The Importance of Investing Wisely in a Complex Financial Landscape
In an ever-evolving financial landscape, knowing where and how your money is being invested is vital. Recent incidents of financial misconduct and misleading practices by well-known financial brands have exposed the risks of mindlessly trusting investment providers. By examining real-world examples and regulatory updates, we will uncover why being an informed investor is essential for long-term financial success.
What Lies Beneath the Surface - A Question of Ethics
While ethical Exchange-Traded Funds (ETFs) have gained popularity among investors seeking to align their investments with their values, it is crucial to recognise that not all ethical ETFs are created equal. On the surface, many funds appear ethical or sustainable, but once you dig deeper, you may find this is not the case.
Companies involved in controversial industries can still find their way into these ETFs, undermining the ethical intentions of investors. Take Vanguard Australia, for example, which was recently fined for greenwashing. And they’re not the only ones. Or even more concerning, consider Vanguard’s Ethically Conscious Australian Shares ETF (ASX: VETH), which includes all four major banks, as does Russell Investments Australian Responsible Investment ETF (RARI). Westpac alone has had 23 million breaches of anti-money and counterterrorism laundering laws.
Misconduct in the Fund Management Industry
The collapse of fund management firms has also become a recurring issue over the last five years, leaving investors in financial turmoil. Notably, Global Merces Funds Management, a fund manager, was put into receivership in 2020 and, as recently as May this year, was in the news again after Director Holly Grofski was criminally charged for falsifying documents and supplying false information to an auditor. This is a stark reminder of the significance of due diligence when selecting investment providers. As investors, we must be cautious and seek institutions with robust governance protocols and a proven track record (and even that is not always enough).
A Link Between Volatility and Risk
We’ve endured thirteen interest rate hikes, and there is no end in sight, with inflation remaining stubbornly high. The rising interest rate and high inflation equate to market uncertainty, volatility, and reduced buying power (for consumers and investors). While this may not be news to you, it’s essential to view the volatility in the market alongside the increasing number of investment firms being caught red-handed.
The issues have not gone unnoticed.
Regulatory Measures to Enhance Investor Protection
Recognising the need for more robust investor protection, regulatory bodies have initiated reviews and updates to enhance the regulatory framework. For instance, the Australian Securities and Investments Commission (ASIC) is currently reviewing the definition of a ‘wholesale’ investor to ensure individuals receive adequate safeguards. While the heated debate on whether to make changes continues, investors find themselves in the wholesale market with little understanding of the heightened risks they are exposed to as ‘sophisticated’ or ‘wholesale’ investors.
Additionally, the Australian government’s review of the regulatory framework for Managed Investment Schemes (MIS) aims to strike a balance between promoting investment opportunities and protecting investors’ interests. Staying informed about regulatory updates and aligning investments with reputable institutions is crucial in this changing landscape.
Key Considerations for Mitigating Risk
When considering investments in managed investment schemes (MIS), evaluating several factors that help mitigate risk is vital. These considerations include:
- The licensing of the provider
- Availability of insurance
- Regular auditing practices
- Transparent valuation policies
- Professional indemnity (PI) cover provided by valuers
- Accounting for market movement in valuations
- Thorough due diligence on applicants and properties
- Well-defined default management process for mortgage lending
- Security underwriting investment and priority
- Loan-to-valuation ratio adopted for property investments
Private Credit: A Promising Investment Avenue
Within a complex investment landscape, private credit presents an appealing risk-return profile. Private credit investments offer diversification opportunities and the potential for higher yields compared to traditional fixed-income assets. Often, private credit opportunities include securitised debt or mortgage-backed securities, a much safer bet in volatile times.
However, thorough research and due diligence are necessary to ensure the quality and reliability of private credit opportunities. Partnering with reputable and experienced private credit providers can help mitigate risk and enhance potential returns.
Quality over Quantity: A Smart Investment Approach
During times of market turbulence, prioritising quality investments over high volume or yield (and their related risks) is a wise approach. Quality investments possess underlying strengths and resilience, enabling them to effectively weather market downturns and focusing on investments with strong fundamentals and potential long-term positions investors for sustainable growth and confidence during uncertain times.
Embracing the Value of Knowing
In a world where financial scandals and misconduct can jeopardise investments, being a knowledgeable investor is essential. Understanding where your money is being invested and actively participating in decision-making gives you control over your financial future.
Direct property investment can offer the advantage of clear visibility into investment performance and tangible assets. Choosing a reliable and trustworthy institution like Australian Securities is paramount for investing directly in property. With its commitment to strict governance protocols and procedures, Australian Securities offers property investment opportunities and securitised loans, ensuring transparency and accountability.
Loan-to-value ratios (LVRs) play a crucial role in managing risk. Australian Securities maintains a conservative approach to LVRs, safeguarding investors’ interests and minimising potential losses.
The value of know exactly where your money is cannot be overstated
In an intricate and ever-changing financial landscape, the value of knowing where your money is cannot be overstated. Recent incidents of financial misconduct, misleading practices, and collapsed fund management firms emphasise the importance of being an informed investor.
By conducting thorough research, embracing regulatory updates, and investing wisely in avenues such as private credit and quality assets, you can protect your investments and position yourself for long-term financial success.
Challenge the status quo by actively participating in your investment decisions. With Australian Securities, you can trust our strict governance protocols and procedures, ensuring transparency and accountability. Embrace the value of knowing and navigate the complexities of the investment world with confidence and peace of mind.
Still not sure…
Call us on 1300 275 275 to talk to one of our Investment Managers or Investment Executives. We prioritise direct communication and personalised support for our clients.
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