Crafting your wealth strategy: A step-by-step guide

When putting together a wealth strategy, the basics may seem straightforward: diversify a little, track your progress, make adjustments.

But as you dive deeper, the moving parts – like comparing investment options, evaluating risks and tracking performance – can feel like piecing together a complex puzzle.

The good news is creating a comprehensive wealth plan doesn’t have to be overwhelming. With the right approach and tools, you can streamline the process and make your financial journey more manageable and even enjoyable.

In this article, we’ll break down the core elements of a successful wealth strategy, from selecting the right investments to tracking performance with ease.

1. Selecting the right investments

Not all investments are created equal. Some may align with your goals, while others may not be a good fit for your strategy or risk tolerance. Here’s what to keep in mind when comparing your options:

• Identify the objective: Before diving into specific investments, it’s essential to clarify what you want to achieve – whether it’s income, capital growth or a mix of both. Your objective will guide your choices and help ensure your investments align with your financial goals and timeframes.
• Performance metrics: While returns are naturally a key focus, avoid relying solely on past performance as a predictor of future success. Look at factors like long-term total returns, volatility and dividend yields when considering an investment. These indicators can provide some insight into both the growth potential and stability of an investment over time.
• Underlying assets: Knowing exactly what you’re investing in is essential. For instance, are you buying into local or international markets? Is the investment primarily in equities, bonds or a mix? This is like looking under the hood before buying a car – make sure the assets align with your broader portfolio and goals.
• Liquidity: Liquidity refers to how easily you can buy or sell an investment, which can be crucial if you need quick access to your funds. When evaluating liquidity, consider investments with high trading volumes and low bid-offer spreads. A smaller spread means you’re more likely to buy or sell closer to a ‘fair’ market price, making it easier to enter or exit your investment efficiently.
• Tracking error: ETFs are often designed to follow an index, but some do so more accurately than others. Tracking error measures how closely an ETF follows its benchmark, and a lower tracking error generally indicates a closer alignment. It’s worth checking if an issuer’s ETFs consistently match the performance of their indexes (before fees), as this can signal effective tracking and help to minimise unexpected deviations.

Pro tip: Comparison tools can simplify the process. Betashares Direct, for example, offers tools that allow you to compare ETFs across key metrics, helping you make decisions with more clarity and confidence. Rather than scrolling through endless data, a tool like this consolidates important information in one place for easier evaluation.

2. Tracking performance and staying on top of your portfolio

Once you’ve chosen your investments, the next crucial step is keeping track of them.

Likewise, monitoring your investment performance is essential for ensuring the success of your wealth strategy. Here’s how to keep this process simple and effective:

• Focus on key metrics: Tracking should start with clear, relevant metrics. Rate of return and performance attribution, for example, can help you identify which investments are performing well and which may need re-evaluation. A good tracking tool should break down these insights into easy-to-understand visuals or summaries, making your portfolio review quick and actionable.
• Consolidated reporting: Managing investments across multiple accounts can feel like juggling. A consolidated view of your portfolio allows you to see all your holdings in one place, creating a unified snapshot. This way, you’re not piecing together data from different sources and can get a clear overview with minimal hassle.
• Tax efficiency: Tax season can feel like a second job for many investors, especially when it comes to untangling investment taxes. Investing platforms like Betashares Direct offer a single tax statement and auto-fill integration with the ATO, reducing the paperwork and surprises. With less time spent on administrative tasks, you can focus more on your investment goals.

3. Making the most of fractional investing

In simple terms, fractional investing, or fractional shares, is purchasing a portion or a share or ETF rather than a whole unit. This means that with fractional investing you can buy a specific dollar amount of a share or ETF regardless of the unit price. Here’s why it matters:

• Enhanced diversification: Fractional investing can also help you diversify your holdings and manage risk more conveniently. Since you’re not locked into purchasing whole shares or units, you can diversify your portfolio with smaller amounts of money, rather than having to wait until you have enough money to buy a whole share or unit.
• Cost efficiency: This is particularly useful for newer investors or those with smaller amounts to invest. Rather than waiting to save up enough for a full unit or share, fractional investing allows you to start investing with what you have.
• Reduce residual cash: Fractional investing also helps to avoid the cash drag associated with dividend or distribution reinvestment plans. Dividends and distributions can be automatically reinvested in full, ensuring no cash is left uninvested and your money is working for you continuously.

With Betashares Direct, if you place a dollar-based market order, you can invest the exact amount you want with no rounding or wastage, subject to a minimum $10 amount for buy orders.

As an example, if you have $1,000 to invest in an ETF with a unit price of $105, you can place a market order and invest the whole $1,000 and receive 9.5 units, rather than receiving only 9 units and being left with $55 sitting in cash.

This allows your money to work for you straight away and reap the benefits of compounding for the full amount you have available to invest, rather than waiting to purchase whole units.

Common mistakes to avoid

Even the best-laid plans can go awry if you overlook common pitfalls. Here are some key mistakes to avoid in building your wealth strategy:

1. Chasing short-term gains: Focusing on quick returns can be tempting, but it often leads to neglecting long-term growth. Anchor your strategy to your long-term financial goals, which can help to provide more stable growth over time.
2. Neglecting diversification: Putting all your eggs in one basket can expose you to unnecessary risk. Diversifying across asset classes like equities and bonds balances your portfolio to help mitigate such risk.
3. Being disorganised at tax time: Tax time can be stressful if you haven’t kept track of your transactions throughout the year. Use a platform like Betashares Direct that simplifies tax reporting to save time and minimise surprises.
4. Frequent portfolio overhauls: Constantly adjusting your portfolio may seem proactive, but it often involves higher costs and risks. Aim for a structured review on a periodic basis, e.g. quarterly or semi-annually, rather than frequent changes.
5. Overlooking liquidity needs: Investing without considering when you’ll need access to funds can create challenges. Make sure you have sufficient liquidity in your portfolio so you can access funds easily in case of emergency.

Bringing it all together

Creating a wealth strategy isn’t about following a rigid formula or drowning in data. It’s about aligning your investments with your goals, tracking your progress and using tools that make the process easy.

Betashares Direct offers a suite of features – from comparison tools to fractional investing and simplified tax reporting – that can help you bring everything together to support a well-rounded wealth-building strategy.

Written By Annabelle Dickson