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In Australia, the investment environment is changing. For investment choices, people often select either property or shares, and of course you can do both.

As a nation, we have enjoyed prolonged periods of low interest rates, spurring hot property prices. Many people are looking to balance their investments, as some property prices are becoming unaffordable.

The sharemarket is often shrouded in misconception. Some people believe that it is purely the domain of the wealthy, or that you have to be a trader to invest in the markets.

When you invest in the sharemarket, your profits can be greater than property, but you have to weather the storms of volatility. So the question becomes: how do I achieve the returns from shares and avoid the effects of the downside?

Let’s take a leaf out of the professional investor’s guidebook to understand their techniques. Smart investors learn these techniques.

Professional investors take gains from the upside cycle of the market while minimising losses on the downside. They understand their investment time frames and expected returns; establishing their appetite for risk; creating a diverse fixed portfolio; rigorous monitoring and knowing when to act (and when not to).

Inexperienced share investors break these rules and in times of volatility they can lose a lot of money. The professionals set themselves targets, commit to time in the market and diversify their investments across different industries and company sizes. This means they don’t change horses too often, and it also means that solid-performing investments can offset the investments that are weaker.

If you don’t have up-to-the-minute knowledge about sharemarkets, or the time to become informed, there are two main ways to gain professional expertise. Firstly, you can invest in a fund. Most funds pool their resources and invest in a variety of stocks. There are some funds that give you a multi-manager investment option.

With this option, your fund manager invests in a combination of five or six other specialist managers, who have distinct areas in which they invest (eg. yielding stocks, growth stocks, merging etc.) and distinct styles.

These multi-manager funds are designed so that when some of the funds are underperforming, their losses are buffered by the other well performing funds (all managers don’t usually perform well at the same time).

You can look for funds that are focused on minimising the impact of market corrections. The other option for investing like a pro is to find an adviser or broker.

This way of investing requires more hands-on decision-making. But it means you gain the expertise and “coaching” of a professional, and when it is needed they can act quickly on your behalf.

The important thing to remember is that when you buy shares listed on the ASX, you’re in a market that is predominantly used by professionals. So if you’re going to make the most of your investments, and reduce the risk, you have to think like a pro. Mark Bouris is executive chairman of wealth management company Yellow Brick Road. www.ybr.com.au


Posted by Mark Bouris – The Age on 2nd August, 2015