MoneyOnLine Objective Investment Information

Portfolio Planning Calculator

The calculator provides portfolios for five different levels of risk. Five different asset allocation models based on Modern Portfolio Theory and are derived specifically for investors that live in New Zealand and expect to do so over the long term. ie. They are designed to optimise the risk / return relationship from the NZ currency perspective. They are not suitable for investors living overseas.

Allocations to each asset class are strategic in the sense that consideration is given only to long term historical (and therefore expected) returns. ie. These are long term allocations and are not expected to change significantly from month to month or year to year.

Investors who trade investments frequently may wish to modify these models and design their own tactical asset allocations for a more actively managed portfolio.

Investors using these asset allocations should do so having first satisfied themselves as to suitability for their particular purpose, expectations for return and tolerance for risk.

Very Conservative / Very Low Return

This portfolio is for people who are concerned about preserving their capital (in nominal terms) and are not concerned about the long term effects of inflation and taxation.

This portfolio is unlikely to retain its real value in the long term even if all after tax income is compounded, but is also unlikely to have negative returns over any period. Taxable income is likely to be high.

Conservative / Low Return

This is for people who are prepared to accept a small level of risk in exchange for higher long term returns. The total portfolio value is unlikely to fluctuate very much. If all income is reinvested the portfolio should just maintain its value in real terms. (After tax and inflation are taken into consideration). Small negative returns may be occur infrequently. (every 4 to 5 years). Taxable income is likely to be moderately high.

Balanced / Moderate Return

A portfolio expected to grow in excess of the rate of inflation but with moderate fluctuations in value. This asset allocation is appropriate for a broad range of investors that can take a longer term view (4 years or more). It will be suitable for many who are saving for retirement. Taxable income is likely to be modest.

Aggressive / High Return

The equity component of this portfolio is large and will cause substantial fluctuations in portfolio value from time to time. It is suitable for those who want after tax returns well in excess of the rate of inflation and who have a high tolerance for risk. Investors should be in a position to maintain the portfolio strategy for a period in excess of 5 years.

Very Aggressive / High Return

As this portfolio contains 100% equities, it can be expected to achieve the highest after tax returns over the long term but may also experience prolonged periods of negative returns. Portfolio values will have very high fluctuations. Expected income is low. Investors should be prepared to hold the portfolio for 7 to 10 years to achieve maximum benefit.

Zero Risk and High Returns?

Sorry, we need to get real about this. This is very difficult to achieve (impossible) and irresponsible to promise. If you manage to find the Holy Grail of portfolio design, tell us before you tell anyone else.

A few words about income from your portfolio:

Income from any portfolio is very dependent on the investment vehicles you choose for each asset category. For example one particular equity fund may have a much higher distribution policy than another although they invest in the same markets. Some bond and cash funds may not distribute at all or very rarely while others distribute all the income received. Income retained by a fund is reflected in an increased unit price.

When using managed funds you should check the fund manager’s distribution policy and historical distribution record contained in the prospectus.

If you are investing directly in shares, check past dividends and company dividend policies to get some idea about prospective income.

Portfolio Adjustments - Non Trading Portfolios

There is a large amount of research that indicates asset allocation is the most important factor in determining long term returns (and risk). However, once your portfolio is established in accordance with particular asset allocation (strategy) required, it will require periodic adjustments to keep it in line with that strategy.

Making small frequent adjustments is time consuming, expensive (transaction/switching costs) and may mean you are classified as a "trader" and liable for taxation on capital gains under New Zealand IRD rules.

If you are using mostly managed funds strategy, we suggest that your portfolio is adjusted only six monthly and then only if it is well outside the allocation you have chosen. It may be more effective to use accumulated income from the portfolio and other income sources to make the adjustments, rather than sell investments unecessarily.