Balanced Portfolio Growth

The case for investing in shares is strong. Over time, the equity premium delivers returns in excess of less volatile asset classes. However, the inevitable short term fluctuations in asset value is the price an investor must pay when seeking the rewards of the growth strategies. Without risk there is no reward and, as the graph below shows, it is for this reason that growth asset classes will usually outperform cash and bond investments in the long-term. In contrast, the smoother returns of cash and bonds are defensive in terms of market volatility and may derive steady cash flow, but tend to provide a lower long term return

Investment of $1 for 20 years from 1995 to 2015. Data presented may be based on a combination of simulated and actual returns Performance includes investment of dividends and capital gains. Past performance is not indicative of future performance.

Investment of $1 for 20 years from 1995 to 2015. Data presented may be based on a combination of simulated and actual returns Performance includes investment of dividends and capital gains. Past performance is not indicative of future performance.

More often than not it is the large short-term movements in growth asset classes that make the evening news bulletin. However, with a long-term strategy it is important to put things in perspective. As the graph shows, overall the long-term growth of $1 invested in 1995 was significantly higher for growth assets, such as the ASX 300, than it was for defensive assets.

Nonetheless, the amount of risk an investor should take on will depend on their personal circumstances and investment objectives. By combining growth and defensive assets in a portfolio we soften the impact of the volatility experienced with growth assets, yet capture and consolidate much of the added return available over time. The ‘Balanced 50/50 Investment Portfolio’, one of Axiome’s investment strategies represented by the red line in the chart, shows this in action. It does experience some of the market volatility from its growth component. However this is anchored by the steady fixed income investments, leading to a much less bumpy ride.

A diversified portfolio, appropriately tuned to individual circumstances and risk tolerances, will maximize the probability of achieving s client's investment objectives.