I work in the world of investing. I spend my days talking to some of the world’s best investors; understanding how they invest; and writing on a range of investing topics. At last year’s Morningstar Individual Investor Conference I met lots of great investors and one conversation really stood out. A female investor approached me with a simple question: “how do you invest your superannuation?”.

I told her in the Aggressive option of a large superannuation fund. She was shocked. “Is that it?” she said. “Shouldn’t you be doing more than that?” I guess when you’re in any sort of investment-related role, people assume you’re the Gordon Ramsay of the investing world. And while I sometimes try to emulate Gordon Ramsay in the kitchen, I’m definitely the queen of takeout when it comes to investing.

“Investing” has a mystique to it. It sounds hard, complex, time consuming. But the reality is that investing doesn’t have to be any of those things. Of course, it can if you want it to be, but there are different approaches. Before we get to those approaches, let’s recap the key components to “investing” - the portfolio construction cycle:

Investing cycle
  1. Goals and values: understand what you want to achieve and what’s important to you. If your aim is to eat healthy, preparing only fun desserts won’t get you there. And if you’re a vegetarian, barbequing meats isn’t consistent with your values.
  2. Asset allocation: know what mix of growth and defensive assets is most likely to help you achieve your goals. If you’re younger, you probably need more growth assets – more shares, less cash and bonds. Just like if you’re a healthy vegetarian, knowing that a vegetable stir-fry is a good meal to prepare to achieve your goals, aligned to your values.
  3. Investment selection: choose the right investments aligned to your asset allocation. If Australian shares is part of your asset allocation decision, you are likely buying the big banks. But are you doing all your research and deciding to buy NAB over ANZ or are you picking a fund manager to do it for you? It’s like deciding between making a homemade stir-fry sauce and grinding up garlic and spices yourself or opting for a professionally made, off-the-shelf stir-fry sauce.
  4. Trading: this is how and when to buy and sell your investments. Timing decisions have a huge impact on your overall returns. You might buy stocks and ETFs through an online trading platform like Commsec or you could buy an unlisted managed fund by investing directly through the Product Disclosure Statement. This is when you bring the meal together – it’s time to execute on your strategy.
  5. Oversight and emotional management: oversee performance; periodically revisit your goals and plan and make adjustments as your circumstances change. But avoid panicking if markets dip: trust the work you did up-front. Reacting emotionally will not serve your long-term goal. Most chefs are renown for their tempers – emotional stability serves you a lot better in the world of investing. 

So, there are lots of components to investing, but as I said above there are different approaches to it. Let’s bucket them into three broad approaches: the Master Chef; the Hello Fresh-er; and the Queen of Takeout. The main differences between these approaches are time commitment, investment expertise and the range of investment outcomes you’re prepared to accept.

The Master Chef

The Master Chef is the true DIY-er. This investor has a considerable amount of time available to research the recipe; go to the markets; select the ingredients from the best vendors; and carefully prepare consistently wonderful meals.

The true Master Chef prepares detailed performance analysis and objectively assesses the outcomes of their portfolio and make the necessary adjustments. Like any approach, there are risks – the main one is that Master Chef’s meals are hit and miss at best, outright terrible at worst. In an investing context, this can lead to lower investment returns over the long-term. And the litany of behavioural biases investors battle daily means the Master Chef might find it challenging to ‘own up’ to their sub-optimal investment results. Having said that, there are plenty of Master Chefs who have delivered great results over time.

The Hello Fresh-er

The Hello Fresh-er is an investor who still has enough time to pull the meal together but accepts outsourcing parts of the portfolio construction process can be a big time saving and can result in a more narrow range of investing outcomes.

The Hello Fresh investor probably knows the asset allocation mix required and might use a selection of well-researched stocks, managed funds or ETFs to combine their investments into a solid portfolio that is set to meet their goals whilst aligning to their values. The time commitment and level of investment-knowledge of this approach is still significant – you can’t slap any combination of investments together to make a portfolio. There’s a recipe, there’s the right ratios, there’s investing know-how and Hello Fresh is a trusted partner in the process.

The Queen of Takeout

Finally, the Queen of Takeout simply knows her limits. She knows that one little phone call can result in a superb ready to eat meal delivered straight to her door. The chef at your favourite restaurant prepares meals for a living – sometimes you just can’t beat that. Of course, the Queen of Takeout still needs to know who to call and when to consider switching takeout joints if the food quality is on the turn. But if you partner with the right provider, the probability of receiving good, long-term investment results is high.

The key to success of any approach

Regardless of your approach – there are some things you can’t outsource. Only you know your goals and values and how they evolve over time. It’s important to revisit these periodically. Professional advice can help, but goals and values are personal to each investor.

Whether you’re a Master Chef or the Queen of Takeout managing your behaviour is critical to long-term success. Again a good financial adviser can help, but ultimately you have the final say. A clear plan, awareness of your biases and ongoing education is key.

The world of investing seems daunting – but there a range of approaches investors can take to construct quality, long-term portfolios. It all comes down to how much time you have available; how much investment knowledge you have amassed and the range of outcomes you’re prepared to accept.

I spend my day immersed in investments, but I’m time-poor and I want a well-diversified, well-constructed investment portfolio managed by a large team of investment professionals who spend all day doing that. Based on the team, their investment process and track-record I’m relatively confident they will keep delivering for me, but I still keep a close eye on them.

I spend time re-assessing my goals and whether I’m on-track, and I try to manage my behaviour during market ructions, but yes “that’s it – that’s all I do”. I really hope I see this investor again at this year’s conference. I’ll reassure her that I’m still the Queen of Takeout. And I’ll reminder her that good investing can take a lot of time or a little – the choice is hers.

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