Australian SMSF investors have taken a few blows in 2016, with financial market volatility hammering portfolios. But after recently training Brisbane boxer Jeff Horn to the International Boxing Federation (IBF) number two in the world, and potentially a bout away from a world title fight, it became apparent to me that successful investing is like surviving in the ring.
Here are my top tips for getting the best returns from your SMSF investments:
1. Safety first – risk management is key to long-term performance
Boxers have very short careers if they get hit too much, and so too investors.
Some boxers focus too much on attack and don’t pay enough attention to defence, just as some investors are blinded by the return – but if you’re going to survive for the long term in boxing or investing, you need to focus equally on both risk and return.
For a boxer, that means learning how to score without getting hit, whereas for an investor it is about seeking out investments that can deliver good long-term returns, with minimal volatility and losses, to ensure capital preservation.
2. Expect some bumps and bruises along the way
Horn only took up boxing after helping his schoolmate fight off bullies, deciding then that he needed to learn the art of self-defence with my help.
Boxers need to prepare for some bumps and bruises along the way – and so do SMSF investors.
Any investment other than cash will endure some volatility and investors need to be prepared for this. However, investors also need to assess whether the volatility and historical drawdowns of an investment are reasonable for them based on their age, lifestyle objectives and psychological tolerance to risk.
To lower risk, it makes sense to include an allocation to alternative investments that are not closely correlated with equity market performance or reliant on rising asset prices. This can provide valuable downside protection.
3. You can’t become a world champion overnight
Horn had a distinguished amateur career and has fought 16 professional bouts to get into a position to compete for the IBF world title after having previously fought for a medal in the quarter-finals at the London Olympics.
But like Horn, investors cannot expect to become world champions overnight.
The past year’s volatility has seen many investors give up on managed funds, preferring to speculate on the next big thing. But last year’s top performer is usually next year’s biggest loser.
Instead, investors should seek out academically sound, highly diversified and prudently levered funds that use a sound risk management plan and have the ability to perform well in both rising and falling markets. These include highly diversified market-neutral investments, which can achieve very good risk-adjusted returns over the medium to long term, without taking on any significant share market risk.
4. Maintain perfect balance at all times
A boxer must maintain perfect balance at all times to optimise his attack and defence, and the same applies to longevity as a successful investor.
Diminishing returns from less volatile investments, such as cash or bonds, have forced Australian investors, especially retirees and those nearing retirement, to pursue higher-risk assets, such as shares and property.
Rather than move from the safest investments to some of the most risky investments, investors can instead adopt a more balanced ‘Goldilocks’ approach, and seek out investments that get it ‘just right’ – that is, targeting a much better long-term return than cash, but with a conservative level of risk.
5. Like investing, a successful boxing career is a marathon, not a sprint
Successful boxers know how to climb back off the canvas after a period of poor performance, dust themselves down and keep on fighting until they achieve their objective. The same applies to SMSF investors seeking the best investment returns.
Even with a great strategy, whether in boxing or investing, there will be periods of poor performance, however, if the strategy is sound, highly diversified and well managed, it will prevail over the long term.
As an example, 2016 has been a challenging year for all active investment managers, however, over the long term, the fundamentals always hold up and prices will fall back in line with the fundamentals.
6. Get a great team in your corner
No boxer ever became a world champion on his own. Like Horn’s meteoric rise up the world rankings, I aim to challenge the world’s best investment managers in growing and diversifying the Rushton funds, including the Rushton Conservative Global Market Neutral Fund and Rushton Global Market Neutral Fund, into some of the best managed funds in the world.
And if Horn’s recent successes are anything to go by, SMSF trustees have the right person in their corner to combat an increasingly hostile international investment climate.
