Citi's 4 step guide to setting up your 2017 investment strategy
As we kick off a new year, now's the time to review your investment portfolio's performance and check that your overall saving and investment objectives and strategies still align with your needs.
You may already have plans for the year ahead that require a different approach to income or tax planning. Or you may be feeling a little uncertain about your best way forward, after a year of political surprises and market reactivity.
Either way, this is a good time to rethink your financial plan for 2017.
Marcus Christoe, Head of Banking and Wealth Management Product, shares four simple steps to set your new investment resolutions.
Review your 2016 performance
While past performance is no indicator of future performance, it's a good idea to analyse whether your strategy turned out as planned - in the process, you may spot some unexpected risks in meeting your long-term objectives.
"Always go back to your goals first," Marcus advises. "Was it predictable income, or capital growth? This is very individual - if you're saving for your childrens' education, you'll most likely have a shorter timeframe than if you're saving for retirement."
Benchmarking those outcomes will also depend on where your portfolio was positioned.
Marcus says that despite the political changes of 2016, it was a strong year for global equities.
"We saw substantial growth in the US markets, and it was steady across each quarter," he comments. "Australia performed OK - not a standout, but not at the bottom. Europe's markets were flat, and there will be continued uncertainty there with more elections on the horizon in France, the Netherlands and Germany."
"One of the big surprises was the turnaround in commodities," Marcus remarks. "Oil is up almost 50% year on year, and we saw a turnaround in coal. Meanwhile gold is expected to continue as a safe haven investment."
Check your investment objectives for 2017
Have your circumstances changed since last year? Perhaps you have more dependents, or your children have started high school or university, or you have started a new job. All of these things can impact your appetite for risk, your income needs and your investment timeframe.
"My number one tip, under any circumstance, is diversify your investments across a range of asset classes, regions and sectors," explains Marcus. "However, the balance will vary according to your objectives. Typically investors who have a longer time horizon, can skew towards more growth assets. But in general, you need to re-think the balance between risk and reward to ensure consistent returns across the portfolio."
"Any interest rate increase will have a lower impact than on longer duration government bonds, so it's a way to reduce your risk."
Look at your upcoming income and expenses for the year
"A lot of people don't think about this at the beginning of the year, but it really can dictate your investment decisions - and you need to take your tax position into account," explains Marcus. "For example, you may have travel plans - or children starting school."
If you're looking for a steady income, fixed income will still play a core role as a low volatility asset - but Marcus suggests looking at investment grade corporate bonds (or bond funds) with a shorter maturity time frame.
"Any interest rate increase will have a lower impact than on longer duration government bonds, so it's a way to reduce your risk," he explains. He sees ‘pockets of value' in higher yield bonds.
With a presence in more than 160 countries, Citibank is one of the few banking groups in Australia with a full range of services.
Understand the current environment
Finally, make sure you consider market growth expectations, and how inflation or interest rate changes may affect your goals. This may include ‘stress testing' various scenarios with your financial advisor.
Citibank analysts are predicting some major market themes for the year ahead.
First, they expect the ‘rise of populist sentiment' to continue, and with uncertainty around anti-trade policy there is an element of ‘wait and see' in the markets.
"We also expect higher interest rates, particularly in the US," says Marcus. "It's unlikely the RBA will put cash rates up in Australia, but yields are likely to rise."
Citibank is also making a case for stronger US growth, thanks to a combination of expected fiscal expenditure, potentially lower corporate tax rates and a strong US dollar. However, emerging markets may face the downside of anti-trade measures and that strengthening greenback. "Commodity producers are likely to fare better," says Marcus.
All of these factors can impact your asset allocation decisions.
"Be nimble - you may spot opportunities to take advantage of market dislocation," suggests Marcus.
Ultimately, any new resolutions you make will depend on your investment goals. "In an environment with continuing political uncertainty, reducing risk will be of benefit," he says. "Consistency will offer the most value to many investors."
Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. You should consider if this advice is appropriate for your situation. We recommend you read the Product Disclosure Statement (PDS) or Terms and Conditions, available online or via a Citibank branch, in addition to seeking independent legal, financial and taxation advice on your personal circumstances before acting on the information contained in this material.
This material is for general information only. All opinions are subject to change without notice. This material is taken from sources which are believed to be accurate, however Citibank accepts no liability of any kind to any person who relies on the information in it.
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