Our philosophy

Read more about the core principles we follow at Initiative in order to offer you the best possible financial advice.

Our goals will determine why we are investing in the first place:

  • Are we saving for a deposit on a house?
  • Are we building a nest-egg for retirement?
  • Are we aiming to preserve the real value of our capital over our retirement?
  • Do we want to maximise our retirement income?

There can be many types of goals and many different reasons for creating them. Clearly articulated goals will provide us with focus to help make the right choices when it comes to our investment decisions.

These goals are best created and maintained as part of a documented financial plan, and that’s exactly what we provide

Speculating is buying an asset in the hope that the price will go up and a profit will be made. The timeframe for a speculation could be anything from a couple of days to a few years. InFact do not advise on speculating. It is our experience that it is incredibly hard to do, while long term investing is incredibly easy to do and yields better results.

Saving is putting money aside so that it can eventually be withdrawn and spent. It has a finite life-span. Saving for short term goals is best done through high yielding bank accounts where the capital value will not be lost.

Investing on the other hand, is buying an asset that will return an income. If the investment is a good one, the income will grow and the asset value itself will also grow. The reason that an asset grows in value, is  because the income grows in value. Income from investments can then be reinvested during the ‘wealth building phase’ to increase compound returns.

By long term we would generally mean 5 to 7 years plus. For most of us, we should be long term investors as our investment time frame is the rest of our life. By passively we simply mean by just buying assets as opposed to operating or improving assets which we would call active investing. An example of active investments is renovating a property or buying a business. Active assets have the ability to produce much higher returns than passive assets, but come with much higher risk, including the risk of losing all your money. They will not be suitable for many or most people

Both produce income, dividends for shares and rent from properties and both will generally grow if well selected. Both can be held directly or through managed investments.

Professionals have more time, more resources, more education and more experience in selecting and managing investments. A well chosen professionally managed investment that fits our goals, our time frame and our risk profile, enlists the resources of a team of professionals to make the many and sometimes complicated decisions involved in investing. What to buy, when to buy, how to value and when to sell are just some of the decisions that will need to be made on a regular basis. These decisions are best made based on deep research, not whims, tips or hunches or half-baked attempts at research.

That is they can go down in the short term. This is perfectly normal and if you own shares they will go down in value from time to time. However when held for the long run and if appropriately diversified, they will deliver outstanding returns.

No one can predict the short term movements of the share market, although many will try (refer speculation). To correctly time the market, you have to make 2 correct decisions – when to get out and when to get back in again. It is hard enough to make one of these let alone 2 and let alone doing it on a regular basis. Long term buy and hold, for our core, long term investments, will deliver good returns to investors that make timing of markets unnecessary. Market timing has costs (brokerage and taxes) and creates a short term focus rather than the long term achievement of our goals. For those with large amounts of cash to be invested it can be less stressful to place these investments over a period of time (dollar cost averaging). This means we will never invest our total lump sum at a market high but will rather receive an average over a period of time.

A bubble is simple where the markets, in a speculative frenzy, push up prices to unsustainable levels. The technology boom for the late 90’s, the nickel boom of the 60’s, the Japanese share market in the 80’s are all examples of bubbles where markets escalated to massive highs before plunging more than 50%. Bubbles can be hard to spot, but will generally be evident by two things – firstly prices have escalated rapidly over a short period (1 – 5 years), returns over this period may be showing at upwards of 30 to 50% pa, which will not be sustainable. Secondly income from these investments will be extremely low when expressed as a percentage by historical standards or be non-existent.

There may be times when some parts of our portfolio have delivered above average returns or have achieved our long term targets in a shorter timeframe. At these times it may be advisable to either sell and hold cash to reinvest in future opportunities or switch to a sector that has been under performing.

Generally property will go through cycles where the values will approximately double. These cycles are unpredictable but have lasted anywhere from 7 to 20 years. Long term investors know that while one double is nice, holding for the long term to enjoy 3 or 4 doubles is spectacular (do the maths).

Even though property will generally grow slightly less than shares , the fact that the banks will lend up to 90% to us, means that we can build wealth more rapidly (and with more risk) using leverage to buy property. In retirement, when we will have generally paid off our debts, property will generally produce less income and have more costs to maintain it than other investments. A retirement strategy based on residential property alone will require significantly more assets than if diversified across other assets.

Ask someone who has owned a property for 20 or 30 years what they paid for it. Ask them if it seemed expensive at the time. The median price of a Brisbane residential property in 1974 was $21,500.

Diversification simply means not putting all your eggs in the one basket. This means holding a sufficient variety of investments across investment sectors, within investment sectors, across asset types, across countries and across investment managers. Diversification helps you achieve the returns you need to achieve your long term goals with the least risk possible. This helps you avoid stress and the risk of making bad decisions when markets fluctuate (which they will).

It is stating the obvious but it is hard to recover from losing 50-100% of your investment.

Big mistakes can come from:

  • Chasing high returns (refer bubbles)
  • Not getting good advice before investing
  • Investments offering guaranteed returns that are significantly higher than bank accounts or bonds.
  • Investing in products that you don’t understand
  • Investing in products where the risk is hidden (i.e. high yielding mortgage trusts) as the capital value doesn’t fluctuate unless or until the investment goes bad, when it may drop to zero.
  • Falling victim to scams or schemes
  • Excessive trading of investments looking for short term gain (refer speculation)
  • Saving, but using investments that can, and might fluctuate in value.
  • Selling perfectly good investments due to short term issues or focus. Nearly everyone regrets selling investments many years later.

For wealth builders this means:

  • Having sufficient insurances
  • Having access to spare cash and / or credit
  • Investing into share markets using dollar cost averaging
  • Leveraging into residential property.

For retirees this means:

  • Having sufficient cash reserves
  • Keeping at least four years worth of known expenditure in short term / lower risk investments, so that good quality growth investments never have to be sold to meet short term needs.

As previously mentioned planning helps you understand your current position, defines your goals – or where you want to be and sets the action steps to get there. It provides a clear focus for the many decisions that will need to be made. Strategy is simply doing things smartly. Simple things like who should own an investment – individually, jointly, company, trusts, superannuation. Or more complex issues like gearing, using superannuation smartly and other strategies can save you (and your estate) significant amounts of tax and help build your wealth to achieve your goals.

Many people don’t invest because they don’t think they have enough. The only way to achieve wealth (without it being won or inherited) is to invest. It is never too late to start investing and no amounts are too small. Long term investing of small amounts combined with good compound returns will successfully build wealth.

That is our belief anyway and we are structured to provide advice to clients who share this and our other beliefs. For those that want exciting money, speculative advice or who want short term market timing – we cannot provide suitable investment advice to you as it is inconsistent with our fundamental investment beliefs. We may however be able to advise on planning on strategy.