The Equity Mates network reaches more than 750,000 young Australian investors each month. For advisers, these are the next generation of clients. This monthly email shares insights to help bridge the gap between young Australians and financial advisers.

So, what should we invest in next?

We imagine this is a question that is all too common in advice offices around Australia. As clients get excited by the possibilities of investing, they don’t want to just invest in the same index funds and active managers. It is human nature to always want something new.

We wanted to understand how advisers can navigate that impulse with clients.

One of the biggest changes in financial markets over the past decade has been improving accessibility. From wealth platforms and Active ETFs reducing the minimum required to invest, to new fund structures introducing liquidity (or at least semi-liquidity) to previously illiquid asset classes, the trend is towards more-and-more investment options.

And with that ever-growing menu of investment options comes a challenge for advisers: how do you navigate what a client wants when it may not be what they need?

We’ve all heard some variation of ‘90% of returns come from asset allocation’.¹ Whether that is overly-simplified or if that particular percentage is correct, we understand that complexity is not an attractive trait in a portfolio. It is often a recipe for adding risk without returns.

Yet, with a steady stream of new products coming to market, there is a pull towards the new, shiny thing. Whether it is a private credit fund, an active manager focused on a frontier market or any of the hundreds of new funds being added to the investment menu, in this email we wanted to understand what opportunities Australian investors were most excited by? And how advisers can find the balance between indulging the clients’s excitement for the new opportunity with sensible, long-term portfolio construction.

What are Australians most excited about?

To get a sense of where everyday Australians wanted to invest next, we asked the Equity Mates community which asset classes and emerging markets they would invest in.

Digging into the individual results, what became clear is that the vast majority of respondents were interested in some of these new investment opportunities. However, there wasn’t a broad consensus over which opportunities were the most exciting.

Given the recent returns and inaccessibility of both private equity and residential real estate, we weren’t surprised to see it top the list. But with more than one-in-five respondents being interested in each of the opportunities, there’s plenty of different asset classes and emerging markets for advisers to get their head around.

Finding the balance with new opportunities

To better understand how Australian advisers can find the balance, we asked two Australian advisers how they balance client wants with principles of long-term investing.

At Hewison Private Wealth (HPW), clients wanting to purchase investments that do not sit on our Approved Product List (APL) is not uncommon. We understand that ultimately it is the client's money, and they are free to invest it as they wish.

Firstly, the HPW adviser will always look to obtain information and available research on the particular investment.

In this instance, after establishing that the investment opportunity is speculative/high-risk, we’d manage the conversation by first asking the client to explain why they want to place money into the investment and then explain the risks associated with investing in something that is believed to be speculative and volatile.

We would then advise the client to treat the investment like gambling. That being, invest what you are prepared to lose. We would suggest the major consideration around determining the investment amount, would be to pick a sum that if you were to lose it would not compromise the ability of your current investment portfolio(s) to meet your ongoing, long-term objectives.

Finally, assuming HPW are executing the investment on the client’s behalf, we would require the client to sign an indemnity form releasing us of any responsibility for the investment’s outcome.

Our role as advisers is to help clients uncover their 'Why' - that is their deeper purpose behind their financial decisions. As advisers we will always help our clients, but the question we often ask is: 'Why? and 'What do you want to achieve?'

Often, clients may say they want to chase high returns or invest in the latest trend, but when we dig a little deeper, their true goals tend to be more meaningful like providing for their family, living debt-free or achieving peace of mind about their financial future.

A great adviser would discuss those goals and the feelings of achieving them, vs the scenarios and resulting feelings if they’re not achieved.

We then explain the importance of balancing risk v return. While some investments might offer the potential for high returns, it can carry significant risk which can set someone back years in reaching their goals. To give clients the best chance of reaching those goals, you need a portfolio of investments that balance risk and return and that deliver steady, compounding returns over time.

By all means, clients can speculate with a small amount of money that they are prepared to lose and that won’t set them back from achieving their long term goals. But steady, consistent compounding returns from a diversified portfolio are what will help you achieve your goals.

How advisers are using AI, why alternative assets have blown up the 60/40 portfolio, and how advisers can best invest in technological disruption. These are just some of the topics we’ve covered over the past month on Basis Points.

You can check out all episodes on YouTube, Apple Podcasts, Spotify or wherever you listen to podcasts.

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Check out some of our latest episodes

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Kunal Kapoor, CEO of Morningstar Global, unpacked how he is seeing American advisers adopt AI in their practices. It is a truism to say that Australia lags the US in technological adoption, so we wanted to take the opportunity to understand what Kunal was seeing from his home in Chicago.