook
Signature of Client 1
Date
As Trustee for____________________________
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As Director for___________________________
Other (specify)___________________________
Signature of Client 2
Date
As Trustee for____________________________
As Director for___________________________
Other (specify)___________________________
Signature of Financial Adviser
Date
Asset Allocation Strategy workbook | 15
Contact Carey Financial
for further information on 07 4772 7200
or visit www.careygroup.com.au
This publication has been prepared by Securitor Financial Group Limited ABN 48 009 189 495, AFSL and Australian Credit Licence (ACL) 240687 and is current as at March 2014.
SECCB13838-0214lc