Building a strong structure for success


Trader Plus caught up with Sam Henderson, author of Financial Planning DIY Guide, for his investment tips…

What are the key considerations people need to make when structuring their investment portfolios?
Risk management is the most important thing in managing a client’s investment portfolio and ensuring that the investments meet the client’s life and financial goals. Too often I see people simply gambling their money on the share market with low value, low liquidity stocks that have little prospect for future earnings as investors hope for a meteoric rise in price that will somehow be their ticket to financial salvation.
The eight attributes of an asset all need to be considered, no matter what your investment – Risk, Return, Liquidity, Volatility, Flexibility, Cost, Tax and Security.
Over and beyond that, the stocks into which you invest must have real income and actual profit or a serious and tangible opportunity to create both in the immediate future.
The ideal traits of the best companies to invest in are well managed, have a history of solid earnings, good return on equity, return on assets, good market share, economically resilient, highly competitive and differentiated, be in growth industries with high barriers to entry, low-cost structures and have recurring revenue.

Where do people often go wrong when they are starting out?
Many people, particularly beginners, have the attitude that they want to get rich fast on the stock market so they seek the panacea of investing in a piece of software, a stock-market guru or refuge in the latest expanding bubble (that often pops soon after they invest).
The wealthiest people I see make their money slowly through investing for the longterm in business or their careers and invest in shares and property to maintain their wealth at a level a few percentage points above inflation with well diversified portfolios in conservative assets including the top 150 stocks.

To what extent should people use professional advice when setting up the structure? Is there an element of self-education involved?
Self education is so important! Not only does formal education give you the basics, but reading magazines just like this one and newsletters gives you a good overview of what’s out there and you can decide what’s right for you.
Always do your own research and never rely on the media to give you a view – the figures never lie and reporting season is a great time to update your recommendations as the figures are new and up-to-date.
In seeking a professional, it’s important to choose someone with similar values and investment philosophy to yourself, someone that you can understand and most importantly, someone you can trust for the long-term to help you make smart decisions about your money.
I always say, there’s never a silly question when it comes to your own money – so ask lots of questions until you are satisfied. There are lots of people who are happy to take your money so be aware and find someone you can trust.

There are a lot of exotic or alternative investment portfolio structures – are these to be avoided or do they hold some merit?
Each product needs to be approached with caution – we generally avoid the exotics and if you use the rules above (the eight attributes and the company attributes) you won’t stray too far from the quality assets. Stick to the rule that if you truly don’t understand a product, then don’t use it.
Keep it simple. Because I manage the SMSF assets of hundreds of pre-retirees and retirees, we keep it conservative with top 150 companies, term deposits, ETFs and hybrids issued by the larger companies. It’s clear, simple and easy to understand and it’s saved us from the hungry bear claws of the GFC.
Also jump on to the ASIC consumer website and check it for scams and fraudsters (

Tell us more about your latest book?
The book is for all people interested in improving their financial situation. It’s simple and easy to read with live examples and case studies and rules of thumb. It was a cathartic experience for me to download my knowledge from many years of experience as an independently owned financial adviser. There’s a lot of noise out there in financial circles and I needed to tell it like it is without the flying the flag of a major financial institution.
Successful financial management is relatively easy but it takes patience, application, consistency and commitment to the cause.
This book will give readers a good overview of all of the concepts a modern and professional financial adviser should be addressing.

What’s next for you?
Professionally, I’m hoping to get the tick of approval from my publisher for a Self Managed Super Fund DIY Guide, as that is a particular area of interest for me and my clients.
Personally, I have another baby on the way and a few months of nappies and sleepless nights ahead. Hopefully plenty of skiing and surfing will follow – after all, that’s what good financial management is all about – a better lifestyle.

Anything to add?

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