Putting lessons into practice

Robin Bowerman, Head of Retail at Vanguard Investments Australia.
Robin Bowerman, Head of Retail at Vanguard Investments Australia.

UNDOUBTEDLY, key lessons reinforced to countless investors include the importance of closely focusing on asset allocation, keeping investment management and tax costs to a minimum, truly understanding an investment – before investing, and monitoring risk.

It is interesting that despite the rebound in share prices, such lessons are increasingly being put into practice by many investors with their growing use of index funds, including Exchange Traded Funds (ETFs) that track a market index.

As highlighted in a feature this month in the Fairfax press – headed A Low-Cost, Easy Winner – traditional index funds and ETFs have the attributes that greater numbers of investors are recognising as highly desirable.

This feature article by journalist Barbara Drury includes interviews with financial planners and an investor about the qualities of traditional index funds and ETFs that appeal to them. And what they are saying would reflect the lessons many investors have learned or had reinforced from the GFC.

For instance, Drury quotes Nigel Baker, principal of WHK Horwath Wealth Management, as saying: “We’re looking for the best return for clients on an after-costs, after-tax basis – and active funds don’t consistently provide that outcome.”

And she quotes Doug Turek, managing director and principal adviser of Professional Wealth, as saying: “Two out of three times when we examine clients’ direct share portfolios, they would have underperformed the market and been better off in an ETF. An index fund is a safer investment and removes concentration risk.”

One of the biggest challenges for investors is not to forget the lessons from the GFC. For instance, whenever share prices are rising, many investors tend to overlook why they should keep tax and investment management costs to a minimum.

Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.

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