5 ways to gain more from your portfolio

Written by multiforte on . Posted in News

Most investors focus almost all their time and energy on managing their portfolio – picking individual stocks and bonds or funds. Unfortunately that leaves a lot of money on the table.

There are many other critical ways that we improve our clients’ after-tax returns. Here’s five:

Rebalance: systematically selling outperforming asset sectors and identifying other asset classes to buy keeps you in-line with your target risk/return allocation and improves your bottom line.  

Tilt your portfolio to value versus growth companies:  value companies have outperformed growth companies around the world. The empirical evidence shows that a portfolio tilt to “value” companies over “growth” companies has historically provided higher investment returns.

Tilt your portfolio to small versus large companies: smaller companies will carry higher risk than large companies over time because they are not as well-established as their larger counterparts. They are riskier loan candidates for banks, have smaller operations and typically little track record – with the opportunity for higher rates of growth. Over the long run, an investment portfolio tilt to small-to-mid size companies over large size companies has historically provided higher returns than just buying large cap stocks.

Reduce investment costs: a typical actively managed fund costs 1.5% per annum on a wholesale basis (through a wrap) – for a $1m investment, that’s $15,000 a year. The portfolios we construct for clients typically have investment costs of just 0.35% per annum – which for the same investment would be just $3,500 a year. Either way, the active fund needs to generate more than 1.15% of additional return every year just to stay even.  Do they achieve that? Few do – less than one third of share funds beat the index year on year.  And the funds that do beat their benchmarks in a given year are often the underperformers next year.

Strategically locate your assets to minimise tax:  put more of your tax inefficient investments in your lowest cost tax environment, like your super, allocated pension, or even an investment company. And hold more tax efficient assets in your personal portfolio.  For example, with the benefit of franking credits, Australian equities can be a tax-efficient asset to hold in your personal portfolio.

These easy but important changes will have a big impact on your bottom line.

Just call (9262 6045) or email (kmccallum@multiforte.com.au) if you’d like to know more.