Creating Security in Your Investment Portfolio

June 20, 2018

Security Portfolio

Creating Security in Your Portfolio

It’s the age-old battle when it comes to making any investment: risk vs reward. If your portfolio risk is too high there’s a good chance your investments can go bad and you’ll lose money, too low and your money could be tied up in investments that won’t yield large enough returns.

When structuring your portfolio, it’s important to strike the right balance between higher risk investments offering greater returns, and lower risk investments offering more dependable returns.

In a previous article we discussed the benefits of adding alternative investments to your portfolio, but for anyone who missed it, the main benefit of alternative investments is that they are uncorrelated to and thus not subject to mainstream market forces, keeping your portfolio on track even when there is market uncertainty.

There are a number of techniques and strategies to use when structuring your portfolio that can lower your risk profile. They are too many and varied to all be listed here, but some of the more widely used are:

Asset Allocation

When determining whether your portfolio is successful, in that it achieves the goals you have set out for it, appropriate asset allocation is a crucial factor.

Depending on both the short-term and long-term goals for your portfolio, specific factors may be weighted differently when building your portfolio, and thus your choice of assets may differ from what is traditionally thought of as a ‘good investment’.

As an example, you may consider short-term, high growth to be the most important factor, and therefore you may be willing to take on more risk, placing a high volume of your assets into speculative stocks.

Alternatively, you may want your portfolio to have safer, long-term growth that delivers consistent results, and as such may choose to spread a portion of your assets over various managed funds.

Your definition of success may differ from that of someone else, and you therefore need to ensure your asset allocation is structured in a way that supports this.

Portfolio Diversification

Reducing risk through diversification of investments within each asset class is another important criterion to consider when building your portfolio. The old clichés are old clichés for a reason, and should you invest only in one company or one industry, you run the risk that your investment will fluctuate wildly without bringing any real growth.

Bear in mind that diversification does not eliminate risk but is a technique to reduce it.

Security Precautions

When talking about risk reduction, it’s not only about what you can do yourself, but also the security processes the company you invest with employs as well. It is their responsibility, as a company, to ensure they do everything possible to create the most secure investment possible with the risk profile they’ve created.

At Timelio, we pride ourselves on going the extra mile to manage and mitigate your investment risk as much as possible.

We conduct an extensive due diligence process on all our sellers, including both identity and background checks as well as a search of and account registration on the Personal Property Security Register (PPSR). We will also obtain personal guarantees from directors and business owners where appropriate. From a debtor (counter-party) perspective, Timelio will only finance invoices where the debtor is a large corporate or government entity, or where an invoice is covered by a credit insurance policy.

Once qualified, we will also review each transaction using the same in-depth process in order to determine the appropriate security action to ensure as much as possible that our investors’ money is secure.

These processes not only ensure that the risk of default is minimised, but that there is appropriate security in place in the event that a default does occur.

How does the PPSR work?

The PPSR is a national online register run by the Australian Governments Financial Security Authority and contains every security interest registered against personal property in Australia. Lenders are able to register specific or general security interests over an entity’s assets, which gives them priority as a secured creditor in the event of insolvency.

If you want to add invoice finance to your portfolio, or for more information about the investment opportunities Timelio offers, get in touch with our Growth Manager David Webster (dwebster@timelio.com.au or 0490 228 953).

 

 More about Timelio