The Trustees recognise that market conditions can change from time to time and this Investment Strategy should not limit the Trustees capacity to make investments that fall outside the diversification strategy for short periods of time. The Trustees undertake to upgrade the Investment Strategy should the long term risk tolerance or diversification strategies change.
Risk is a possibility of loss on an investment. It is commonly measured by reference to the volatility of returns. Factors such as interest rates, political change, market sentiment, risk management techniques and changes of legislation affect risk. The Trustees will strive to identify, measure and manage risks associated with particular investments.
There is a strong correlation between risk and return. This means that the Trustee should determine an acceptable level of risk and volatility of the returns in the light of the SMSF’s circumstances. The risk tolerance indicated will be used to set the diversity and nature of the fund’s investments as set out in the Investment strategy pds:
Diversity of the Member’s Fund
Generally, diversification of investments is useful to disperse risk, and reduces the volatility of the returns on the investments. It can be achieved by spreading investments over a number of individual assets, classes of assets, countries or investment managers.
However, it may be difficult to achieve, particularly for a small fund, in the early stages when there is limited amount of money to be invested. Thus, the level of diversification and how it is achieved depends on the size and circumstances of the SMSF.
Diversity of Individual Investments
The Trustees recognise that diversification in the number of investments is an effective method of spreading the risk of failure in individual investments.
Diversity of Asset Classes
The spread of investments is a reflection of the risk position that the Trustees are comfortable in taking in relation to the activities and objectives of the fund. The Trustees have determined that the following spread is appropriate for the fund. The range and associated targets can be reviewed regularly as circumstances change.
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